January 05, 2010

China Thinktank Floats Yuan Revaluation idea and a Forecast of $123 trillion for China s Economy in 2040

1. WSJ - A prominent Chinese think tank on Wednesday said now is a good time for a 10% revaluation of the yuan as it warned the world's third-largest economy is at risk of asset bubbles and overheating this year.

The comments, in an essay by a researcher at the Institute of World Economic and Politics under the Chinese Academy of Social Sciences, run counter to top leaders' frequent defense of the government's current yuan policy of gradual reform and resistance to international pressure for currency appreciation.

The one-off appreciation should be made before the yuan can float in a wider band, Zhang said. Calling for a "more reasonable" yuan exchange rate, he said the Chinese unit should be allowed to rise or fall as much as 3% annually against the U.S. dollar.

In another essay presented by the institute during the seminar, researchers called on China to adopt a tighter monetary policy.

They said if Beijing's fiscal and monetary stimulus policies remain unchanged from last year, the domestic economy will grow 16% in 2010 and risk overheating. If the stimulus is fully withdrawn, GDP would grow 7.7% this year, but if the stimulus policies were kept at "an appropriate magnitude" the economy would grow 11.6%, they said.


2. In 30 years the Chinese economy "will reach US$123 trillion," writes Robert Fogel, a Nobel laureate in economics and professor at the University of Chicago, in an article in the January issue of Foreign Policy magazine.







In 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000. China's per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan. In other words, the average Chinese megacity dweller will be living twice as well as the average Frenchman when China goes from a poor country in 2000 to a superrich country in 2040. Although it will not have overtaken the United States in per capita wealth, according to my forecasts, China's share of global GDP -- 40 percent -- will dwarf that of the United States (14 percent) and the European Union (5 percent) 30 years from now.

It's the same story with the relative decline of a Europe plagued by falling fertility as its era of global economic clout finally ends. Here, too, the trajectory will be more sudden and stark than most reporting suggests. Europe's low birthrate and its muted consumerism mean its contribution to global GDP will tumble to a quarter of its current share within 30 years. At that point, the economy of the 15 earliest EU countries combined will be an eighth the size of China's.

The first essential factor that is often overlooked: the enormous investment China is making in education.

I [Robert Fogel] estimate that China's rapid urbanization, which shifts workers to industry and services, added 3 percentage points to the annual national growth rate.) However, productivity is increasing even for those who remain in rural areas. In 2009, about 55 percent of China's population, or 700 million people, still lived in the countryside. That large rural sector is responsible for about a third of Chinese economic growth today, and it will not disappear in the next 30 years.

Third, though it's a common refrain that Chinese data are flawed or deliberately inflated in key ways, Chinese statisticians may well be underestimating economic progress. This is especially true in the service sector because small firms often don't report their numbers to the government and officials often fail to adequately account for improvements in the quality of output.

Fourth, and most surprising to some, the Chinese political system is likely not what you think. Although outside observers often assume that Beijing is always at the helm, most economic reforms, including the most successful ones, have been locally driven and overseen.

Finally, people don't give enough credit to China's long-repressed consumerist tendencies. In many ways, China is the most capitalist country in the world right now. In the big Chinese cities, living standards and per capita income are at the level of countries the World Bank would deem "high middle income," already higher, for example, than that of the Czech Republic.

[Describes Europes expected economic decline because of demography and lifestyle choice.]

An unexpected technological breakthrough could also shake things up, though this isn't the sort of thing economists can base predictions on.


Fogel's opinion on urbanization contributing 3% to GDP growth and statistics underestimating economic progress are in agreement with my previous postings on China's economy.

The technological breakthroughs shaking things up is this websites focus. Nuclear fusion and advanced nanotechnology and better AI, lasers and quantum computing will shake things up. But China is positioning to capitilize on all of those as well.


My last forecast for China's economy was here. Extending out to 2040 would get to about 360 trillion yuan which would be in the range of US$123 trillion.

Year GDP(yuan) GDP growth USD/CNY China GDP China+HK US GDP US Growth
2007 25.8 13 7.3 3.5 3.7 13.8 1.1 Past Germany
2008 31.4 9.6 6.85 4.6 4.8 14.3 -3.1
2009 34.2 8.9 6.83 5.0 5.2 13.9 0.7 Passing Japan
2010 37.6 10 6.5 5.8 6.0 14.0 1.5 Past Japan
2011 41.0 9 6.0 6.8 7.0 14.2 1.9
2012 44.7 9 5.6 8.0 8.2 14.4 2.1
2013 48.7 9 5.1 9.6 9.8 14.7 3
2014 53.1 9 4.7 11.3 11.5 15.2 3
2015 57.9 9 4.2 13.8 14.0 15.6 3
2016 63.1 9 3.8 16.6 16.8 16.1 3 Past USA
2017 68.1 8 3.5 19.5 19.7 16.6 3
2018 73.6 8 3.2 23 23.2 17.1 3
2019 79.5 8 3 26.5 26.8 17.6 3
2020 86 8 3 28.6 28.9 18.1 3
2021 93 8 3 30.9 31.2 18.7 3
2022 100 8 3 33.4 33.7 19.2 3
2023 108 8 3 36.0 36.3 19.8 3
2024 117 8 3 38.9 39.2 20.4 3
2025 126 8 3 42.0 42.3 21.0 3
2026 136 7 3 45.4 45.7 21.6 3
2027 146 7 3 48.6 48.9 22.3 3
2028 156 7 3 52.0 52.3 23.0 3
2029 167 7 3 55.6 55.9 23.6 3
2030 179 7 3 59.5 59.8 24.4 3


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