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July 06, 2010

Another Projection for China Economy Passing the USA has Been Moved up from 2050 to 2020

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Stefan Karlsson is an economist from an Austrian University (now he is working in Sweden) who used to predict that China's economy would pass the United States in 2040-2050.

He has updated his prediction to 2020-2024

The new prediction is more in line with the prediction that I have been making for the last few years.

I believe that the yuan will appreciate faster than 3% per year and that China will maintain a higher annual economic growth differential over the USA. If I am correct then obviously everyone will change their mind on when China will pass the USA in the 2012-2014 timeframe.


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



In 2009, nominal GDP in America was according to preliminary estimates, $14.26 trillion. In China, nominal GDP was 34.05 trillion yuan, or $4.98 trillion using the average 2009 exchange rate. That means that America's GDP was 2.86 times bigger.

With average annual growth in America being some 7.5 percentage points lower during the 2000s, then assuming that this will continue and that the real exchange rate of the yuan will appreciate by on average 3% per year (quite reasonable, given the reality of the Penn/Balassa-Samuelsson effect and the strong pressure on China to make its currency stronger), then it will only take 11 years before the Chinese economy becomes bigger, meaning that by 2020, China's economy will be the biggest in the world.

If we assume that the growth differential falls to just 5%, while the estimated real appreciation is assumed to be just 2.5% per year, then China's economy will become bigger by 2024.

In order for the old estimate of 2040 to hold true, then we would have to assume a ridicuosly low total growth differential and real appreciation of just 3.5% per year.


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