China’s Economic Growth 1978-2025:
What We Know Today about China’s Economic Growth Tomorrow
Views of the future China vary widely. While some believe that the collapse of China is inevitable, others see the emergence of a new superpower that increasingly poses a threat to the U.S. This paper examines the economic growth prospects of China over the next two decades.
Extrapolating past real GDP growth rates into the future, the size of the Chinese economy surpasses that of the U.S. in purchasing power terms between 2012 and 2015; by 2025, China is likely to be the world's largest economic power by almost any measure. The extrapolations are supported by two types of considerations. ...view middle of the document...
While China’s economic growth has received much attention in the popular literature, China researchers, when it comes to economic growth, tend to focus on narrow topics, measuring total factor productivity growth in enterprises in different ownership forms or investigating the growth prospects of individual industries or firms. For example, Douglas Allen (2002) documents the transformation in four industries in China and predicts the imminent emergence of world-class Chinese brands.
A 1997 World Bank policy analysis of current economic issues is supplemented by an estimate of China’s GDP in 2020 based on a closed-economy model. A systematic study of future economic growth in China that makes full use of the hard facts already available today, however, is still lacking.
Answers to the question of what we know today about the economic size of China ten or twenty years from now are relevant not only for the popular discourse on the new superpower and for China threat theorists and military strategists, but also for economists. For example, conventional economic wisdom holds that free trade benefits, by the laws of comparative advantage, all countries in the long run. Thus, a growing China, and growing trade between China and the U.S., benefits the U.S. But as Paul Samuelson (2004) within the framework of standard trade theory shows, a productivity gain in one country alone may, in fact, lead to a permanent loss in per capita real income in the other country; references to China abound.
This paper examines China’s future economic growth in three steps. First, it conducts a straightforward extrapolation of a stable, past growth trend into the future. A number of scenarios are played through in a comparison with the U.S. But extrapolation is not a particularly convincing research tool. Why should the past continue into the future?
One argument why past economic growth may continue into the future is that China’s economic growth matches standard growth patterns identified by theories of economic development and trade. These are structural change, catching up, and factor price equalization. China’s past economic growth fits well with all three. Furthermore, China’s reform period growth, within these three analytical frameworks, matches those of Japan, Korea, and Taiwan at an earlier stage of their development. Obviously, these four countries differ, as do the domestic and international circumstances under which they experienced a particular stage of development. But the differences need not be systematic with respect to the impact on the dependent variable economic growth. These growth patterns may well apply to China in the future, just as they already have to Japan, Korea, and Taiwan in the past.
The final step is to decompose GDP growth. Growth accounting in the production function framework turns out to not be useful due to the lack of a stable aggregate production function over time. An alternative is to decompose GDP growth following...