China’s Overtaking of the US: Uncertain Timelines

When China Will Overtake Us?

There’s no denying that China’s economy is growing faster than America’s. But the question of when it will overtake us remains unanswered.

Some experts are now predicting that it will take until 2033 before China overtakes the United States. But others are urging caution. How the COVID-19 pandemic and other factors play out will be crucial.

1. China will overtake us in the next decade.

Until recently, China watchers were gung-ho about the country eventually overtaking America as the world’s biggest economy. The New York Times endorsed the prediction in 2021, while Goldman Sachs raised the date from the early 2040s to the late 2020s.

Now, however, that prediction may never happen. Observers are increasingly worried that the day of reckoning may be delayed by slow economic growth in China, and even a complete loss of momentum in its economy.

For a start, the population that drives the country’s economic growth is aging and peaking. This will mean lower productivity and slower growth as the economy matures. In addition, the onset of COVID-19 has hobbled Chinese manufacturers and damaged exports. It is possible that, without a major boost from importing top-notch technology from advanced economies, the country’s current talent and technology base may not be enough to close the gap. Ultimately, this could mean that China never surpasses the US in nominal GDP.

2. China will overtake us in the next 20 years.

The sharp slowdown in China’s economy over the past year has prompted many experts to reconsider when its GDP will eclipse America’s—or whether it ever will. One common view is that China’s rise has passed its peak, and that it will soon wane as its working-age population shrinks, labour productivity growth slows, and prices and the exchange rate fluctuate.

The exact date depends on three factors: China’s demographics, its price and labour-productivity trends, and the US’s nominal GDP growth and renminbi appreciation. On the fastest path, China’s economy will overtake America’s in the middle of the 2030s.

But if China’s population peaks later than Goldman Sachs expects, and labour productivity sags even half as much (as Capital Economics thinks it will) then the country will never overtake the US. The question is what China’s leadership will do about this. It could realise that its brief period of relative economic dominance may have passed its sell-by date and choose a more cooperative approach to the global economy.

3. China will overtake us in the next 30 years.

Few analysts believe that China will overtake the United States as the world’s largest economy any time soon. For one thing, the country’s economic model is shifting to rely more on state investment and high-tech development than on export manufacturing. And that means China’s growth is likely to slow down or even stop completely as it moves away from its traditional strengths.

China also has a rapidly aging population, which will reduce the number of working-age people and put stress on government services. In addition, the country is short of water and tillable, fertile soil, which limits its ability to grow food.

Despite these challenges, the Chinese economy is still growing rapidly. Citi Research forecasts that China’s GDP will overtake the United States’ in nominal terms by 2028. But if it wants to consistently overtake the United States, it will have to sustain its current rate of growth for decades. That’s a tall order, especially given all the risks in the global economy and trade disputes with the United States.

4. China will overtake us in the next 40 years.

In nominal terms, China will likely overtake the US sometime in this century. But in PPP terms, it’s not going to happen anytime soon.

That’s because the growth of China is slowing down and its population has peaked. As a result, its economy will not grow fast enough to overtake the US any time soon.

China’s current economic model — with its significant focus on investment, property and exports – is not sustainable. The good news is that there are other models out there.

For example, if China were to shift to a services-based economy, it could become the world’s largest by 2040. But it would require an enormous amount of reform. It is not yet clear whether China’s leadership is up to the task. And even if it is, the transition would be disruptive for production, jobs, markets, investments, household and government budgets, and global supply chains. As the New York Times columnist Paul Krugman recently pointed out, such a shift might turn out to be like Japan’s in the 1990s, when worries about an Asian country’s world domination proved wildly unfounded.

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The Importance of Clarity on One China Policy and Taiwan

One China Policy and Taiwan

As Beijing entices more countries to establish formal diplomatic relations, the need for clarity on different formulations of “one China” becomes more important. However, the semantic confusion over such differences can obscure their real significance and lead to misinterpretation.

In the past, a policy of strategic ambiguity enabled the United States to pursue diplomacy alongside preparations for military contingencies in the Taiwan Strait. But this environment is changing.

What is one China?

One China is the principle of safeguarding China’s sovereignty and territorial integrity. It is a key foundation of the Chinese government’s policy on Taiwan. The Chinese Government firmly opposes any moves that seek to create “two Chinas” or Taiwan independence, as well as any attempts to impose on the Chinese territory the governments of the Republic of China (ROC) or other entities. On Comrade Deng Xiaoping’s initiative, the Chinese government has developed its basic policy of peaceful reunification and the scientific concept of one country, two systems.

One China is a policy that pursues peaceful resolution of differences alongside preparations for military contingencies, and that is balanced between the promotion of people-to-people contact and the promotion of security concerns. This balance is essential for maintaining cross-Strait stability and avoiding the spiral of confrontation that may occur if either side feels it has been threatened by the other. Nevertheless, the United States and Beijing have differing interpretations of what “one China” means.

What is Taiwan?

Taiwan is a unique island nation that is home to a diverse population of more than 570,000. It is known for its vibrant economy, free press and thriving culture. It has long been a democracy, but in recent years it has moved closer to Beijing on some issues. President Tsai Ing-wen has vowed to defend Taiwanese independence, even as she has increased military spending and sought closer economic ties with China.

The Chinese government is committed to the One-China principle and firmly opposes any secessionist activities in Taiwan. It hopes that the Taiwan side will respect and support this basic principle, so that the two sides can hold consultations on an equal footing regarding peaceful reunification.

What is the U.S. position?

The United States’ One China policy has been recalibrated numerous times over the years, reflecting changes in US-China relations and in Beijing’s view of Taiwan. Since the 1990s, the policy has been particularly important because of challenges to US interests in Taiwan’s security and democracy from the PRC military modernization, moves seen by Beijing as promoting de jure independence under the DPP’s presidents (2000-2008), and resistance in Taiwan to raising defense spending and strengthening self-defense.

In guiding its engagement with Taiwan, the United States has stressed the process (peaceful resolution through cross-strait dialogue, with the assent of the people on both sides) over the outcome (unification, independence, or confederation). CFR experts have criticized recent statements by Vice President Joe Biden that appear to contradict the policy’s strategic ambiguity.

This CRS report explores how the policy has evolved through legislation and articulated in key statements by Washington, Beijing, and Taipei. It also outlines congressional influence over the issue, especially with respect to determining arms sales to Taiwan under Section 3 of the TRA of 1979.

What is the Chinese position?

The Chinese Government maintains that both Taiwan and the mainland are parts of China. They also assert that the government of the People’s Republic of China is the sole legitimate government of all China. This is known as the One-China principle.

Deng Xiaoping developed the “one country, two systems” concept during negotiations with the United Kingdom over the expiration of Hong Kong’s lease and with Portugal over Macau. It stipulates that upon reunification, Hong Kong and Macau, as special administrative regions, will retain their existing systems while using socialism with Chinese characteristics.

The Chinese Government advocates that the final purpose of cross-Straits negotiations is peaceful reunification, and that talks should be conducted on the basis of equality. It opposes proposals for “Taiwan independence,” “two Chinas” or “two states,” which are aimed at separation instead of reunification. Moreover, it advocates that all countries maintaining diplomatic relations with China should refrain from providing arms to Taiwan under any circumstances.

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