China May Surpass U.S. by 2020 in Super Cycle, Standard Chartered Says By Shamim Adam |
Nov 14, 2010 11:49 PM ET
China will overtake the U.S. to become the
world's largest economy by 2020, helped by faster expansion
and an appreciation of its currency, according to Standard
Chartered Plc.
“We believe that the world is in a
‘super-cycle’ of sustained high growth,”
economists led by Gerard Lyons said in a report published
today. “The scale of change over the next 20 years
will be enormous.”
China’s economy will be twice as large
as the U.S.’s by 2030 and account for 24 percent of
global output, up from 9 percent today, Lyons said in the
152-page Super-Cycle Report. India will surpass Japan to
be the third-biggest economy in the next decade, according
to the report. Goldman Sachs Group Inc. estimates China
will overtake the U.S. by 2027.
The world may be experiencing its third
“super-cycle,” which is defined as “a
period of historically high global growth, lasting a generation
or more, driven by increasing trade, high rates of investment,
urbanization and technological innovation, characterized
by the emergence of large, new economies, first seen in
high catch-up growth rates across the emerging world,”
Standard Chartered said.
Output in China, the largest maker of mobile
phones, computers and vehicles, surpassed Japan for the
second straight quarter in the three months through September,
Japan’s government said today. The Chinese economy
overtook the U.K. as the fourth largest in 2005 and tipped
Germany from third place in 2007.
Faster Growth
China has expanded by an average 10.3 percent
a year over the past decade compared with an average 1.8
percent for the U.S. Standard Chartered estimates growth
will slow to an annual 8 percent pace by the middle of the
decade, easing to 5 percent from 2027 to 2030.
The U.S. economy, by contrast, still faces
another year or two of “sluggish growth,” forecast
at 1.9 percent in 2011, before returning to its long-term
trend rate of expansion of 2.5 percent in three to four
years, Nicholas Kwan, Hong Kong-based regional head of Asia
research at Standard Chartered, said in a telephone interview.
China’s comparatively faster expansion,
together with an expected 25 percent appreciation of the
yuan, should be enough for its nominal gross domestic product
to exceed that of the U.S. by the end of the decade, Kwan
said.
Risks, Challenges
Still, the scenario faces risks on both
the U.S. and Chinese sides, Kwan said.
“For China we have to consider to
what extent the economy can keep growing without serious
disruption, while the U.S. is facing different challenges
as a mature economy struggling to recover from an unprecedented
crisis,” he said.
China could fall ‘abruptly off the
fast track’’ as the Soviet Union and Latin America
did in the 1970s and Indonesia and Thailand experienced
in the 1990s, Standard Chartered’s report said.
The economy is “unbalanced”
and faces considerable risks, including a widening of imbalances,
asset bubbles, overcapacity and rising bad loans which could
lead to a serious decline, the report says. A 10 percent
decline in investment in China would make it very difficult
to achieve any GDP growth at all, the report estimates.
Stable Currencies
Previous “super-cycles” of growth
happened from 1870 to 1913, and after World War II until
the early 1970s, Standard Chartered said today. The current
cycle began in 2000, it said.
“If we are right about this being
another super-cycle, it does not mean that growth is strong
and continuous over the whole period,” Standard Chartered
said. “The first super- cycle, for instance had bouts
of high inflation and of deflation. Much will depend on
monetary policies adopted across the globe.”
Previous growth super-cycles were characterized
by stable currencies where there were exchange rates linked
to gold or silver, monetary unions and the Bretton Woods
agreement, Standard Chartered said. Current concerns over
“currency wars” highlight the challenges with
the present system, the bank said.
“The possibility of some formal move
towards currency stability at a global level cannot be ruled
out,” according to the report. “However, in
the present context, it seems hard to predict. Greater currency
intervention may be plausible, and over time, one should
expect to see more countries managing their currencies against
a basket of currencies of the countries with which they
trade. Managed floats and currency baskets may become more
of a norm for currency policy.”