Will China surpass the United States? The dangers of the game of extrapolation.

• Author: Tatom, John A.

To read the press, one might think that China's economy would soon surpass in size and prosperity the world's remaining superpower. There is some basis for this speculation, though it is wildly premature at best, and very unlikely for several decades, if ever, at worst. The correct factual basis is that China is a very large place with an even larger population. The other correct ingredient in such a story is that for the past twenty-eight years or so China has exhibited extremely rapid growth. If its massive population had an average level of productivity for what the International Monetary Fund calls a "middle-income country," or productivity equal to that of some of its wealthier neighbors, China would already have the largest GDP in the world. That is not likely to happen for another thirty years or so at the earliest. More importantly, even under the best of trends sustained for far longer than is likely, China will not reach the U.S. standard of living--not to mention surpass it--until mid-century. More likely China will, even under very optimistic assumptions, not reach the U.S. standard of living until late in this century. Nonetheless, due to the size of its economy and markets, it will have a relatively large share of production and consumption of most goods and services in a few decades.

The key facts that determine these possibilities are that China is a country that is almost identically the same size in land area as the United States and has over four times as many people (1.3 billion versus 300 million people). Its output or income has been growing at nearly 10 percent per year since reforms began in the late 1970s, but due to its political turmoil and exploitation of its people by a political party and class backed by an economically and politically powerful army, the country's economy regressed for several decades. Economic reform has allowed the country to climb out of a very deep hole, but there remains far to go before reclaiming its earlier relative ranking in the world economy. Fortunately, the notion of convergence means that the further behind a country gets, the more likely it is, if allowed, to grow faster in order to catch up.

To take a long view, consider that in 1820 China produced about 28.7 percent of the world's GDP with about 35.7 percent of its population, which implies that it had a productivity level close to 80 percent of the world average. By 2005, despite incredible growth of near 10 percent per year over the past twenty-eight years, China produced 5 percent of the world's GDP despite having a smaller, but still world-beating 20.2 percent of the world's population. By the same standard, China's productivity had fallen to about 25 percent of the world average. In contrast, the United States rose from 1.8 percent of the world's output with about 0.9 percent of the...