In 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000. China's per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan. In other words, the average Chinese megacity dweller will be living twice as well as the average Frenchman when China goes from a poor country in 2000 to a superrich country in 2040. Although it will not have overtaken the United States in per capita wealth, according to my forecasts, China's share of global GDP -- 40 percent -- will dwarf that of the United States (14 percent) and the European Union (5 percent) 30 years from now. This is what economic hegemony will look like.
Most accounts of China's economic ascent offer little but vague
or threatening generalities, and they usually grossly underestimate the extent
of the rise -- and how fast it's coming. (For instance, a recent study by the Carnegie Endowment for
International Peace predicts that by 2050, China'seconomy will be just 20
percent larger than that of the United States.) Such accounts fail to fully
credit the forces at work behind China's recent successor understand how those
trends will shape the future. Even China's own economic data in some ways
actually underestimate economic outputs.
It's
the same story with the relative decline of a Europe plagued by falling
fertility as its era of global economic clout finally ends. Here, too, the
trajectory will be more sudden and stark than most reporting suggests. Europe's
low birthrate and its muted consumerism mean its contribution to global GDP
will tumble to a quarter of its current share within 30 years. At that point,
the economy of the 15 earliest EU countries combined will be an eighth the size
of China's.
This is
what the future will look like in a generation. It's coming sooner than we
think. What,
precisely, does China have going so right for it?
The
first essential factor that is often overlooked: the enormous investment China
is making in education. More educated workers are much more productive workers.
(As I have reported elsewhere, U.S. data indicate that college-educated workers
are three times as productive, and a high school graduate is 1.8 times as
productive, as a worker with less than a ninth-grade education.) In China, high
school and college enrollments are rising steeply due to significant state
investment. In 1998, then-President Jiang Zemin called for a massive increase
in enrollment in higher education. At the time, just 3.4 million students were
enrolled in China's colleges and universities. The response was swift: Over the
next four years, enrollment in higher education increased 165 percent, and the
number of Chinese studying abroad rose 152 percent. Between 2000 and 2004,
university enrollment continued to rise steeply, by about 50 percent. I
forecast that China will be able to increase its high school enrollment rate to
the neighborhood of 100 percent and the college rate to about 50 percent over
the next generation, which would by itself add more than 6 percentage points to
the country's annual economic growth rate. These targets for higher education
are not out of reach. It should be remembered that several Western European
countries saw college enrollment rates climb from about 25 to 50 percent in
just the last two decades of the 20th century.
And
it's not just individual workers whose productivity jumps significantly as a
result of more education; it's true of firms as well, according to work by
economist Edwin Mansfield. In a remarkable 1971 study ,Mansfield found that the
presidents of companies that have been early adopters of complex new
technologies were on average younger and better educated than heads of firms
that were slower to innovate.
The
second thing many underestimate when making projections for China's economy is
the continued role of the rural sector. When we imagine the future, we tend to
picture Shanghai high-rises and Guangdong factories, but changes afoot in the
Chinese countryside have made it an underappreciated economic engine. In
analyzing economic growth, it is useful to divide an economy into three
sectors: agriculture, services, and industry. Over the quarter-century between
1978 and 2003, the growth of labor productivity in China has been high in each
of these sectors, averaging about 6 percent annually. The level of output per
worker has been much higher in industry and services, and those sectors have
received the most analysis and attention. (I estimate that China's rapid
urbanization, which shifts workers to industry and services, added 3 percentage
points to the annual national growth rate.) However, productivity is increasing
even for those who remain in rural areas. In 2009, about 55 percent of China's
population, or 700 million people, still lived in the countryside. That large
rural sector is responsible for about a third of Chinese economic growth today,
and it will not disappear in the next 30 years.
Third,
though it's a common refrain that Chinese data are flawed or deliberately
inflated in key ways, Chinese statisticians may well be underestimating
economic progress. This is especially true in the service sector because small
firms often don't report their numbers to the government and officials often
fail to adequately account for improvements in the quality of output. In the
United States as well as China, official estimates of GDP badly underestimate
national growth if they do not take into account improvements in services such
as education and health care. (Most great advances in these areas aren't fully
counted in GDP because the values of these sectors are measured by inputs
instead of by output. An hour of a doctor's time is considered no more valuable
today than an hour of a doctor's time was before the age of antibiotics and
modern surgery.) Other countries have a similar national accounting problem,
but the rapid growth of China's service sector makes the underestimation more
pronounced.
Fourth,
and most surprising to some, the Chinese political system is likely not what
you think. Although outside observers often assume that Beijing is always at
the helm, most economic reforms, including the most successful ones, have been
locally driven and overseen. And though China most certainly is not an open
democracy, there's more criticism and debate in upper echelons of policy making
than many realize. Unchecked mandates can of course lead to disaster, but
there's a reason Beijing has avoided any repeats of the Great Leap Forward in
recent years.
