China has overtaken the UK to become the fourth largest economy in the world.
The writing, as it were, has been on the great wall for some time, but the key landmark was reached faster than expected, thanks to a revision in official Chinese statistics.
The Chinese government recently carried its first national census, and the finding? Output had previously been understated by 20%.
Chinese GDP in 2005 is in fact $1.13trillion, compared to the UK’s $1.11 trillion.
The statistical revision also implies good news for ongoing growth stability. Many had feared that Chinese investment was a bubble waiting to burst, and that when this happened, China would slow, pulling the rest of the region down with it, with the ramifications hitting the rest of the world.
But as output is much greater than expected, investment as a percentage of GDP is lower than previously thought, and a crash a lot less likely.
Estimating future growth of the big economies of the future – China, India, Brazil and Russia, seems to be the province of Goldman Sachs, who produced the definitive study in 2003.
The study indicated that India would overtake the UK in 2020, approximately ten years later Russia would pass us, and Brazil would follow on around five years after that.
By 2050, the Goldman Sachs study predicted China would be the largest economy in the world.
Some economists have warned that the loss of economic supremacy by the major economies of today could lead to potential problems – perhaps even conflict. A good example of how the West could react to the growing power of China et al like a jealous child, came yesterday when Frithjof Schmidt, a German Greens MEP, said, whilst discussing the WTO talks, “China’s success has made even strong industrial nations nervous. They are beginning to wonder if they will really be the winners of this game as they expected. These higher than previously revealed GDP figures show us that China is growing much faster than they told us, so those who advocate free trade in Europe are beginning to rethink their strategy.”
If the West reacts to growing competition by erecting barriers and protecting industry, and is even less willing to negotiate in WTO talks of the future, we will all be worse off, and the best the West can hope for is a delay in the inevitable.
On the other hand, western countries who embrace the changes, and see the rise of China, India, Brazil and Russia as an opportunity, are likely to flourish.
© Investment & Business News 2013