Goldman Sachs and Merrill Lynch say the yuan will gain 9.6 per cent to about 7 per US dollar within 13 months. China’s economy in 2008 would then be US$3.7 trillion. This does not include Hong Kong and Macau which would increase the size of the economy to $3.9 trillion.
The big mac index (Purchasing power parity) indicates that the Yuan should be 3.42. The World Bank had calculated 1.8.
A steady 7.5% strengthening of the Yuan versus the dollar seems likely as China would gradually shift its currency to allow time for its companies to adjust Heading to 3 Yuan (RMB) exchange to the US dollar also seems reasonable for 2020.
In trillions of dollars:
|Year||GDP(yuan)||Yuan per USD||China GDP||US GDP|
Following that trajectory for another decade would have the Chinese economy at about twice the size of the US economy in 2030. In the projection above China’s growth slows to 6% per year and US growth is steady at 3% throughout. China’s economic size passes Japan’s economy in 2010 or 2011.
Others such as the Center for Economic and Policy Research have noted the imminent passing of China’s economy over the USA on a purchasing power parity (PPP) basis The PPP parity passing of China past the USA is in 2010.
China’s Anti-satellite capabilities and credible nuclear deterrent means that military conflict between the major powers is off the table.
I believe that the Taiwan situation will be resolved peacefully.
Former KMT Chairman and Taipei Mayor Ma Ying-jeou has stated that Taiwan should form a common market with China and establish direct transportation links. A 5/10/2007 poll released by the United Daily News shows Ma’s lead over Hsieh (DPP) at 43% to 28%. I believe that Ma will win and establish that common market by 2012. Taiwan is a $355 billion economy (2006).
The DPP candidate (current ruling party) is Frank Hsieh As premier, Hsieh sought engagement with China and a gradual opening of economic links. So even if Hsieh wins, Taiwan and China seem on a path to EU style union.
An interesting scenario is if China and Taiwan go beyond that to a NATO style military cooperation. China would get access to 160 F16s and Patriot missiles among other assets. In the longer term this is not really relevant because China’s larger economy and advancing technology means that they will be perfectly capable of developing technologically competitive systems on their own.
A 2003 report by Goldman Sachs has been used as the basis of many future scenarios. They projected China overtaking the US economy in 2040. They projected a lower growth rate for China for 2005-2010 of 7.2%. China grew 10.2% in 2005, 10.7% in 2006 and is on track for 10.9% in 2007. Projections vary for 2008 but 9-11% seems likely. The 17% underassessment of China’s economy before the 2004 census was not available. Goldman projected 268% currency appreciation over 47 years. The Goldman projections looks like it will be underestimating China’s GDP by 50% in 2010.
The Economist Intelligence Unit predicted China surpassing the US on an exchange rate basis in 2026 Changing the currency appreciation to 7.5% instead of 5% accelerates the date of overtaking from 2026 to 2020. They must also predict a slower growth rate of about 6-7% per year.
Higher growth rates combined with currency appreciation would mean a pass as early as 2019. The growth rate would have to be 9.5% (combined with 7.5% currency appreciation) to move it to 2018.
The 2.9 RMB to 1 USD combined with relatively strong growth would have the Chinese economy passing the US (assuming about 3% growth for the US in the 2018-2025 timeframe.)
If the growth rate is between 7.5-9.5% and the currency appreciation between 5.5%-7.5% per year and the US grows at 3% per year then China passes the USA beteen 2019 and 2022.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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