China's economy to become world's biggest in 2035 - study

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Washington -- China's economy will overtake that of the United States by 2035 and be twice its size by midcentury, a study released Tuesday by a US research organization concluded.

The report by economist Albert Keidel of the Carnegie Endowment for International Peace said China's rapid growth is driven by domestic demand more than exports, which will be sustainable over the coming decades.

"China's economic performance clearly is no flash in the pan," Keidel writes.

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"Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitation."

Keidel, who has worked as a World Bank economist and US Treasury official, said the rise of China to the world's biggest economy will happen regardless of the method of calculation.

Under current market-based estimates, China's gross domestic product is about three trillion dollars compared to 14 trillion for the United States.

Based on a more controversial purchasing power parity (PPP) measure used by the World Bank and others to correct low labor-cost distortions, he said China's GDP is roughly half of that of the United States.

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Despite this low starting point, if China's expansion is anywhere near as fast as the earlier expansion of other East Asian modernizers at a comparable stage of development, the power of compound growth rates means that China's economy will be larger than America's by midcentury -- no matter how it is converted to dollars," Keidel wrote.

"Indeed, PPP valuation distinctions will diminish and eventually disappear."

Keidel's calculations suggest that using the PPP method, China will catch up with the United States as an economic power by 2020, with an equivalent GDP of 18 trillion dollars.

Based on the more commonly accepted market method, the turning point will come by 2035. By 2050, he estimated Chinese GDP at some 82 trillion dollars compared with 44 trillion for the United States.

The dramatic economic change will help China become a more important power in other areas including military and diplomatic affairs, according to Keidel.

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"China's financial clout will spill into every conceivable dimension of international relations," he writes.

"Leadership of international institutions will gravitate toward China. This movement could include the equivalents at that time of the United Nations, the World Bank, the International Monetary Fund, regional international development banks, and more specialized bodies. Various headquarters could shift to Beijing and Shanghai."

He said the United States "will have an important secondary influence, like Europe, but it will need to compromise, and its sphere for unilateral action will be increasingly curtailed."

However, the Chinese standard of living will remain lower -- with per capita GDP in China between half and two-thirds the level of that in the United States in 2050, according to the report.

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Keidel said poverty will remain a significant problem in China for decades despite considerable progress.

"It is hard to overemphasize how poor China was 30 years ago," he said.

But amid the economic boom, he noted: "Measures of inequality in China have increased dramatically since 1978, raising the possibility that dissatisfied groups left behind by its booming economy will eventually pose problems serious enough to derail its longterm growth."