Three forces will dictate China’s rise, Mr Subramanian of the Peterson Institute for International Economics argues: demography, convergence and “gravity”. Since China has over four times America’s population, it only has to produce a quarter of America’s output per head to exceed America’s total output. Indeed, Mr Subramanian thinks China is already the world’s biggest economy, when due account is taken of the low prices charged for many local Chinese goods and services outside its cities. Big though it is, China’s economy is also somewhat “backward”. That gives it plenty of scope to enjoy catch-up growth, unlike Japan’s economy, which was still far smaller than America’s when it reached the technological frontier.
Buoyed by these two forces, China will account for over 23% of world GDP by 2030, measured at PPP, Mr Subramanian calculates. America will account for less than 12%. China will be equally dominant in trade, accounting for twice America’s share of imports and exports. That projection relies on the “gravity” model of trade, which assumes that commerce between countries depends on their economic weight and the distance between them. China’s trade will outpace America’s both because its own economy will expand faster and also because its neighbours will grow faster than those in America’s backyard.
Mr Subramanian’s conclusion is controversial. The assumptions, however, are conservative. He does not rule out a “major financial crisis”. He projects that China’s per-person income will grow by 5.5% a year over the next two decades, 3.3 percentage points slower than it grew over the past two decades or so. You might almost say that Mr Subramanian is a “China bear”. He lists several countries (Japan, Hong Kong, Germany, Spain, Taiwan, Greece, South Korea) that reached a comparable stage of development—a living standard equivalent to 25% of America’s at the time—and then grew faster than 5.5% per head over the subsequent 20 years. He could find only one, Nicolae Ceausescu’s Romania, which reached that threshold and then suffered a worse slowdown than the one he envisages for China.
With luck China will combine its precocity in economic development with a plodding conservatism in economic diplomacy. It should remain committed to preserving an open world economy. Indeed, its commitment may run deeper than America’s, because its ratio of trade to GDP is far higher.