The Centre for Economics and Business Research (CEBR), a UK-based think tank, recently released its annual economic forecast. The report hypothesized that China will overtake the US to become the world’s largest economy by 2028; five years earlier than previously estimated. When all leading economies are fraught with economic uncertainties, CEBR believes that China will not only avoid a recession, but also register 2 percent growth this year.
CEBR attributes China’s economic prospects to its “skillful” management of COVID-19 outbreak, which the Chinese government spent months denying and downplaying the severity. This denial cost leading economies like the US crucial time to safeguard their interests and control the extent of transmission. The result? Over 400,000 deaths and economic fallout, further aggravated by political tussle and civil unrest. Despite the monetary policies and a mammoth fiscal stimulus, followed by Joe Biden’s ascent to power, CEBR estimates the US economy to grow 1.9% annually till 2024 and then plummet to 1.6%. The Chinese economy, on the other hand, is tipped to grow by 5.7 percent annually till 2025 and 4.5 percent from 2026–30. So, what is the supporting argument provided?
A closed society, an open market
China controlled the virus transmission through swift and strict measures. Since the Chinese governance leaves no scope for dissent and alternative ideas, the efforts naturally led to desired outcomes. Once the outbreak was controlled, China kick-started its economic activity at pre-pandemic pace. Meanwhile, the US and other competitive economies across Europe were trifling with haphazard lockdowns. I believe it was at this juncture that CCP saw an opportunity to step on the gas.
While creating counter-narratives through wolf-warrior diplomacy, China started pursuing advanced industrialization and its long-term global ambitions, aggressively. It is therefore unsurprising that China is ready with the most innovative electric car (NIO ET7), right at the onset of global post-pandemic economic recovery. This was possible due to China’s new hybrid economic model: centralized single party governance, but with a free-market economy in areas consistent with global demand, like tech.
China leveraged the world’s distraction effectively, to further its neo-expansionism, claiming sovereignty over disputed areas in the South China Sea, strong-arming Taiwan and quelling the pro-democracy movement in Hong Kong. Concurrently, China lent a “helping hand” to struggling economies in the EMEA and APAC region, as part of its debt-trap diplomacy. Such ulterior motives and economic head start could tilt the US-China race in the latter’s favour, at least in the short term. But this alone cannot help surpass an economic powerhouse like the US.
The counter argument
Firstly, let’s consider historical examples: In 2011, economists across the world predicted China would surpass the US by 2020. However, currently the US economy has at least a five-trillion-dollar edge over China’s. The predictions fell flat because economists took China’s exaggerated growth claims at face value — an aspect repeated in CEBR’s report as well.
Secondly, for argument’s sake, even if China’s growth-rate claims are true, we must factor in its mounting debt problems (more than 250 percent of GDP), when making projections. Also, its massive population means that, despite economic growth, the average Chinese person will remain significantly poorer than the average American. In fact, China no longer boasts the large, productive workforce, which was instrumental to its meteoric rise in the last 50 years. The one-child policy has reduced the youth segment in its demography, impacting productivity. In fact, barring the problems that high population causes, India makes a better case for economic growth, due to its highest young demographic in the world.
India: Leapfrogging on a long road
The same CEBR report tips India to become the third largest economy by 2030. Although India surpassed the UK as the fifth-largest economy in 2019, the pandemic has reversed its fortunes. CEBR forecasts India to leapfrog and overtake the UK, Germany and Japan in 2024, 27 and 30, respectively. And these projections are cushioned by the growing youth population, digitization and aggregate demand. But, going forward, India must ramp up its efforts to harness its core competencies and set itself up for success that, unlike China, aligns with democratic values.
