China’s economy will increasingly rely on government investment, high-tech development and domestic consumption – with less input from its export manufacturing past – as it is expected to overtake the United States. States over the next decade, analysts predict.
China’s GDP is expected to grow 5.7% per year until 2025, then 4.7% per year until 2030, according to forecasts by British consultancy Center for Economics and Business Research (CEBR). Its forecast indicates that China, now the world’s second largest economy, will overtake the largest US economy by 2030. Credit insurer Euler Hermes made a similar forecast.
Chinese leaders have pushed over the past decade to rely more on value-added services than traditional factory exports, state media said. The Sino-U.S. trade dispute and workplace closures in early 2020 due to COVID-19 increased pressure on manufacturing.
Cutting production from factories in China, foreign multinationals have expanded outside of China, targeting places like Vietnam to avoid rising wages and environmental compliance costs. By relocating to multiple countries, they hope to avoid any repeat of China’s COVID-19 lockdowns in early 2020 that shuttered factories.
China’s economy totaled $15.92 trillion in 2020, and market research firm IHS Markit estimates it hit $18 trillion last year thanks to export manufacturing growth and capital for new projects. The US economy grew to about $23 trillion last year, the market research firm said.
The country which is already known for its rapid economic growth over the past 20 years would see the state gain more control over key sectors after intervening in several, including the internet, in 2021, economists expect.
“Beijing has the funds and the absolute domestic political power to use China’s massive national treasury to make strategic investments in service of leaders’ national and global goals,” said Denny Roy, senior fellow at the East-West Center think tank. in Honolulu.
China scored 2.98 in 2018, up from 2.45 eight years earlier and nearly three times the global average, on the Cooperation Organization policy forum’s direct corporate control index. of economic development.
This means that direct government control over businesses “has far exceeded the open economy average” and “reflects China’s growing emphasis on the role of the state in the economy under Xi Jinping,” states the Atlantic Council think tank in its October report China Pathfinder: Annual Scorecard.
Technology hardware growth
Chinese leaders are likely to prioritize technology, especially hardware that doesn’t require constant innovation, as a driver of growth, economists say.
State intervention in the internet sector will not impede the expansion of semiconductors and infrastructure software, said Zennon Kapron, founder and director of the financial industry research firm Kapronasia based in Shanghai.
“If the country becomes self-sufficient in terms of technology and is then able to sell and export the technology-based products and services, it would be a huge blow to its economy, because [that] is definitely a key driver of US GDP now,” Kapron said.
The US economy will continue to grow but smoothly until 2030, predicts Kapron.
China has a “huge engineering base” but less than enough creativity to foster the “wacky ideas” that drive the development of new technologies, said Douglas McWilliams, founder and executive vice president of the CEBR.
Domestic spending was driving most of China’s economic growth ahead of 2021 as the country reduced its exposure to the world due to the China-US trade dispute, McKinsey & Co. says in its China Consumer Report 2021. Supply chains have “matured and localized, and its innovation capabilities have been enhanced,” says McKinsey & Co.
This trend is expected to continue despite declines in revenue due to lockdowns in the first year of COVID-19, analysts say. China’s population is 3.5 times larger than that of the United States, although American consumers are wealthier on average.
“Over the past five years, domestic consumption has…become a more important driver of growth as China’s domestic consumption market has grown significantly,” said Rajiv Biswas, chief economist for Asia-Pacific at IHS Markit.
Beijing’s leadership “aims to create more than 11 million new urban jobs and expand domestic demand and effective investment,” the official Xinhua News Agency said in mid-2021. These measures, he said, “should firmly return the economy to pre-pandemic dynamism.”
What if China overtakes the US economy?
Status as the world’s largest economy confers no automatic advantage over others, economists said, but countries dependent on China’s economy would take notice.
“There’s no gold medal or anything like that,” CEBR’s McWilliams told VOA. “But when you have more money to spend, you have the ability to influence things, and China will have that ability to influence things.”
China would be better placed, he said, to advance its Belt and Road Initiative, a 9-year-old effort to build land and sea trade routes across Asia, Europe and Africa in the form of infrastructure projects and investments.
Beijing officials are already leveraging their economy in disputes with other countries, said Roy of the East-West Center. China vies with four Southeast Asian governments for maritime sovereignty, disputes an islet group with Japan and has engaged in territorial clashes with India since 2017.
“The result of this expectation (China economically outperforming the United States) has been a bolder PRC (People’s Republic of China) foreign policy that seeks to settle regional disputes in China’s favor and delegitimize regional leadership. and world of the United States under the assumption that China is destined to establish the new rules of international relations,” Roy said.