China will soon overtake the US economy soon – or maybe never at all, depending on which new study you prefer.

Supply Chain Digest Says...   Over the long term, labor shortages stemming from the country's dwindling population will also act as a drag on China's  economic growth.     What do you say?   Click here to send us your comments       Click here to see reader feedback

First, the analysts at Wall Street investment firm Goldman Sachs project China’s gross domestic product will surpass that of the US in about 2035, the Goldman group led by Kevin Daly and Tadas Gedminas said in the report last week.

The new estimate is 10 years later than the investment bank had predicted in 2011. But economists the analysis said that potential growth in China still remains significantly higher than in the US.

“China has already closed most of the gap with US GDP,” they said in the report, adding that China’s gross domestic product has risen from 12% of the US economy in 2000 to a little under 80% currently.

Long considered a foregone conclusion by most economists, the question of whether China will overtake the US as the foremost economic superpower has come under renewed scrutiny recently, with some experts pointing to a recent slowdown associated with China’s stringent pandemic policies and the country’s aging population. However, Goldman still forecasts 4% GDP growth for China between 2024 and 2029 compared to 1.9% growth for the US, even with a downward revision on China’s growth.

Goldman Sachs also predicts that India will become the world’s second largest by 2075, bumping the US down to third place.

A key factor: population growth. The US population grew by just 0.1% in 2021, the lowest rate ever recorded in the country’s 246-year history, according to the Census Bureau, due to pandemic-related deaths combined with a slowing birth rate.

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But not so fast, say some economists in Japan. The Japan Center for Economic Research last week changed its previous forecast that China would overtake the US economy by 2033, saying the change is not likely to occur for at least several decades.

The Chinese economy will slow as a result of its stringent zero-COVID policy [though we note recently relaxed] and stronger US restrictions on exports to China, the think tank believes. Over the long term, labor shortages stemming from the country's dwindling population will also act as a drag on its economic growth, the report added.

The forecast predicts a further slowdown in China's economic growth to below 3% in the 2030s. In 2035, it will drop to 2.2%, down 0.8 percentage point from the 2021 estimate and close to US growth of 1.8% in the same year. Although China's economy, as measured by nominal GDP, will approach that of the US, it will be only 87% as large as that of the U.S. in 2035, according to the analysis.

In the long run, China's population decline is forecast to act as a drag on growth. "China will be unable to surpass the US economically, even after 2036," JCER said, due to slower productivity gains coupled with labor shortages.

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