China Will Overtake The US as World’s Biggest Economy by 2012

According to the Conference Board, China will overtake the U.S. as the world’s biggest economy by 2012, or within two years.

Beijing National Stadium or colloquially as the Bird's is a stadium in Beijing, China. The stadium, the world's largest steel structure, was designed for use throughout the 2008 Summer Olympics and Paralympics. Photo: Dmitry P/Flickr

China’s continued rapid growth should make it the main driver of the global economy next year as the U.S. slows down, the Conference Board, a highly respected economic research association, said in a report published on Wednesday.

China could even overtake the U.S. as the world’s largest economy by 2012 — at least by one economic measure, the research group said in its annual global outlook, the Wall Street Journal Reports.

China’s economy should grow by 9.6% in 2011 after expanding by 10% this year. By contrast, the U.S. economy is seen slowing to just 1.2% growth next year from 2.6% in 2010.

However, in dollar terms, that’s obviously not going to be the case (the gap between second-place China’s $5.0 trillion economy and the U.S.’s nearly $15 trillion output remains large.) It will be a lot longer than two years before China overtakes the U.S. on that measure.

But in terms of Purchasing Power Parity, China is already nearly there, and by 2020 will have reached a size of output which is nearly half as big again as the U.S.

Purchasing-power parity, takes into account the goods and services a country’s currency actually buys at home and it’s a measure that’s closely watched by the Conference Board.

Taking into account the difference in prices of the same goods between countries — a taxi ride in Beijing, for instance, will cost you approximately a eighth of what it costs in New York — the think tank predicts China could have a larger economy than the U.S. by 2012.

The Conference Board sees the U.S. economy slowing by almost 1.5 percentage points in 2011 due to slower spending by consumers, companies and the government.

At only 1.2%, growth in the U.S. next year would be lower than both Japan and Western Europe, which are expected to grow by 1.5%. But thanks to strong emerging economies like China and India, the global economy is seen growing by 4.2% in 2011.

Looking further ahead, China could account for almost one quarter of the global economy in 2020, compared to 15% for the U.S. and 13% for Western Europe (the 15 original European Union countries that include Germany and France.)

The chief economist at the Conference Board, cautioned the main risks to the projections are if China’s fast-growing economy is hit by uncontrolled inflation or asset bubbles. The growth in emerging economies is expected to be more than three times faster than growth in advanced economies in the next decade.

Becoming the world’s largest economy would pose ‘big challenges’ for China by increases its responsibility to ensure the global economy runs smoothly while still dealing with a fragile domestic economy.

The U.S., meantime, is experiencing the downsides of being global economic leader and having a currency that’s used internationally to trade all sorts of goods.

Indicating they’re not ready to take a leadership role, politicians in China have argued the country is still lagging behind others in technology and that most of its huge population live in poverty.

For example, in another measure of economic well-being — output per person — China is lagging far behind the U.S. In 2009, U.S. gross domestic product per capita stood around $46,000. By comparison, China’s GDP per capita was less than $4,000.

Today, the leaders from the Group of 20 biggest advanced and emerging economies are meeting in the South Korean capital of Seoul to discuss currencies and the global economy. [via The Telegraph (UK) and Wall Street Journal]

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