Guest Author - Guido Deboeck

In Sunday's New York Times, Lester Thurow wrote: "A Chinese Century? Maybe It's the Next One". In it he argues that China is unlikely to surpass the United States in GDP in absolute or relative terns anytime soon. He went as far as claiming that "a Chinese century will be in the 22nd century"; hence in this interesting article he casts doubts about the ability of China catching up with the US in this 21st century. The math behind his reasoning does however not provide a convincing case.

As a starting point Lester Thurow assumes that China's inflation adjusted GDP is $1,000 per capita which would make China at present at only a 1.3 trillion economy . This is way below every figure that has been published, even lower than what the WB estimates. 15 years ago Larry Summers estimated that the Chinese economy was already at at $3,000 per capita. In December 2005 the Hearld Tribune reported that the Chines economy in 2004 was 2 trillion and was the sixth largest economy in the world

http://www.iht.com/articles/2005/12/20/business/chicon.php

If the Chinese economy in 2004 was 2 trillion then it is closer to 3 trillion or more today. Hence the starting point from which Lester projects the Chinese economy is way off.

Dean Baker of the Center for Economic and Policy Research in Washington wrote that China is bigger than Japan's economy and likely to surpass the size of the US economy in less than a decade. Full details can be found at

http://beatthepress.blogspot.com/2006/04/how-big-is-china.html

Apart from the starting point Lester assumes that the US will grow in the future at the same rate it has grown in the past 15 years i.e. 3% -- which would be an incredible high growth since we have gone to the most rapid economic expansion ever recorded in US history in just the last seven years--. It would be more realistic to assume that the US will drop to 2-2.5% .

Lester assumes an inflation adjusted growth rate for China of 4% . He gets from 11% nominal to 4% real by taking the 6.5% inflation that was recently reported for select set of products. Even if China's real growth rate is (say) between 7 and 8%, projections starting from a more realistic baseline puts it ahead of the US in about 25-30 years. If you take 3 to 4 trillion economy and grow it at say 7.5% over 30 years (26 to 40 trillion) and you compare that with an 11-12 trillion US economy growing at 3% (more likely 2-2.5%) -- becomes 26 trillion -- then you find that China will bypass the US in the next 25 to 30 years! At least in absolute size.

Lester argues that in absolute terms China will not surpass the US in the next 93 years. If he had used a more realistic baseline he would have found that this claim can not be correct. Whether China is at present the third or fourth largest economy (let stand the second largest) is besides the point. A check against history tell us that it may have taken Japan 150 years to reach standards of living comparable to the US, but it took Korea less than half of that time, it will take China probably half the time it took Korea, e.g. about 30 years.

Now the tricky thing in L.T's article is that he throws in some population projections, which he admits you should never do! He assumes no growth in China (1.3 billion population) and he assumes 1% growth in the US. Even if you take these assumptions 300 million US becomes 384-404 million in 25-30 years. If we apply the same to China (1% growth instead of 0%) then China will have 1.6 - 1.75 billion people in 25-30 years. Both of these projections are however subject to many questions.

Questions not raised in L.T's article is how you account for 1/ the rural areas in China and 2/ the immigration in the US. Are 20-25 million illegal aliens counted in the per capita figures? what growth is projected for rural China? Can a totalitarian system keep population in control (meaning no change to 1 child per family)? Can a democracy really control its borders? Depending on the answers the above population projections may be way off. Zero population growth in China is most unlikely.

L.T.'s entire argument that China will not surpass the US thus rests on these kind of speculations, which just like global warming is impossible to predict.

In the 70's working for W.H.O. I recall that we tried to predict the population of Bangladesh. Armed with the best research and tools from Harvard, MIT etc we projected then that the country would grow from 70 to 90 million; a real catastrophe for a country as poor as Bangladesh. Twenty years later I learned that our wildest projections were 20 million too low and at present population in Bangladesh is over 143 million. Lessons learned from real life experience confirms what L.T. suggested, one should never try to make a population projection. Hence, there is nothing one can claim as to relative or per capita accomplishments.

As to absolute measures, the lessons to be learned from this are: check you baseline before you make a projection; base projections on a variety of assumptions; provide ranges and when something sounds like crazy, consider that it just may be crazy (because result could be derived from absurd claims, like an underestimation of the baseline). As for you the reader, never take anything for granted least of all articles in the NYTs or signed by famous economists.