China will become less populous, more productive—and more pricey
the date on which it becomes the world’s biggest economy. The gap between American and Chinese GDP will be over $8trn in 2023, according to some forecasts. That is a bigger number than last year.
According to the latest projections by EIU, our sister organisation, China may have to wait until the 2040s to overtake America. If China does ever ascend to number one, how will it get there? Its long-term economic trajectory will be governed by changes in three things: population, productivity and prices. Increases in China’s working-age population contributed significantly to growth in the past, but will not do so again.
EIU expects China’s labour force to shrink by 12% over the next 20 years. The country can hope to squeeze a little more work out of its older cohorts, thanks to improved health, longevity and later retirement. But if the only thing that changed over the next few decades was China’s raw labour supply, its GDP would already have peaked (see chart).
Productivity offers far greater scope for improvement. For all its eye-catching technological feats, China is still a catch-up economy determined to assimilate knowledge from the rest of the world. American efforts to decouple from China will hurt, but not halt, its progress.
China’s lagging firms also have much to learn from the country’s own leading enterprises. China’s state-owned enterprises, for example, have a lower return on assets than their private counterparts. Nor has China run out of room for investment.
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