China’s economy will surpass that of the United States by 2035 and be twice its size by midcentury, a new report by Albert Keidel concludes. China’s rapid growth is driven by domestic demand—not exports—and will sustain high single-digit growth rates well into this century.

In China’s Economic Rise—Fact and Fiction, Keidel examines China’s likely economic trajectory and its implications for global commercial, institutional, and military leadership.

Key Conclusions:

• Potential stumbling blocks to sustained Chinese growth—export concerns, domestic economic instability, inequality and poverty, pollution, social unrest, or even corruption and slow political reform—are unlikely to undermine China’s long-term success.

• China’s financial system, rather than a shortcoming that compromises growth potential, is one of the strengths of what the report calls “China’s money-making machine,” in part because of its ability to support the financing of infrastructure and other public investments necessary for sustained rapid growth.

• A Chinese economy that eclipses the U.S. by midcentury has both commercial and potential military implications. China will be the preeminent world commercial influence. China’s military capabilities are a small fraction of the United States’ today, so there is time to prepare for a very different world in fifty years, says the report.

• American policy makers should take this opportunity to enact wide-ranging domestic reforms and rethink their concepts of global order.

China’s economic performance clearly is no flash in the pan. Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the twenty-first century, unfettered by world market limitations. Nor do other problems China faces jeopardize long-term growth prospects.

China’s problems are in fact consistent with more developed countries’ challenges at earlier similar levels of economic modernization. China’s future success will undoubtedly also draw on its own thirty years of policymaking experience—for example, investing in infrastructure, fighting inflation, shifting its labor force and opening to foreign trade and investment.

China’s likely continued success will eventually bring an end to America’s global economic preeminence, requiring strategic reassessment by all major economies—especially the United States, the European Union, Japan, and even China itself.

Download China’s Economic Rise: Fact and Fiction

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ALBERT KEIDEL
Senior Associate, Carnegie Endowment for International Peace

Albert Keidel is a senior associate at the Carnegie Endowment for International Peace in Washington, D.C. Until August 2004, he was deputy director and acting director of the Office of East Asian Nations in the U.S. Treasury Department.

Through the end of 2000, he served as senior economist in the World Bank’s Beijing office. Since the latter 1980s he has taught graduate courses on China’s economy variously at the School of Advanced International Studies (the Johns Hopkins University), the George Washington University, and Georgetown University.

Keidel’s recent writings include, China’s Economic Fluctuations: Implications for Its Rural Economy and The Causes and Impact of Chinese Regional Inequalities in Income and Well-Being.

Keidel’s Ph.D. in Economics is from Harvard University. He speaks and reads Mandarin Chinese.

Visit Carnegie Endowment for International Peace Website

The Carnegie Endowment for International Peace is a private, nonprofit organization dedicated to advancing cooperation between nations and promoting active international engagement by the United States. Founded in 1910, its work is nonpartisan and dedicated to achieving practical results.

Building on the successful establishment of the Carnegie Moscow Center, the Endowment has added operations in Beijing, Beirut, and Brussels to its existing offices in Washington and Moscow.

The Carnegie Endowment publishes Foreign Policy, one of the world’s leading magazines of international politics and economics, which reaches readers in more than 120 countries and several languages.

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