Mark Thoma cites a story by Bloomberg's John M. Berry explaining why China's Booming Economy Will Never Surpass U.S. Here is his argument, as excerpted by Mark:
China's economy is growing so fast that estimates of its long-term prowess are bordering on the absurd. After Chinese statisticians recently sharply revised up their estimate of economic output in 2004 ..., some analysts said that in 35 years it would overtake the U.S. economy. No way, no how. ... Even if China's GDP were to grow indefinitely at 11 percent a year -- 9 percent real growth plus 2 percent inflation -- and the U.S. experienced 5.5 percent growth -- 3.5 percent real and 2 percent inflation -- it would take the Chinese 40 years to catch up in terms of nominal GDP. Sustainable nominal GDP growth of 5.5 percent annually is well within the capability of the U.S. Eleven percent growth, about what Chinese authorities expect in 2006, isn't remotely possible in the long run.
I am always dubious about such linear extrapolations. The future may be much like the past, but we cannot be certain it will, and there are many instances of such predictions being wrong. Worse - as one of the commentators on Mark's blog post pointed out - the piece ignores the fact that on a purchasing parity power basis the GDP gaps are already much smaller than Berry suggests. According to the list of countries by GDP (PPP) on Wikipedia, China accounted for either 58% (IMF estimate) or 61% (World Bank estimate) of US GDP in 2004.
Using these World Bank estimates and Berry's real growth numbers of 3.5% and 9%, it would take China just ten years for its GDP to exceed the United States. Using a lower real growth rate for China of just 6% (two-thirds of the current annual pace) it would take China 21 years to become the world's largest economy. Berry should stick to Fed watching; growth arithmetic is not exactly his strong suit.
UPDATE: I only came across it after writing this post, but the Economist publication The World in 2006 makes much the same point in its piece 'The world in 2026: Who will be number one?' I can't find it online, but here is the key quote:
China is a safe bet to be one of the most important developments over the next 20 years. By 2026, will China - assuming it stays in one piece - be the world's biggest economy?
Yes and no. If the countries' economies are measured using market exchange rates ..in 2026 America will remain comfortably the world's number one... It will still account for more than one-quarter of global output, more than twice as much as second-placed China, which will itself have comfortably overtaken Japan.
But when countries are compared using purchasing power parity rates (PPP), which adjust for price differences between countries and reflect the actual buying power of local income, China overtakes America in about 2017.
Also well worth a look is Sun Bin's piece When will China's GDP overtake the US?, which compares China's growth in GDP per capita with those of Korea and Japan:
If we assume another big "if", that China will follow Japan's path afterward, i.e. after 15-20 years, China will be at where Japan was at in 1960 relative to US, there will be another 30 years when China joins the developed country pack (70% of US). So the optimistic scenario is that it will around 2055-2065 then.
...Whichever path it takes, it will at best reach around 80% of US' GDP/cap. ...It is likely that China will then remain at around 75%-80% of the US level of GDP/cap, like what Japan has been at for the past 20 years.
This is assuming the PPP conversion for Korea/Japan historically and for China today are correct. ...This is also assuming no major political or economic disruption in the world (not just China, as world recession or war means disruption to China's trading) from now till around 2060.
That is why "peaceful development" is the correct, and the only sensible strategy for China. This is also why China cares about a peaceful world environment, and why it has taken great pain in settling border disputes with its neighbors, and is willing to give up its 1.5M sq km claim in dispute with Russian and 90k sq km with India.
UPDATE: Angry Bear asks Is China an Economic Threat to the U.S.? There are also two dozen comments on this post, which are worth a quick skim.
The fact that China’s per capita GDP is only 15% of our per capita GDP begs the convergence question. While the U.S. likely will continue to be an innovator in terms of having a more significant commitment to R&D, Barro and Sala-i-Martin note in Technological Diffusion, Convergence, and Growth:
In the long run, the world growth rate is driven by discoveries in the technologically leading economies Followers converge toward the leaders because copying is cheaper than innovation over some range. A tendency for copying costs to increase reduces followers growth rates and thereby generates a pattern of conditional convergence. We discuss how countries are selected to be technological leaders, and we assess welfare implications. Poorly defined intellectual property rights imply that leaders have insufficient incentive to invent and followers have excessive incentive to copy.
China has certainly adopted a policy of copying as opposed to innovating. While the Communist government is not as free market orientated as the folks at AEI would hope, there is little reason to believe that its per capita income will not increase relative to the U.S. even if convergence does not lead to equality of per capita income for the two nations.