Why China’s Economy is Unlikely to Overtake the U.S.

July 12, 2022

For decades, the rise of China has been treated as something of a fait accompli. Economists, politicians and academics have wondered not if, but only when, China would surpass the United States as the world’s preeminent economic superpower. The nation’s sheer size, in terms of both land mass and population, and rapid transformation from an agrarian nation to one of the centers of global trade have made its ascendence seemingly inevitable. However, China now faces several headwinds. Its rapid GDP growth has cooled in recent years, and new research calls into question just how accurate the lofty GDP figures are. One of the nation’s greatest assets, its massive pool of cheap labor, has largely been tapped, and the labor force is rapidly aging, unable to be replenished by new workers because of Beijing’s draconian one-child policy. The country is facing the “middle-income trap,” where the growth potential of export-driven, low-skill manufacturing and debt-fueled infrastructure spending has been exhausted, and the cost of servicing debt outpaces its economic benefits. To become a truly developed nation, China will need to find a new growth model that instead relies on domestic consumption, increased worker productivity, and innovation, something that China may not be able to achieve.

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