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* FEBRUARY 28, 2011, 6:09 PM HKT
Economist: China No. 1 by 2027 Seems `A Certainty'
With China now officially confirmed as the world's second largest
economy, the question is when if ever it will become number
one and force the U.S. to eat its dust . A secondary question: What will
be the role of the yuan if China takes the top spot?
Agence France-Presse/Getty Images
Takatoshi Ito, an economist at Tokyo University, thinks China's
heading to the top fairly quickly. Writing in the December Asian
Economic Policy Review, a publication that sometimes gets overlooked on
the academic circuit, he calculates that China should pass the U.S.
sometime between 2021 and 2027, even if Chinese growth rates slow. The
one wild card: China slips into a Japan-like lost decade , which he
considers a low probability event.
"China as number one before 2027 seems to be a certainty," he
wrote.
He's more optimistic about China than others, including Arvind
Subramanian, an economist at the Peterson Institute for International
Economics, who figures the cross-over point will be around 2030. With
four times the. U.S. population, China needs a GDP per capita of
slightly more than one-fourth the U.S. to push ahead. Currently,
China's GDP per capita is one-eleventh the level of the U.S.
What does the number one ranking mean for the yuan? In 2011, the yuan
accounted for roughly 0.2% for foreign exchange transactions, just
behind the Hungarian forint. The much-criticized dollar ranked first,
accounting for the majority of transactions, while the euro was a
distant number two.
Mr. Ito doesn't make any forecast about how rapidly the yuan will
climb on the forex charts. But he does say the yuan has a big footprint
regionally. The last time the yuan floated somewhat, from 2005 to 2008,
he says the Singaporean dollar, Thai baht, Malaysian ringgit and
Philippine peso moved more or less in lockstep.
He figures something similar will happen now, given China's efforts
to have the yuan used more internationally. "The process toward at
least becoming a regional key currency, and eventually the international
key current, seems to have started," he wrote.
Bob Davis
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