When will China be the world’s biggest economy?

When will China outstrip the U.S. to claim the top spot in the world economic rankings? For Beijing, it would be convenient if everyone viewed that transition as inevitable and imminent. The reality is, it’s anything but. A debt crisis, demographic drag, and international isolation could all keep China stuck in perpetual second place. (This piece draws on Bloomberg Economics long-term growth forecasts first published in July 2021.)

Alternative futures

On its current trajectory, China is set to overtake the U.S. and claim the global economy’s top spot in about a decade. But that outcome is far from guaranteed. Bloomberg Economics has modelled a base case and alternate scenarios: a China upside driven by successful reforms; a slower path dragged down by a shrinking population and international isolation; and Beijing’s nightmare, a debt crisis.

Scenario 1: The base case

In the base case, China overtakes the U.S. in the early 2030s.

Scenario 2: A financial crisis

Japan’s quest for the top spot in the global economy ended in a debt crisis. The same could happen to China. The sharp rise in borrowing since 2008 is a red flag.

Scenario 3: A slowdown

It wouldn’t take a financial crisis to slow China’s rise. A combination of isolation, demographic drag, and governance failures could have the same effect. If the U.S. outperforms in the meantime, it’s tough to say who would come out on top.

© 2022 Bloomberg

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