Economy to overtake US in six years, academy says

China’s economy is just six years away from overtaking that of the US, the Chinese Academy of Sciences predicts.

It is clear that more than three decades of double-digit economic expansion has transformed China from an agricultural country into the world’s second-biggest economy. There is ongoing debate though about when exactly China will overtake the US, and what precisely this means.

Most of the predictions focus on the broad GDP figure, but on a per capita basis, the US is likely to remain richer, given China’s huge population of 1.3 billion compared to 315 million in the US.

A big factor in that expansion has been the growth of the export market and China’s trade with the rest of the world.

China’s trade surplus surged 48.1 per cent to €176.7 billion last year from the previous year, although total trade volume grew at a much slower pace, recent official data shows.

Exports rose 7.9 per cent to €1.57 trillion, while imports increased 4.3 per cent to €1.39 trillion, the national customs bureau said. Trade volume – the total of exports and imports – grew 6.2 per cent in 2012, well below the government’s target of 10 per cent.

“China’s foreign trade continued to grow steadily and made further progress in improving quality, increasing profits and optimising structure,” says customs office spokesman Zheng Yuesheng.

“In our view, credit issuance remains insufficiently strong to support a sustainable recovery,” Xianfang Ren and Alistair Thornton from IHS have written in a research note.

Without an improvement in the credit environment over the next few months, oxygen will be sucked out of the current cyclical upswing and growth will slow materially in the summer, they say.

“Further, this trend will likely be exacerbated if the rhetoric on a shadow banking crackdown actually comes to something – although we doubt Beijing has the stomach for that at present. Faced with the prospect of materially slowing growth, we feel authorities will opt for the can-kicking approach to shadow finance regulation. As such, expect more market wobbles and scary headlines. We’re in for quite a year!”

Inflation, meanwhile,jumped to a six-month high in December, driven by a surge in food costs due to unusually cold weather. Data shows consumer prices rose 2.5 per cent over a year earlier, up from November’s 2 per cent. The increase was driven largely by a 14.8 per cent rise in prices for vegetables after the country’s coldest winter in seven years led to smaller harvests.