Shanghai - the commercial capital of China

China’s economy will surpass that of the United States by 2035 and be twice its size by midcentury, a new report by Albert Keidel of the Carnegie Endowment for International Peace, concludes. China’s rapid growth is driven by domestic demand—not exports—and will sustain high single-digit growth rates well into this century.

In China’s Economic Rise—Fact and Fiction, Keidel examines China’s likely economic trajectory and its implications for global commercial, institutional, and military leadership.

Key Conclusions:

• Potential stumbling blocks to sustained Chinese growth—export concerns, domestic economic instability, inequality and poverty, pollution, social unrest, or even corruption and slow political reform—are unlikely to undermine China’s long-term success.
• China’s financial system, rather than a shortcoming that compromises growth potential, is one of the strengths of what the report calls “China’s money-making machine,” in part because of its ability to support the financing of infrastructure and other public investments necessary for sustained rapid growth.
• A Chinese economy that eclipses the U.S. by midcentury has both commercial and potential military implications. China will be the preeminent world commercial influence. China’s military capabilities are a small fraction of the United States’ today, so there is time to prepare for a very different world in fifty years, says the report.  
• American policy makers should take this opportunity to enact wide-ranging domestic reforms and rethink their concepts of global order.  

“China’s economic performance clearly is no flash in the pan. Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the twenty-first century, unfettered by world market limitation. China’s likely continued success will eventually bring an end to America’s global economic preeminence, requiring strategic reassessment by all major economies—especially the United States, the European Union, Japan, and even China itself."

The World Bank said last December that China remains is the world's second-biggest economy.

Keidel, says the rise of China to the world's biggest economy will happen regardless of the method of calculation.

Under current market-based estimates, China's gross domestic product is about $3 trillion compared to $14 trillion for the US. Based on purchasing power parity (PPP)  measure used by the World Bank and others to correct low labour-cost distortions, he said China's GDP is roughly half of that of the US but, in terms of per capita gross domestic product, it is only 9.8 per cent of the size of the US.

Keidel's calculations suggest that using the PPP method, China will catch up with the US as an economic power by 2020, with an equivalent GDP of $18 trillion. Based on the more commonly accepted market method, the turning point will come by 2035. By 2050, he estimated Chinese GDP at some $82 trillion compared with $44 trillion for the US.

However, the Chinese standard of living will remain lower -  with per capita GDP in China between half and two-thirds the level of that in the US in 2050, according to the report. Keidel said poverty will remain a significant problem in China  for decades despite considerable progress.