The fast-growing economies of China and India will soon be worth more than the combined gross domestic product of the Group of Seven countries, according to new a study predicting global economic growth rates over the next half-century.
China’s GDP growth, however, will slow significantly after 2020, because of a rapidly aging population that will present major policy challenges to the country's leadership, the report by the Organization for Economic Co-operation and Development predicts.
It says China’s GDP growth will outpace all other countries for the next seven years but will then be overtaken by growth rates in the emerging economies of India and Indonesia.
The expected slowdown in China will be caused primarily by shifting demographics: Its aging population will reduce participation in the country's labour force, cutting productivity and stressing social-welfare spending.
China, the worlds most populous country with more than 1.3 billion citizens, is getting old in part because of a policy implemented in the late 1970s that prohibits families from having more than one child. There have been calls to repeal the one-child policy, but the leadership of the Chinese Communist Party has resisted.
In the study, published Friday and titled Looking to 2060: A Global Vision of Long-Term Growth, the OECD says the number of people in China over the age of 65 will quadruple over the next 50 years. By 2030, more than 35 per cent of China’s population will be older than 65 and by 2060, more than 60 per cent of the people living in China will be senior citizens.
“More-rapid aging in this country partly explains why India and Indonesia will overtake China’s growth rate in less than a decade,” the report says.
A young and plentiful work force has been a key driver of the rapid economic growth enjoyed by China over the last decade that has propelled it past Japan to become the worlds second-largest economy and soon to be No. 1, ahead of the United States.
But there are already signs of a labour squeeze that could prevent China from avoiding the so-called middle-income gap, meaning its citizens will get old before they get rich. China’s income per capita is currently about $5,000 (U.S.), compared with about $48,000 per person in the United States and $45,000 in Canada, according to the World Bank. The OECD report predicts that both China and India will experience a more than a sevenfold increase of their income per capita by 2060. The rise will be more pronounced in China, the OECD says, reflecting the momentum of particularly strong productivity growth and rising capital intensity over the last decade.
This will bring China 25-per-cent above the 2011 income level of the United States, while income per capita in India will reach only around half the current U.S. level. However, the report cautions that living standards in China, India and some other emerging countries will still only be 25– to 60-per-cent of the level of those enjoyed by leading OECD countries by 2060.
Despite China’s looming demographic challenges, the OECD projects it will surpass the euro area in 2012 and the United States “in a few more years,” to become the largest economy in the world measured by purchasing power parity (which measures purchasing power adjusted to reflect for exchange rates).
By this measure, the report says, India is surpassing Japan and is expected to surpass the euro area in about 20 years. The faster growth rates of China and India imply that their combined GDP will exceed that of the economies of the G7 countries (the United States, Japan, Germany, Britain, France, Italy and Canada) by 2025, the OECD said. By 2060, it will be more than 1.5 times larger.
In 2010, China and India accounted for less than one-half of G7 countries GDP. The OECD predicts that by 2060, the combined GDP of these two countries will be larger than that of the entire OECD.