Search

Using simulations projecting Chinese economic growth into the future, this paper first examines when China will overtake the USA to become the largest economy. Demographic changes that affect economic growth are taken into consideration in these projections. China is expected to become number one sometime in the mid-2020s, unless its growth rate of gross domestic product per worker declines dramatically, à la the lost decade of Japan. Next, the paper examines whether China becoming the number one economy will mean its currency, the renminbi (RMB), will become the international key currency. According to the basket currency regressions during the period that Chinese currency was gradually appreciating against the US dollar from July 2005 to August 2008, it is shown that the RMB has already acquired a strong influence on the Asian currencies. This shows that the RMB is fast gaining the status of a regional anchor currency for a possible regional joint float. As the Chinese government proceeds with internationalization of its currency, the RMB is expected to gain in the ranking of other aspects of international currency, such as the store of value and the medium of exchange. [ABSTRACT FROM AUTHOR]

Overview: Dollar surge brings mixed consequences The strengthening dollar is now becoming a significant factor for global growth and our forecasts. The tradeweighted dollar is up 2.5% over the last month and over 12% on a year ago., Driving the latest rise are growing expectations of US rate hikes while monetary policy in many other major economies is headed in the opposite direction., The beginning of ECB QE has prompted a further slide in bond yields and the euro - which at 1.06/US$ is on course to fulfill our forecast of near-parity by year-end. Weak data in Japan also raises the chance of a further expansion of QE there later this year., We remain relatively positive about the advanced economies: we forecast G7 GDP growth at 2.2% for 2015 and 2.3% next. This month we have revised up German growth for 2015 to 2.4% - a four-year high., Robust US growth and a strong dollar are good news for the advanced economies. US import volume growth firmed to over 5% on the year in January, while the dollar surge potentially boosts the share of other advanced countries in this growing market., But for the emerging economies the picture is mixed. A stronger US may boost exports, but rising US rates are pulling capital away: there has been a slump in portfolio inflows into emergers in recent months. Emerging growth may also suffer from higher costs of dollar funding and a rising burden of dollar debt as currencies soften - the more so if US rates rise faster than markets expect., Moreover, emergers are also under pressure from a slowing China. Chinese import growth has been weak of late and commodity prices remain under downward pressure. A notable casualty has been Brazil, which we have downgraded again this month - GDP is expected to slump 1.1% this year., Emerging GDP growth overall is expected to slip to 3.7% this year, the lowest since 2009. And excluding China, emerging growth will be only 2.2% - the same as the G7 and the worst performance relative to the advanced economies since 1999. [ABSTRACT FROM AUTHOR]

The current debate over China's rise and the future of international primacy is polarized between two prevalent views: one foresees China becoming the world's largest economy and taking over the position of international primacy from the United States, whereas the other believes that the Chinese economy will falter as a result of structural imbalances and China will not become a superpower. Both predictions miss the mark. This study argues that notwithstanding the political will to rebalance the economy, China will continue to follow an investment-intensive growth path, and despite the structural imbalances, this path will still be able to lead to Chinese economic primacy. But sheer economic size is not a good indicator of hard power. Using an organic combination of wealth and productivity as an indicator of hard power, the article shows how close the power competition between China and the United States will likely be and that Beijing may not be able to surpass Washington as a superpower. [ABSTRACT FROM AUTHOR]