Chinese Economy to Reach US$10 Trillion in 15 Years: Economist

China News Digest, 8 February 2001

[CND, 02/08/01] Andy XIE, economist of the Morgan Stanley Dean Witter, predicted that the Chinese economy could cross the US$10 trillion mark within 15 years, as a result of current restructuring programs and the implementation of institutions that support the market economy.

It will probably take place within two decades and could happen in 15 years, Mr. Xie said.

He noted that the U.S. economy passed the US$10 trillion mark in 2000, he said. Last year, the Chinese economy reached US$1 trillion. However, we believe that China will be the next economy to reach US$10 trillion in today's dollar terms, Mr. Xie said. We believe that China's restructuring is real and is greatly facilitated by the application of information technology.

Information technology will be an important factor in helping to create an efficient tax-based system, he said. In addition, China's size, high savings rate and low initial base will help to spur its growth.

Reporting on China's potential for growth, Mr. Xie argued that the path to becoming a so-called middle income economy by 2020 was a convergence of high economic growth rates together with real currency appreciation over a period of a decade or more.

In contrast, poorer countries require undervalued currencies in order to offset their economies' structural inefficiencies and the high demand for jobs relative to supply.

When restructuring has removed most inefficiencies and the employment rate is sufficiently high, a developing economy will become a converging economy, Mr. Xie said.

Mr. Xie expects that China will experience an even faster rate of convergence during the period from 2005 to 2020 than did Japan during its economic expansion from 1955 to 1974. In contrast to Japan, China also understands the importance of sharing the benefits of its growth with the global community, in order to better align international interests for its development.

One step towards sharing these benefits would be China's entry into the World Trade Organization (WTO). Currently, multinationals control about 10 percent of China's economy. This figure could reach 20 percent by 2006.

However, Mr. Xie also noted that there are factors that will work against this development prognosis, such as social instability, government corruption, environmental problems, and containment by developed nations.

Investors trying to understand when China's economy would take off should wait for China's entry into the WTO, Mr. Xie said. The next milestone to watch for would be the separation of businesses and government. (Laurel Mittenthal, WU Yiyi)