X

Select the account you'd like to open

Will China become the world’s largest economy?

China’s rise from a struggling, poverty-stricken nation to an industrial powerhouse with the second-largest economy in the world has been one of the most remarkable economic transformations in history. Economists are now forecasting that China will become the world’s largest economy in the coming decade, but can it sustain the level of growth required to achieve that? 

See inside our platform

 An award-winning provider with over 30 years' experience

How are economies measured?

Gross Domestic Product (GDP) is the key indicator used by economists to measure the economy of a country. GDP is effectively how much wealth a country generates, factoring the value of all goods and services produced within a country in a year. 

Measuring GDP involves counting up the production of the millions of different goods and services produced in the year and putting a dollar value on the total. GDP is important because it provides an overview of how an economy is doing. If GDP speeds up, it can be a sign that positive things are happening or are about to happen in a number of areas — people are getting more jobs or better pay, or businesses are confident enough to invest more. 

Top 10 economies by nominal GDP in 2021 in USD

  1. United States ($22.67 trillion)
  2. China ($16.64 trillion)
  3. Japan: ($5.37 trillion)
  4. Germany: ($4.31 trillion)
  5. United Kingdom: ($3.12 trillion)
  6. India: ($3.04 trillion)
  7. France: ($2.93 trillion)
  8. Italy: ($2.1 trillion)
  9. Canada: ($1.88 trillion)
  10. Korea: ($1.8 trillion)

Why is China on track to being the world’s largest economy?

As little as 50 years ago, China was an economically isolated nation struggling with extreme poverty. In 1978, key reforms were introduced and China was brought onto the world stage. Between 1978 and 2008, the size of the Chinese economy grew by an average of 10% a year, swelling to almost 50 times its original size.

Over the past decade, the rate of growth has slowed, reflecting the larger size of the economy. But the country has still notched up an impressive average growth rate of 6.5% since 2013. For comparison, the US has been recording growth rates ranging from around 1.5% to around 3% in the decade following the 2008 crash.

China’s strong recovery from the pandemic has accelerated this trend, with China expected to contribute more than a fifth of the total global increase to GDP in the next five years.

A major factor in China’s economic rise has been its massive network of factories that manufacture everything from toys and electronics, to aluminium and chemicals, leading China to become the world’s largest exporter.

With a population of 1.4 billion and rising household wealth, China also has the fastest-growing consumer market in the world – around 400 million people are now classified as middle class. This means there is more money to be spent on domestic consumption, which will help buoy the economy during periods of economic slowdowns.

According to forecasts, Chinese consumption is expected to grow by about US$6 trillion from today through 2030. That sum is equivalent to the combined consumption growth expected in the US and Western Europe over the same period. This level of growth will be key to China becoming the world’s largest economy, especially as it looks to rely less on its exports.

What would stop China becoming the largest economy?

Unlike most countries, China recorded GDP growth in the years around the financial crisis thanks to major government stimulus, including tax cuts as well investment in major infrastructure projects, which has been ongoing. While successful in maintaining GDP growth, the stimulus has been blamed for the country’s increasing debt. Overall Chinese debt (taking in households, businesses and governments) is at a record high – close to 270% of its GDP – and there is much speculation about whether that debt will be effectively managed over the coming years. 

Another major threat to China’s economic growth is its aging population. China’s economy relies on its mobile workforce, but current demographic trends could hamper economic growth. China’s fertility rate has fallen below population replacement levels (the amount of births needed to sustain population size) at just 1.3 children per woman.

In order for a population to maintain its size, the total fertility rate must be around 2.1 children per woman. China’s population is expected to peak at about 1.4 billion around 2025, before beginning a steady decline. As China’s labour pool dwindles, manufacturing wages are likely to increase and the sector will decrease in profitability, thus slowing economic growth. As a result, some experts believe China will struggle to keep growth above 4% over the next 10 years.

Is China set to become the world’s largest economy?

There is no doubt that on its current trajectory, China will become the world’s largest economy in the next decade or so. However, it’s never wise to simply take a country’s recent rate of growth and project it into the future. No one knows what disruptions the future will hold – financial crises, debt problems, trade disputes, not to mention events like the COVID-19 pandemic. On the other hand, after decades of continuous growth, many would be reluctant to be against China’s continued success, regardless of the potential headwinds for its economy.

FAQS

Does China have a good economy?

China’s rise from a struggling, poverty-stricken nation to an industrial powerhouse with the second-largest economy in the world has been one of the most remarkable economic transformations in history. Economists are now forecasting that China will become the world’s largest economy in the coming decade. Trade Chinese shares today with CMC Markets.

What is China's main economy?

A major factor in China’s economic rise has been its massive network of factories that manufacture everything from toys and electronics, to aluminium and chemicals, leading China to become the world’s largest exporter. With a population of 1.4 billion and rising household wealth, China also has the fastest-growing consumer market in the world. Trade China’s Star 50 Index today with CMC Markets.

Is China richer than USA?

There is no doubt that on its current trajectory, China will become the world’s largest economy in the next decade or so. China notched up an impressive average growth rate of 6.5% since 2013. For comparison, the US has been recording growth rates ranging from around 1.5% to around 3% since 2008. Trade global financial markets today with CMC Markets.

Start trading now

Access domestic and global markets wherever you are with an award-winning platform at your fingertips