December Re-Examination/Analysis of: "Can China Overtake the US in GDP Nominal Before the End of the Decade?"

Previous Thread here: Can China overtake the US in GDP Nominal before the end of this decade? A Thread...

I made this thread back in September. As of now, we have new data and forecasts to go off of, I thought we should revisit the topic, with more accurate forecasts and predictions. Since I felt this topic was too big for a single post, I decided to recreate a new thread for this topic:
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Let's examine the IMF figures, for a bit of context if you didn't know before:

From the October IMF World Economic Outlook (2020), it produced data forecasts for US versus China's economies up until 2025. Based on the trends elucidated by the IMF October WEO, I further extrapolated beyond towards 2030 based on this forecast data. This is compiled in the Excel tables below; white cells mean confirmed GDP data, yellow-colored cells are IMF-forecast data from the October WEO, and teal-colored cells are my own interpretation and extrapolation of trends based on the IMF October forecasts.


For anyone wanting to know what the numbers in brackets next to specific years mean:

• [1]: the earliest possible date in which China's overall GDP will overtake the United States, based on the upper bound of exchange rates of $1 USD= ￥6.00 RMB, is 2025
• [2]: the median-forecast prediction for when China's overall GDP will overtake the US in 2028, based on extrapolation from the IMF's predicted exchange rate figures based on their last 2025 exchange rate prediction, which was $1 USD= ￥6.67 RMB.
• [3]: the latest possible date (barring a seismic or global-scale event) in which China's overall GDP will overtake the United States, based on the lower bound of exchange rates of $1 USD= ￥7.00 RMB, will be 2029.

On a graph, this is what the data looks like:


The 2028 date seems to be the median date forecasted for when China's nominal GDP overtakes the US's; economists cited by both the NYT and the Nikkei Asian Review have predicted 2028 to be the pivotal year where this shift takes place. As such, based on the IMF forecasts alone, I would say 2028 would be the median scenario when China comprehensively overtakes the US economically.
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But even still, the IMF forecast from October may be out-of-date for China. Recent news, such as the record-high manufacturing PMI's, the astounding export growth in November, and the ever-accelerating investment and consumption metrics show that IMF's forecast may in fact be an underestimate of whats to come for China. In fact, many recent forecasts are much more bullish on China's FY2020 and FY2021 economic growth prospects, with Nomura predicting upwards of 9% growth in 2021, or Capital Economic's forecast of even 10% growth in 2021.

As such, going off of this, I am going to make four different forecasts pertaining to four different scenarios, like last time:

1. Optimistic Growth, Unchanged Exchange Rate of $1 USD= ￥6.5 RMB
2. Optimistic Growth, Gradual RMB Appreciation to Exchange Rate of $1 USD= ￥6.0 RMB by 2025 (RMB appreciates by 1.614% per year for five years against the dollar)
3. Pessimistic Growth, Unchanged Exchange Rate of $1 USD= ￥6.5 RMB
4. Pessimistic Growth, Gradual RMB Appreciation to Exchange Rate of $1 USD= ￥6.0 RMB by 2025 (RMB appreciates by 1.614% per year for five years against the dollar)

So "Optimistic Growth" situation would be where China's economic growth between 2022-2030 is better than the IMF forecast and derived extrapolation. Conversely, "Pessimistic Growth" would be where China's economic growth between 2022-2030 underperforms (but not significantly) IMF's growth forecast expectations. Let the growth situation for these four scenarios be:

Here, both the US and Chinese economies perform better than the IMF's forecast expectations. As for inflation, my forecasts for both optimistic and pessimistic growth scenarios would adjust China's inflation rate up to be more in line with the pre-pandemic inflation rates; the US inflation rate will not be adjusted, as it is generally around the same level as pre-pandemic inflation. This would translate to:


In my personal forecast:

• Scenario [1] (Optimistic Growth, Unchanged Exchange Rate of $1 USD= ￥6.5 RMB) would translate to China overtaking the US by 2026
• Scenario [2] (Optimistic Growth, Gradual RMB Appreciation to Exchange Rate of $1 USD= ￥6.0 RMB by 2025) would translate to China overtaking the US by or even before 2025, depending on how fast the RMB appreciates to the level of $1 USD= ￥6.0 RMB
• Scenario [3] (Pessimistic Growth, Unchanged Exchange Rate of $1 USD= ￥6.5 RMB) meanwhile would translate to China overtaking the US economically as late as 2028
• Scenario [4] (Pessimistic Growth, Gradual RMB Appreciation to Exchange Rate of $1 USD= ￥6.0 RMB by 2025) would coincide with Scenario [1] in that China would overtake the US economically by 2026 in that scenario. Either way, these 4 scenarios illustrate a variety of different paths China's economy may end up taking in the coming decade.

Based on this, in my view, China is almost guaranteed to overtake the US before the end of the decade. Question is, will it be mid- or late- decade? To me, these scenarios depend on whether or not dual-circulation can be successfully implemented, or if the trade and tech war with the US escalates. Right now, it looks to me that dual-circulation has a good chance of being carried through, while Biden probably won't escalate trade or tech war against China; i.e. conditions favourable for Scenario [2], in my opinion. Having said that, the calculus for the latter (i.e. Biden's admin policies towards China) very much could change in the later-half of the decade; if Trump or a Trump-like anti-China candidate again ascends to the White House in 2025, Scenario [1] or [3] may likely occur. It all depends. Either way, the overall fundamental trend, that China's economy is regardless of going to overtake the US at some point, is supported by all 4 scenarios. My personal estimation for which year China's economy can overtake the US's is here:

• 2025: 10% chance
• 2026: 30% chance
• 2027: 35% chance
• 2028: 15% chance
• 2029: 10% chance

In either case, let me know in the comments what you think.

Almost certainly in the next decade the US will actively cause some kind of incident in an attempt to shake up investor trust in China. The US has been trying to do so indirectly through India, HK, SCS but not been successful, so I predict the US will become more direct and desperate.

A graph to help visualize everything:

Great work!

Though I don't believe nominal GDP to be the most accurate method of gauging annual economic size. Nor PPP GDP.

The truth lies somewhere in-between for each country. For India, which consumes lots of products but produces very little, it's true economic size lies closer to its nominal GDP (assuming it's even accurate). For China I believe the truth lies a little bit closer to its PPP GDP.

While the IMF doesn't officially state they have a way of measuring true relative economic size, they actually have a method listed in one of their appendices.

60% of PPP GDP + 40% of Nominal GDP = the true measure of relative economic size according to the IMF.

Using this:

2020 GDP USA: $20.807 trillion (1.8% larger than China, or 0.4% smaller than China when including HK/MO in China)

2020 GDP China: $20.442 trillion

2020 GDP China (+HK/MO): $20.877 trillion

Now, this simple calculation is a size fits all attempt for all countries. The true % to use for nominal and PPP will vary for each country.

2020 may be the first year where China has surpassed the US in true economic size