Will China be bigger than the US in 2016 as Ferguson forecasts? Or never?

John Mauldin had the chart above from Niall Ferguson (http://www.businessinsider.com/mauldin-a-graphic-presentation-on-the-sorry-state-of-the-global-economy-2012-5)  about shares in the world GDP of the most important countries. and his forecast until 2016. So it is definitely not a certainty.

China is approaching the US GDP very fast. The real growth is I think about 6% faster, inflation is a 2 tot 3% higher and the yuan was appreciating with about 3 tot 5% a year. Together that is a lot and nominal GDP of China could surpass the US nominal GDP around 2020. Ferguson thinks it will go even faster (he is more negative about the US).

But is that going to happen? The yuan is no longer appreciating. Worse, China is now fighting the middle income trap , and 85% of the countries did not manage to win that battle. China must undergo a transition from an export and investment driven economy tot a consumer driven economy. For the time being the signs are favourable. The wages rise rapidly and people want to consume more, the middle class is buying everything.

China is overinvesting in a terrible way, not seen before in the world (China invests as much as the US and Western Europe together) and this will go all right only for a few years. The Chinese government tries to stop the overinvestement, but this is a nearly impossible thing to manage. Around 2018-2020 it will go wrong in a terrible way. Just like in Japan after 1990 investments/ GDP will have to decline substantially for a long period. The demographics are already bad at the moment (after decades of tremendous growth of industrial labourers and fast rising population after 2015 we will see a decline in the labour population and no inflow from ex farmers). When those overinvestments become bad investments that will cause a real recession in China (not lower than 6% growth, but lower than 0%). This will cause a recession in the entire world, the first China driven world recession.
China is not flexible enough to invents its way out so it wil last long.

The growth of the US in US $ will be quite often be higher than that of China in that scenario. Population growth in the US is high, the US is much more innovative, profitability is beter and more solid. When the bad times in China will last too long it is even thinkable that the US GDP in $ in 2100 is higher than in China. The population of China will decline from 1300 million to maybe 950 million and the population of the US will grow from 320 million to about 500- 550 million in 2100. It is definitely not unthinkable that GDP per head in the US will still be double that of China in 2100.

Super cycle: China more important than US and China together in 2030

Standard Chartered extrapolated the growth of the countries in the world to 2030 according to their own expectations. They are 2,5% growth for the US and Europe and 6,9% for China and 9,3% for India.
From 2010 to 2030 the world GDP in $ will rise tremendously, it will be five times bigger than today.
Standard Chartered is afraid they calclulate not enough growth for India, 12% is possible when the red tape goes down structurally and when they continue to invest lots and lots in infrastructure as they suddenly are doing now (they have seen the success of China by doing this).
The growth for the US is a bit too low I think, 3% is definitely possible until 2030 and maybe 3,5% also. For Europe 2% should be already quite an achievement given the much worse demography of Europe than that of the US.

The estimates for 2030 are also very difficult because of the expected rise of the currencies of China and India in real terms. That can be more than now is calculated or less. The results for 2030 are higher than tou normallty see because a rise of value of the currencies is supposed, what most forecasters don't take into account.

Based on the assumptions of Standard Chartered you see that the size of the Chinese economy in 2030 is almost as big as that of the US and Europe together (and that with that favourable 2,5% growth expectation for Europe and that cautious forecast of 6,9% for China). India could be in 2030 almost as big as the US (that is more optimistic than I have ever seen before).
Japan will become pretty unimportant in 2030 (still they will get 1% growth despite the decline of the population).
(picture of Harry Camp at story about China from Ferguson in WSJ)

The Super Cycle (1) and the growth of the Middle Class

Standard Chartered had a voluminous story about the super cycle on the long run (152 pages). Included are several interesting chapters and charts.
Standard Charted has extrapolated the current existent trends cautiously for 20 years. By doing so you see tremendous changes in the world: the West will be totally passed by China and (in this period not totally0 India. You still become surprised by the numbers after 20 year, even while you know very well of the trends that china and India and many other Emerging Markets do what their name suggests.

The division of Standard Chartered agrees well with ours concerning what the good and bad times are if you make that division according to growth above or below average. That is not in agreement with whatare good times for equities, but is is in agreementwith what are good times for the man on the street in the world (=not only the US and the UK).
The economic growth is high in our propserity and recession scenario (recession for profit margins not for labour income).
The by Standard Chartered forecast growth after 2000 can become even higher, according to us the avarage growth will be higher than in the period 1949-1965 (because of the fast growing weight of emerging markets with their hig growth).

The most important driver behind the changes is the rise of the middle class in the world (they change the world dynamism, not the very poor and the very rich). Standard Chartered divides the world North america, Latin America, Africa below Sahel, Middle east + North Africa, Europe, Pacific (India , China, Japan and rest world). You see the tremenedous growth in asia pacific and the relative stability in the rest of the world. The percentage growth in Africa is big, but the absolute growth is low because of the low starting point.
Maybe Standard Chartered is a bit too pessimistic, but in general the growth of the middle class is the best indicator for the growth dynamics in the world.