Can China Overtake U.S. as World's No. 1 Economy?

      August 26, 2010 08:40

      After the news that China has pulled ahead of Japan to become the world's second largest economy, experts are now speculating on when it might dethrone the U.S. to take the No. 1 spot. Nomura Securities forecasts China could achieve the feat in less than a decade. Nobel Prize-winning economist Robert Fogel of the University of Chicago predicts that China will account for 40 percent of the world's GDP by 2050, and the U.S. a meager 14 percent.

      But other experts say fears of Chinese hegemony are exaggerated as the country's rapid economic growth will soon hit its limits. Forbes magazine issued a report on Tuesday that looks at "five reasons why the U.S. can stay ahead of the Middle Kingdom."

      First on the list is water. "If water is the 'new oil,' China faces a thirsty future," Forbes wrote. According to Steve Solomon, author of "Water: The Epic Struggle for Wealth, Power and Civilization," China has about one-fifth per capita the amount of freshwater reserves as the U.S., and much of its supply is polluted. While water usage in the U.S. has become more efficient, China faces growing demands from businesses, farms and its burgeoning population.

      China also lacks domestic resources to keep up with its soaring energy demands. It depends on foreign sources for nearly 60 percent of its oil needs, and is also becoming a major importer of coal. In contrast, the U.S. possesses vast reserves of untapped fossil fuel resources, including coal, natural gas and oil. Counting Canada, North America ranks second in the world in energy resources. Energy usage in the U.S. appears to be falling, even as the country begins to harness greater amounts of power from green sources such as wind and biomass.

      Another problem China faces is its growing food needs, as agricultural production will likely be limited by the lack of water, rising energy costs, and pollution. "By some estimates acid rain falls on a third of all agricultural land; some climate experts predict long-term reductions in the country's vital rice crop," Forbes wrote. Floods and other natural disasters may even prompt China to turn to the U.S. and other countries for food.

      The other issues that may hinder China's growth are its rapidly aging population and shrinking workforce and "Big Brother" style of economic leadership. "The longest lasting of the authoritarian superpowers, the Soviet state massively misallocated its resources in its unsuccessful competition with the more flexible systems of the U.S. and its allies," the magazine said.

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