Question

Can anyone elaborate on why if current trends continue, China may emerge as the world’s largest economy by 2020? Discuss the possible implications for such a development for (a) the world trading system; (b) the world monetary system; (c) the business strategy of today’s European and U.S.-based global corporations; and (d) global commodity prices.

Can you please reference scholarly articles that support why and how? I am trying to understand the specifics on why this is a relevant question at this time.

Answer 1

China may emerge as the world's largest economy by 2020 because it has economies of scale and faster turn around time for any project to kickstart. It has greater participation in the global supply chain. Its exports drive the output and with the current pandemic, its growth is already expected to pick in Q22020, while in US, EU, and Japan it is expected to contract.However there is a downside which could pose a risk such as companies moving out of the supply chain from China because of the pandemic. But if China emerges as the world's largest economy than the world trading system will be controlled by China as China has had a trade surplus for several years.

China's monetary system will have to be as transparent as USA's as people will start trading and hedging more strategies to get access to the market. Instead of the Fed rate being the most revelant point for global transaction, the monetary system will shift towards China and people will start considering the PBOC policy rate to be the benchmark.

(c) Business strategy of European and US global corporations may change as Renminbi might start to be the preferred global currency, which could make it a safe haven currency as compared to other local currencies. Thus organisations and economies will start using remnibi as a reserve currency.

(d) Global commodity prices will start to decline as China is already a global supplier of steel and other metal products. As it has the economies of scale it will try compete in the chain further and replace other industries in other economies because of its government subsidies and ease of business. Once it gets a stronghold, it might increase the prices to gain profits.

Source: Bloomberg, Congressional research service.