China may never overtake US, warns Citi

CHINA’S crushing debt levels, ageing population and property crisis means it may never surpass the US to become the world’s largest economy, according to a leading investment bank.

Nathan Sheets, global chief economist at Citi, said it was no longer “inevitable” that the Chinese economy would surpass the US after Beijing lost major ground over the past two years.

Mr Sheets pointed out that China had shrunk compared to the US. China’s economy is now equivalent to 65pc of America’s GDP, down from 75pc in 2021.

The Wall Street economist said many of the factors that powered China’s rise to become a global economic superpower over the past two decades were now fading.

The benefits of urbanisation, where millions of workers moved from the countryside to the cities, is now largely “tapped”, for instance. The country also has an ageing population, with a third expected to be over 60 by 2040, according to the World Health Organisation.

A debt-fuelled construction boom that helped power the domestic economy has also ground to a halt. A Hong Kong judge ordered the liquidation of Chinese developer Evergrande, the world’s most indebted property company, in a symbolic embodiment of the unravelling this week.

Mr Sheets, who served as under secretary for international affairs at the US Treasury under President Barack Obama, forecast that China’s economy would average growth of 4pc over the medium term, down from 10pc before the financial crisis.

He said: “Challenges loom from high debt levels, stresses in the property sector, ageing demographics, and geopolitical headwinds.

“The government has responded by seeking to foster advanced manufacturing, high-tech production, and green infrastructure. But whether this push will be sufficient is an open question.

We now believe that Chinese overtaking is likely, but we no longer see it as inevitable.”

Analysts have predicted for years that China would surpass the US as the world’s biggest economy thanks to its rapid growth rates and slowing expansion in the West. Goldman Sachs began speculating in 2003 that China could overtake the US by 2041.

At the time, China was just 15pc of the size of the US. However, its economy grew rapidly after joining the World Trade Organisation (WTO) at the start of the millennium. As a result, many observers began to predict that China could overtake the US this decade.

However, Beijing’s zero-covid policies have driven a major slowdown in recent years. Attitudes towards Beijing have also hardened in Congress, with Republicans and Democrats calling for economic and financial ties with China to be severed, including the removal of the low tariffs introduced on Chinese goods when it joined the WTO.