China to become world's largest economy in a decade

China is set to overtake the US as the world's biggest economy in 2024, as consumer spending is expected to almost quadruple within the next ten years, according to IHS. But analysts also point to major challenges ahead.

Global analytics firm IHS forecasts that China's nominal gross domestic product will amount to 28.25 trillion USD in 2024, compared to the US' 27.31 trillion USD. "Over the next 10 years, China's economy is expected to "re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC) as a region," said Rajiv Biswas, chief Asia economist at IHS, in a September 8 press release.

Consumer spending is key

According to the data, consumer spending is forecast to grow at an annual average rate of 7.7 percent in real terms over the next decade - from 3 trillion USD to 11 trillion USD - becoming a key engine of global consumer demand and world growth. Moreover, the Asian economic giant's share of world GDP is expected to rise from around 12 percent in 2013 to 20 percent by 2025.

"As incomes rise, Chinese households no longer need to save such a high proportion of their incomes for such contingencies as health care and retirement savings, allowing a higher proportion of income to be allocated for consumer spending," said Biswas.

Certain Chinese government measures such as the roll-out of large-scale health care programs in both rural and urban China also support this development by reducing the need for households to save for healthcare. Moreover, Beijing has decided in recent years to back large annual increases in minimum wage levels in Chinese provinces, helping to boost consumer spending power.

Biswas: 'A higher proportion of Chinese incomes can be allocated for consumer spending'

A record trade surplus

The IHS forecast follows data released by China's General Administration of Customs revealing that the country's monthly trade surplus reached an all-time high of 49.8 billion USD, a jump of 77.8 per cent.

However, while exports rose 9.4 per cent year-on-year to 208.5 billion USD in August, China's import growth unexpectedly fell for the second consecutive month, posting its worst performance in over a year. According to Mark Williams, Chief Asia Economist at the UK-based economic research consultancy Capital Economics, the slump is due to weakness in domestic demand, particularly stemming from the slowdown in the property sector which, in turn, has hit imports.

Different ways of measuring

This is not the first time that analysts have predicted that China will surpass the US as the leading economic power, but many tend to disagree about when exactly this will happen. The varying estimates crucially depend on each organization's forecasts about the rate of GDP growth in China and the US.  dw de