Business

China’s Per Capita Income Will Be Half Of America’s In 50 Years

According to a May 20th report from the Federal Reserve Bank of Minneapolis, the per capita income of Chinese citizens is likely to at least double and possibly triple over the next five decades. Authors Jingyi Jiang and Kei-Mu Yi analyze both historical data from Japan and Korea and recent Chinese economic data in developing their model.

More on methodology of study on future China per capita income

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Estimating future growth of an economy is a very difficult task, so the goal of the authors is simply to provide a reasonable ballpark estimate based on both theory and data. They apply the neoclassical growth model developed by Robert Solow in the 1950s in this study. The most important mechanism in this model is accumulation of capital, which increases GDP per capita. However, as Solow himself pointed out, accumulating capital itself decreases future growth. Therefore, it seems highly likely that China’s growth will continue to slow down.

Fed China

The data for this project include both recent Chinese data and also historical data from South Korea and Japan, countries which saw their own “growth miracles” in a few decades before China’s. The historical data are used as they complement the theory, in that South Korea and Japan and many other countries enjoyed initial high  growth that has slowed over time to rates similar to or even lower than the U.S. rate.

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Jiang and Yi also highlight that China has also begun to experience relatively slower growth in recent years. Furthermore, they point out that “no country in the world has been able to sustain growth rates of 7 percent or higher for more than four decades.”

Study results

Fed China

The calculations in the report suggest that China will continue to increase its per capita income more rapidly than that of the U.S. for at least four decades. By sometime around 2060, China’s citizens will be earning close to half of what U.S. citizens earn.

Thew authors also point out that although China’s income per capita relative to the United States will increase by more than 100% during this time period, the absolute income per capita will actually increase by over 500%.

As we have noted long ago, even if China catches up to the US in GDP or other metrics, it is hard to see them catching up per capita anytime in the near future.