China 'to overtake America by 2016'

While the OECD noted the slowdown in China's aggressive expansion, it nonetheless predicted that growth should average 8pc in this decade. Photo: EPA

China is on track to overtake America as the world's biggest economy in 2016 as its growth accelerates, according to a report by the Organisation for Economic Co-operation and Development.

China's economy expanded last year at 7.8pc - its slowest pace in more than a decade - and recent data has fuelled concerns that any rebound in the country's growth is losing steam.

However, the OECD was upbeat, predicting in a new survey of China's prospects that the country's economy could expand by 8.5pc this year and by 8.9pc in 2014.

While the OECD noted the slowdown in China's aggressive expansion, it nonetheless predicted that growth should average 8pc in this decade at current rates of investment and reform.

After allowing for price differences, it forecast that China could become the world's largest economy, overtaking America, around 2016.

Fuelling the OECD's positive prediction was an optimistic outlook for investment spending in the world's second-biggest economy.

It pointed to substantial deficits in rail and road capacity relative to other major economies at similar stages of development, as well as to sub-standard housing as offering scope for more profitable spending on infrastructure.

But to keep economic growth strong, the think tank urged China to make good on pledges to force state companies to compete in more open markets and ease movement of migrants into cities.

Communist leaders who took power in November have pledged more reform.

However, they have yet to make clear whether they will tackle the challenge of rolling back privileges including monopolies and low-cost access to bank loans and energy for politically influential companies that are deemed "national champions."

Chinese leaders have promised since 2005 to open industries to private competition, "and really there has been no result," said Richard Herd, the chief author of the OECD's report.

"What's needed is to make these changes effective and really open up some of these sectors," Herd said at a news conference.

Other advisers including the World Bank also have said China could face a steep decline in growth if it fails to reduce the dominance of state companies in industries including energy and finance.

"China has weathered the global economic and financial crisis of the past five years better than virtually any OECD country and than many other emerging economies," said the OECD.

"It is well placed to enjoy a fourth decade of rapid catch-up and improving living standards," the tank added. However, it did point to risks such as property prices and potential tension arising from social inequalities and an ageing population.

more at http://www.telegraph.co.uk/finance/china-business/9947825/China-to-overtake-America-by-2016.html