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‘China & India driving world growth more than developed countries’

‘China & India driving world growth more than developed countries’
The process of urbanization in countries like India and China helps productivity to rise giving a fillip to the level of growth; experts told RT. By 2025, China may have up to 700 million people deemed middle class, they add.

International Monetary Fund [IMF] chief Christine Lagarde said that in ten years it could be possible the IMF's headquarters would move to Beijing.

For over 70 years, the organization has been based in the US. However, a recent report by the IMF says China's economy is now growing faster than America. Currently, it's the second-largest by GDP after the US and has already overtaken America in terms of purchasing power.

RT discussed the news with James Butterfill of ETF Securities, and Geraint Johnes, Professor of Economics at Lancaster University.

James Butterfill, ETF Securities

RT:  Do you take Lagarde’s words seriously?

James Butterfill: If you think what would be the largest economy in the next ten years, it could well be China. Ultimately the US has about 200 million people deemed to be middle class, whereas China by say 2025 will have probably around 700 million people deemed to be middle class. You can just see where it is going and where consumerism will be based. On current growth rates, it could well achieve that. There has been perhaps in our view too much pessimism about Chinese growth. It does have some problems such as a considerable credit bubble that it needs to deal with. But ultimately it has this very large backdrop of middle class that will really drive growth in the coming years.

RT:  China's economy is growing faster than the US's according to the latest IMF figures. When will it overtake the US in terms of GDP, do you think?

JB: That is quite difficult to tell. It is very much on what happens to the credit crisis or the credit bubble. Let’s assume, for instance, it doesn’t pop anytime soon. It could happen within the next five years. It is not going to happen immediately. In fact, the middle class in China is quite different to America. If you look broadly at emerging markets now 60 percent of GDP is coming from emerging markets, and 80 per cent of the growth is coming from emerging markets. So it is becoming a growing force in the world. The next country to look at this is probably India in that respect, where there are very high growth expectations too.

RT:  What consequences do you foresee for the US?

JB: I think you have to start looking at it politically as well. It is very interesting that at the Davos forum; the Chinese Premier looked far more measured and far more open to international trade than say Donald Trump did. Certainly America seems to be engaging in much more trade protectionism. That is a real risk for growth. In fact, the UK is in a very similar situation. Unless the US begins to think about this current idea of trade protectionism, it could be quite damaging for them.

Geraint Johnes, Professor of Economics, Lancaster University

RT:  What’s your take on Lagarde’s statement? Was it just a joke?

Geraint Johnes: We are certainly seeing a rapid growth in China. This is something that has been going on for a long time. The IMF published the report yesterday – its World Economic Outlook.

It was anticipating the growth this year in China will be 6.7 per cent. And that far outstrips the 2.1 per cent that it is anticipating for the US. This is something that we’ve been seeing for a long time – that particularly China and India have been driving world growth far more than the developed countries. What’s been going on is that in these countries you got a process of urbanization that is allowing productivity to rise in those countries and giving a real fillip to the level of growth we’re seeing in those countries.

We’re also seeing rapid growth in other the other BRICS {countries}: Russia that has been something in the doldrums recently, following the fall in the oil price. Now we’ve got a resurgence in commodity prices that is going to bring Russia back into positive growth this year. And also Brazil having been hit very hard by the Zika outbreak last year is expected to return to growth this year as well.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.