Forecasts for the Chinese economy and the implications for Australia

The authors believe that Chinese economic domination will take place sooner than most would expect. In this paper, forecasts for the size of the Chinese economy are made using a future value model of the Gross Domestic Products (GDP) and Purchasing Power Parity (PPP). A variety of scenarios are analysed, including the areas of investment and return, the impact of economic growth and the size and status of the Chinese economy. Assuming a growth differential between China and USA of 5% and using a future value model of GDP and PPP, China is forecast to have a larger economy than the USA before the year 2015. The best way to benefit from China’s expansion has been to invest in those companies that provide the resources such as base metals and energy that have fuelled its growth rather than direct investment. As for Australia, China has gone from the Yellow Peril to the Red Locomotive creating a huge resource boom. It is reminiscent of the Japan-based boom of the 1960s. The greatest danger to Australia and resource companies is that the Chinese will be able to duplicate Japanese strategies and stimulate new resource projects that will cause a glut and bring down prices.