China may spring a nasty surprise

The current debate on China’s future has two basic camps: the extremely bullish camp and the bearish camp. The extremely bullish camp likes to extrapolate past trends endlessly into the future, forecasting continued growth of 8% or better. The economists who are most bullish on China predict the economy will grow by 15% in dollar terms every year, or 8% growth in GDP plus 5% appreciation of the yuan and 3-4% inflation, which would be enough for China to “eclipse” the US in a decade.

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