Will China’s economy overtake America’s economy in 20 years? Professor Justin Yifu Lin of Peking University’s National School of Development, and Senior Fellow Niall Ferguson of Stanford University’s The Hoover Institution put their money where their mouth is with a 200,000 RMB (approx. S$40,000) wager.
On September 25 at the 20th World Knowledge Forum held in Seoul, Lin and Ferguson engaged in a heated debate over China-US trade relations and the rise of China, among other topics. In the heat of the moment, the pair made a bet on the economic outlook of China and the US: Lin was convinced that in 20 years’ time, the Chinese economy would overtake the US’s economy. He was prepared to bet Ferguson US$2 million (approx. S$2.7 million) on this, declaring confidently, “I want to borrow money to bet, because I trust what I said.”
Ferguson, on the other hand, was convinced otherwise, but said, “I certainly can’t afford to bet 2 million dollars… I bet you that doesn’t happen, Justin, and I’ll bet you, let’s say, let’s split the difference, 200,000 RMB, that that doesn’t happen.”
The final bet was agreed at 200,000 RMB.
Lin is a renowned Chinese economist and former World Bank Chief Economist and Senior Vice President while Ferguson is a renowned scholar of international politics and the financial sector. In 2004, he was also named as one of the 100 most influential people in the world by Time magazine. For the well-respected academics, the bet was not simply a petty fight, but a testament to their strong convictions.
A civil clash
In the course of their heated discussion, Ferguson expressed scepticism about the way China handled many things. He acknowledged China for having the most spectacular industrial revolution and economic rise in history but pointed out that China was not achieving these entirely by fair play. He said that there was intellectual property theft on a massive scale; espionage and sustained cyberwarfare against Western companies; bending and even breaking of World Trade Organisation (WTO) rules; currency manipulation to prevent the RMB from appreciating; and the systematic exclusion of Western companies from the Chinese market via tariffs and non-tariff barriers.
“My prediction not just for next year, but for the next ten years, is that you should be long on the United States and short on the People’s Republic of China.” - Niall Ferguson
Ferguson expressed criticisms that were similar to hawkish US views. Soon after, Lin systematically refuted all of Ferguson’s claims. Lin emphasised that the accusations that Ferguson made about China, such as forced technology transfer and violation of WTO rules, were merely “accusations”. The main reason for the US trade deficit was also due to its internal structural problems. Additionally, the US already had a track record of blaming other countries when problems arose.
As for China’s economic forecast in the next year, Lin admitted that in view of the uncertainties caused by the trade conflicts, China faced certain phases and external downward pressures. However, as China still had a large domestic space for investments, industrial upgrading, further improvement of the environment and urbanisation, Lin remained confident that China could still achieve a growth of approximately 6%. China also had sufficient resources for making investments in terms of physical space, high savings, and abundant foreign reserves.
On the other hand, Ferguson pointed out that although he did not believe that the US would grow much faster than 2% in the next year, he did not think that the US would go into recession. At the same time, he was certain that it would be difficult for China to overtake the US due to its demographic headwind, predicting that China would fall into the middle-income trap. He declared, “My prediction not just for next year, but for the next ten years, is that you should be long on the United States and short on the People’s Republic of China.”
The gulf between Lin and Ferguson’s views is actually a reflection of China and the US' opposing values and development model. Following China’s rise in recent years, this opposition has intensified, spreading from the official levels to academia and societal levels.
Whether the Chinese economy can overtake the US economy, and when that is going to happen, has already become a hot topic among global organisations and scholars, with many giving their own predictions. In a report released in July 2018 by the International Monetary Fund, it was predicted that China could become the world’s largest economy by 2030. In another report released in September 2018 by the Hongkong and Shanghai Banking Corporation, it was also predicted that China’s GDP would reach US$26 trillion USD in 2030, with the US’ GDP standing at approximately US$25.2 trillion then.
In other words, judging from economic aggregate alone, the world may know the result of Lin and Ferguson’s bet in less than 20 years.
Of course, whether the Chinese economy can overtake the US economy still hinges on China’s ability to resolve the increasing number of internal and external challenges, and ensure continued growth in its development. Whether or not these can come to fruition — only time will tell.
In an opinion piece China's Three-Body Problem published in the Jewish World Review on 8 October, Ferguson put the bet at 20,000 RMB, and not 200,000 RMB as agreed during the debate.
He wrote in the article: "Two weeks ago, I bet the Chinese economist Justin Yifu Lin 20,000 RMB that China's economy — defined as gross domestic product in current US dollars — will never overtake that of the United States. Most informed people would expect me to lose that bet."
After a discussion of Liu Cixin's 2008 novel The Three-Body Problem, Ferguson gave the reason why he thought he would win the bet. It was not a good-hearted reason.
He said, "The three bodies in contention are not suns but classes: rulers, intellectuals, masses. Right now, China is in one of its stable phases. But, as the contending forces shift, chaos will sooner or later return. Perhaps it already has, in Hong Kong.
If it spreads, I — and history — will win that bet."
Here is the transcript of that exchange between him and Justin Lin.
Lin and Ferguson’s bet (Transcript of exchange)
Lin: Niall, do you really believe in what you said?
Ferguson: I do, and I think…
Lin: Okay, if you believe in, then can have a bet, we can have a bet.
Ferguson: I’m happy to make a bet with you.
Lin: Okay, 2 million US dollars. In 20 years, China will overtake the US.
Ferguson: It’s a… let me…
Lin: 2 million dollars, among everyone here, you can up that.
Kristie Lu Stout (CNN Anchor): Okay, we’re gonna have to meet again in 20 years.
Ferguson: Let me make it clear that I certainly can’t afford to bet 2 million dollars, Justin, and if you can, I hate to think how you make that money, certainly wasn’t by being a professor. But I’ll certainly bet you 2000 of the Chinese currency…
Lin: I want to borrow money to bet, because I trust what I said. And…
Ferguson: I wish I could borrow 2 million dollars. There isn’t a bank in the United States that would lend me that money. So let me just suggest that we bet in your currency, Justin, which I’m sure in your view will appreciate over the next ten years… but what’s the exact bet that you want to make?
Lin: In 20 years, China will overtake US…
Ferguson: I bet you that doesn’t happen, Justin. And I’ll bet you, let’s say, let’s split the difference, 200,000 RMB, that that doesn’t happen.
Lin: Okay, I’ll take it…
Lu Stout: Okay, 200,000 RMB. There we go.
Lin: In 20 years.