China could overtake U.S. in 2020 .

China will overtake the U.S. to become the largest economy in 2020, helped by a more rapid expansion and an appreciation of its currency, according to Standard Chartered Plc.

"We believe the world is in a" super-cycle "of sustained high growth," economists led by Gerard Lyons, said in a report released today. "The magnitude of change in the next 20 years will be enormous."

China's economy will be twice as large as the United States in 2030 and represent 24 percent of world output, compared with 9 percent today, "Lyons said in the super-cycle 152-page report. India will surpass Japan as the third largest economy in the next decade, according to the report. Goldman Sachs Group Inc. estimates that China will overtake the U.S. in 2027.

The world may be experiencing its third "super-cycle", which is defined as "a period of historically high global growth, which lasts a generation or more, driven by increased trade, high investment rates, urbanization and technological innovation, which is characterized by the emergence of large economies, again for the first time in the high catch-up growth rates across the emerging world, "said Standard Chartered.

Production in China, the largest manufacturer of mobile phones, computers and vehicles, surpassed Japan for the second consecutive quarter in the three months through September, the Japanese government said today. China's economy overtook the UK as the fourth largest in 2005 and tipped Germany from the third position in 2007.

Faster growth

China has expanded by an average 10.3 percent a year over the past decade compared with an average of 1.8 percent for the U.S. The Standard Chartered estimates growth will slow to an annual rate of 8 percent by the middle of the decade, making it easier to 5 percent from 2027 to 2030.

The U.S. economy, however, still faces one or two years of "slow growth, forecast at 1.9 percent in 2011, before returning to its long-term trend rate of expansion 2.5 percent in three or four years, Nicholas Kwan, regional head of Hong Kong research for Asia at Standard Chartered, said in a telephone interview.

relatively rapid expansion of China, along with an expected 25 percent appreciation of the yuan, should be sufficient for nominal gross domestic product than the U.S. at the end of the decade, said Kwan.

Risks, Challenges

However, the stage is facing risks in both the U.S. and parts of China, Kwan said.

"In China we have to consider how much the economy can continue growing without serious disruptions, while the U.S. faces different challenges as a mature economy struggling to recover from an unprecedented crisis," he said.

China could fall "fast track abruptly,''as the Soviet Union and Latin America did in the 1970 and Indonesia and Thailand, experienced in the 1990's, the Standard Chartered report said.

The economy is "unbalanced" and faces significant risks, including an expansion of the imbalances, asset bubbles, excess capacity and rising bad loans that could lead to a significant decline, the report said. A decrease of 10 percent of investment in China makes it very difficult to achieve any growth of GDP in all, the report estimates.

Currency Stable

Previous "super-cycle" of growth that occurred from 1870 to 1913, and after the Second World War until the 1970's, Standard Chartered, said today. The current cycle began in 2000, he said.

"If we are right about this being another super-cycle, does not mean that growth is strong and continuous throughout the period," said Standard Chartered. "The first super-cycle, for example, had episodes of high inflation and deflation. Much will depend on the monetary policies adopted throughout the world."

Previous super growth cycles are characterized by stable currencies where exchange rates were linked to gold or silver, monetary unions and the Bretton Woods agreement, Standard Chartered, said. Current concerns about the "war of currencies" to highlight the challenges within the current system, the bank said.

"The possibility of a formal motion to the global monetary stability can not be ruled out," the report said. "However, in the present context, it is difficult to predict. More currency intervention may be plausible, and in time, one should expect to see more countries manage their currencies against a basket of currencies of the countries with trading. The managed float exchange and baskets may be more of a monetary policy rule. "