WASHINGTON - China
will become the world's largest economy in terms
of gross domestic product (GDP) by 2040, and India
will closely follow in its footsteps, South
Korea's central bank projected Monday. According
to a report to be released by the Bank of Korea,
previewed in a speech here by its governor, Park
Seung, China will overtake Japan by 2020 and be on
par with the United States by approximately 2040.
China and India will lead Asia to become
the locomotive of world growth in the 21st
century, Park said. "The Asian economy possesses
an almost limitless supply of human resources
together with its latecomer
advantage," said Park. "Before too long, there is
a good likelihood that it will rise to a position
alongside North America and Europe," he said at a
luncheon speech.
The BOK's projections,
yet to be released and under last-minute
adjustments after three months of research, said
China's share of the world's gross domestic
product will increase from 4.6% this year to 19.6%
by 2040, or one-fifth of the global total. India's
GDP will grow from 1.9% to 9.8%. The US share will
shrink from its current 30.8% to 18.2%, and that
of Japan will decrease from 12.5% to 5.1%,
according to the projections. As a result, India
would overtake Japan by about 2030, and by 2050 or
so is expected to match Europe's GDP share at 12%,
said Park.
South Korea by 2040 would claim
2% of the world's GDP, up from 1.8% in 2005. Led
by robust growth in China and India, the scale of
the Asian economy will be similar to that of the
pre-enlargement European Union by the latter part
of the next decade, according to Park. "In the
first half of the 2020s, it will match that of the
three North American countries," he said.
The rise of the Asian economy is already
influencing the global economy, in both good and
bad ways, the governor noted. Labor costs will be
reduced, and consequently returns on capital will
be augmented, he argued. "From China, the
manufacturing workshop of the world, and India,
the source of the provision of services, a flow of
inexpensive goods and services will flow out to
the world, heralding an age of low prices," he
said.
The world economy will be
rejuvenated, and investment will increase thanks
to the lowering of labor costs and the rise in
returns on capital, Park said. Welfare will be
enhanced as standards of living improve due to
higher incomes in China and India, which together
make up one-third of the world's population.
But less welcome is the likely widening
gap in income distribution, according to Park. "In
the advanced countries and today's newly
industrialized economies, there will be a
deepening of the income gap between expert and
skilled workers on the one hand, and manual and
unskilled workers on the other," he said. "This
kind of negative effects should disappear in time
as they are transitional phenomena arising in the
course of the entry of these vast countries into
the global market economy."
On South
Korea, the central bank chief said rapid wage
increases were changing the nation's economic
framework. "The average wage increase in South
Korea was double the world average every year from
the 1980s up to the foreign exchange crisis of
1997 ... The salary in automobile, shipbuilding
and steel industries is now at the same level as
in the US," Park said. The wage increase is partly
to blame for the economic polarization in South
Korea, he said, describing the current phenomena
as "household recession, corporate boom".
Amid robust, dynamic macroeconomic
performances by conglomerates, smaller firms that
rely on low wages are going bankrupt, he said. "It
is the performance of the smaller firms that
directly affects jobs and the people. This is why
the household economy is still in difficulty,"
Park said in a question-and-answer session.
