Deutsche Bank Research says the “rise of the BRICs” thesis has received much criticism – some of it deserved, some of it undeserved. There is little doubt that major change is afoot, but the thesis is somewhat misleading, even deceiving, as it discounts what will be the most momentous development of the first half of the 21st century: the rise of the Chinese economy.

Economist Markus Jaeger says naturally, the growing economic importance of India, Brazil and Russia will have important consequences, but these simply don’t compare to the implications of China’s rise. Economically, financially and politically, China overshadows and will continue to overshadow the other BRICs. China’s economy is larger than that of the three other BRICs combined. Both China’s exports and its official FX reserve holdings are more than twice as large as those of the other BRICs combined.

Jaeger says China is the “real” story here! In Washington DC, for example, there is much talk these days about Chinese exchange rate policy and China’s rapidly increasing financial prowess, about increasing Chinese military and especially naval capabilities, even about Chinese soft power. Prominent analysts and former government officials, like Bergsten and Brzezinski, are calling for the establishment of a G-2 consisting of the United States and China. While the proposal has thus far received at best a cautious response in both Beijing and Washington and a generally sceptical response from analysts, it is a reflection of the importance Washington insiders attach to China’s growing stature. He says one may legitimately disagree with the G-2 proposal, but China’s increasing economic and political weight in world affairs is a reality.

DBR says China’s relative and absolute economic importance will continue to rise for the foreseeable future. In terms of economic growth, China has been outperforming the other BRICs by a wide margin over the past thirty years. Over the past decade, real GDP growth averaged 10% in China, 7% in both India and Russia and 3.3% in Brazil; and China will continue to grow faster than its peers. A high savings rate, a low level of urbanisation, low per capita income (considerable “catch-up” potential) and, importantly, a successful export-oriented, manufacturing-based development strategy underpinned by strong investment in infrastructure and education will combine to sustain China’s superior economic performance. China will also soon become the world’s largest economy (by 2025-30). Albert Keidel (until recently at the Carnegie Endowment for International Peace) even projects the Chinese economy to be twice the size of the US economy by the middle of this century!