July 9 – According to a study released by the Carnegie Endowment for International Peace, China’s economy will become twice its size and surpass the United States as the world’s biggest by 2035.

The study called, China’s Economic Rise—Fact and Fiction, by Albert Keidel says the country’s engine of growth is fueled by domestic sales rather than exports.

Data on the sources of China’s economy show that it is affected by shifts in local investment and consumption rather than trade surplus.

He writes, “Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitation.”

Keidel advises American policymakers to make wide-ranging domestic reforms and rethink their concepts of global world order.

The study uses two methods: the purchasing power parity (PPP) method and the market method.

The PPP method shows that China should catch up with the United States as an economic power by 2020, with an equivalent GDP of 18 trillion dollars.

Under the more commonly accepted market method, China’s turning point will come by 2035. By 2050, Keidel estimates that Chinese GDP could reach US$82 trillion compared to the U.S.’s US$44 trillion.

It went on to say that China’s export concerns, domestic economic instability, inequality and poverty, pollution, social unrest, corruption and political reform, as difficulties that could hinder progress.

Keidel is a senior associate at the Carnegie Endowment for International Peace and previously worked as a senior World Bank economist in Beijing and was deputy director of the Office of East Asian Nations in the U.S. Treasury Department.