China's economy poised to overtake US-Fischer

JACKSON HOLE, Wyoming, Aug 25 (Reuters) China's economy could be the world's largest within 25 years, although it won't be able to keep up its current break-neck pace forever, Bank of Israel Governor Stanley Fischer said on Friday.

Fischer, once the IMF's No. 2 official, said growth waslikely to ease when Beijing took the necessary step of letting its yuan currency rise.

''If the Chinese economy were to continue to grow in real terms at a rate 7 percent greater than that of the United States economy at a constant exchange rate -- as it has for over 20 years -- its GDP would indeed overtake that of the United states in about another quarter century,'' he told central bankers and top academics from around the globe.

''Further, the yuan is likely to appreciate over that period relative to the dollar ... reducing the length of the catch-up period,'' Fischer added.

He said Beijing could ill afford to let the economy continue to run at a hot 10 percent growth rate indefinitely.

''At some point -- perhaps because of inflationary pressures and the costs of the continuing reserve buildup -- the process of exchange rate appreciation that other countries in the region, including Japan, Korea and others have experienced, will have to begin,'' he said.

However, Fischer said that even when that happens, the yuan is likely to rise in value at a rate that allows China to continue to run a sizable current account trade surplus.

U.S. businesses have said an undervalued yuan gives Chinese producers an unfair advantage on world markets. Washington has pressed Beijing to allow for more flexibility in its currency as one way to help ease global trade imbalances.

Fischer expressed hope that a disruptive unwinding of imbalances and narrowing of the large U.S. trade gap could be avoided.

''It is easy to describe crisis scenarios, particularly with regard to the unwinding of the U.S. current account deficit -- and many delight from doing so,'' he said. ''But overall it seems that the international economy and its market and governmental organizations have sufficient flexibility, and perhaps even the wisdom, needed to deal with the required adjustments.'' REUTERS VJ BST0341