Monday, 25 January 2010

China passes Japan into 2nd place

This will be the talk of the markets in the far East this week. after over a century of being outshone by Japan. China will emerge as the largest economy in the far east. Not only bigger than Japan but every other country too except the United States.

No doubt there will be more lengthy articles this week focusing on the how much this changes the political and economic balance of the world. My question is though, how can China avoid going the way of Japan?

Japan had so much going for it in the post-war world. A commitment to working hard, saving hard and supporting the Government. Ths made Japan rich. Then the lack of a balanced economy, a banking crisis and demographics caught up with it. Now Japan is stagnant and still seeking renewal after 15 years.

China certainly faces a worse problem with demographics, its one child law (a huge boon to the world as a whole let us not forget, reducing the huge over-population problem the world has) meaning it will get grey quickly in about 5 years time and there are far more ment than women. This greying will reduce China's ability to create domestic consumption and will also ensure the savings rate remains high

As mentioned I the FT article, the need to come off a dollar peg will cause a massive boom for China the likes of which normally end in a financial crisis. This may well be a theme of the next few years.

China will undoubtely overtake the US to become the world's largest economy, it has after all 5x the population. Will its people ever match income with Americans though?


Thud said...

A large proportion of the Chinese populace live in abject poverty...reaching even parity with the lowest of American lifestyles is for most a distant dream.

Anonymous said...

I think that'll depend on exactly how you're measuring 'largest economy'. To be honest, I'd have expected a little better from C@W on this - choose a measure and use it to expound whatever view you wish of relative wealth:

GNP per capita
GDP per capita (my personal favourite)
Nominal GDP per capita
GDP per capita at Purchasing Power Parity (PPP)
Gross National Income
Balance of Trade
Estimated Household Savings
Household Net Expenditure Per Capita

Then choose a currency - preferably converting to one that puts your claim in a good light (choose carefully!).

All done? Good. Well, here's the best answer if you're measuring total wealth for each person living there:

Nominal GDP per capita

And I think you'll find China has an awfully long way to go yet ...