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?