Julia Collewe – The Gaurdian February 14, 2011
China has leapfrogged Japan to become the world’s second-largest economy, a title Japan has held since 1968.
While Japan grew 3.9% last year – its first annual growth in three years – this was not enough to hold off China’s booming economy. Japan’s nominal GDP was $5.4742 trillion (£3.4tn) in 2010, less than China’s total of $5.8786tn, according to official data released by Japan.
In the 1980s, Japan’s economic ascent provoked both fear and admiration but the boom unravelled after the property bubble burst. It never fully recovered from the stagnation of the 1990s – its “lost decade” – and continues to struggle with deflation, an ageing population and ballooning public debt.
China is the world’s largest car market and the biggest energy consumer. It now has its sights on the US, which it could eclipse as the world’s largest economy sometime between 2020 and 2030. The country, which has successfully transformed itself from impoverished communist state to economic superpower, surpassed Germany to become the world’s third largest economy four years ago.
China’s trade surplus dropped in January to the lowest in nine months because of soaring import demand, new figures showed. It fell to $6.5bn last month from $13.1bn in December. Imports leapt 51% in January while exports grew 38%. The smaller surplus could relieve the pressure from the US on China to allow faster appreciation of the yuan, although economists noted that the trade figures tend to be volatile at the start of the year owing to the variable timing of the lunar year holiday.
Due to China’s large population, it remains far poorer with GDP per head about a fifth of that in Japan when purchasing power differences in each country are taken into account. But Chinese incomes are rising: a record 1.41 million Chinese tourists visited Japan last year, eager to flaunt their new-found wealth by buying Japanese brand name goods, from Canon digital cameras to Shiseido cosmetics.
Japan’s economy minister, Kaoru Yosano, described China’s expansion as important for Asia and said he hopes for deeper economic ties between the two countries.
“As an economy, we are not competing for rankings but working to improve citizens’ lives,” he said. “We welcome China’s economic advancement as a neighbouring country.”
In the fourth quarter, Japan’s economy shrank at an annualised rate of 1.1%, a sharp reversal from the third quarter’s 3.35% growth. A slowdown in exports and weaker consumer demand at home were to blame but the downturn is expected to be temporary.
Rating agency Standard & Poor’s downgraded the country’s credit rating for the first time in nine years last month. It said the ruling Democrats lacked a coherent strategy to reduce the country’s massive public debt, now twice the size of GDP.