China surges past Japan in symbolic shift

CHINA’S per capita annual income is just $3,600 (£2,299) compared to Japan’s $37,800 but in the second quarter of this year the once impoverished communist state surged past Japan to become the world’s second-largest economy.

The faltering Japanese economy grew by just 0.1 per cent in the three months to June, an annualised pace of 0.4 per cent, with GDP of $1.28 trillion eclipsed by China, which had economic output of $1.33 trillion, according to official figures published yesterday.

Although it is not the first time China has outpaced Japan in a single quarter, the figures mark a symbolic shift that is expected to see China eventually overtake the US as the world’s biggest economy. In the three decades since pioneer leader Deng Xiaoping dumped hardline-policies in favour of free-market reforms, China has leapfrogged the world league of economic powers outstripping Britain in 2005 and Germany in 2007.

Already the biggest exporter, car buyer and steel producer, economists expect China, which is growing at around 10 per cent a year, to permanently overtake the Japanese economy, which is growing at just two to three per cent a year, by the end of this year. They believe it will then take over the US, whose population is four times smaller, by 2030.

“The crossover has come far sooner than seemed likely two decades ago,” says Capital Economics’ Julian Jessop. But he says the story is less about China’s strength than Japan’s weakness.

Struggling since the start of the 1990s when its property bubble burst, and with flat consumer spending, Japan is almost entirely reliant on exports for growth. Yet the surging yen has hit it hard. The contribution from exports was mostly concentrated in April – the first month of the quarter –?while May and June had near zero growth on a month-to-month basis.

And with just 128m people compared to China’s 1.3bn, the country is also grappling with
an ageing and shrinking population.

Ironically, it is China, which could help to both boost consumer spending and the dwindling population.

Following a relaxation on visa requirements, Chinese tourists have flocked to their smaller neighbour, with visits up 80 per cent over the past year, while Chinese workers are increasingly being brought over to Japan on working visas to serve them.

As Martin Schulz of Fujitsu Research Institute said: “The stronger China continues to grow, the better it is for Japan.”