Tuesday 9 March 2010
Which economy is No. 2 misses point about life at the grass roots
News headlines during the slack Lunar New Year time proclaimed that Japan is still the world’s second-biggest economy ahead of its giant neighbour China. The figures for gross domestic product for 2009 showed Japan with US$5.085 trillion, against China’s US$4.91 trillion.
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Which economy is No. 2 misses point about life at the grass roots
Kevin Rafferty
23 February 2010
News headlines during the slack Lunar New Year time proclaimed that Japan is still the world’s second-biggest economy ahead of its giant neighbour China. The figures for gross domestic product for 2009 showed Japan with US$5.085 trillion, against China’s US$4.91 trillion.
But it is not worth either side opening a bottle of champagne or even cheap sochu or maotai, either to celebrate or drown sorrows. Every economist knows that there are lies, damned lies and statistics. And these statistics were something of a fluke, were probably untrue then, are certainly untrue now - and they don’t really matter in terms of the real lives of the people of China, Japan or the world, or the difficult questions facing politicians and policymakers.
It is a sad reflection on the quality of the media that all the majors made a big deal of the headline - Japan still ahead of China - and most of them did not get to the fine print - what, if anything, does it actually mean?
Japan’s unexpected survival as number two was because its growth in the final quarter rose by an annualised 4.6 per cent, to take its performance for the whole of 2009 to only minus 5 per cent, not the minus 9 per cent that had originally been forecast. However, Japan is notoriously prone to revising its figures, as the initial figures do not include some components of growth later factored in.
The US dollar numbers also depend on the value of the yen. A rise in the yen boosts the size of the Japanese economy, and a fall shrinks it. Every two yen change means a difference of the order of US$110 billion at these levels. And let’s not talk about the true value of the yuan.
The debate about who is number two economic dog to the US is academic because with China powering ahead at 8 per cent plus and Japan crawling at 1 to 2 per cent, it is a matter of time before Japan yields.
In the real world of course, in terms of standards of living and what your money will actually buy, China’s rip-roaring growth left sluggish Japan standing a long time ago. Adjusted for purchasing power parity (ppp), China’s GDP is US$9 trillion, according to IMF figures, while Japan is languishing around US$4.2 trillion.
But even this does not reflect the real real world. China has more than ten times as many people as Japan, so individual Japanese are far richer. Indeed, China’s achievement last year after years of record growth is that it has finally climbed into the world’s top 100 in income per capita.
According to the IMF, China comes 99th with per capita income of US$3,566 when measured by market rates, and 97th with GDP of US$6,546 measured by ppp. The ppp measure still leaves China US$1,000 per person below Thailand in 89th place and Ecuador (91st). Both Japan and China are important economic players and their policies matter greatly for the shape of the global economy.
In Japan’s case, it has immense issues to sort out, starting with how to get the economy moving again to stimulate growth, jobs and taxes before it is bowed down with an increasing ageing population. Companies’ search for efficiency has led to more and more temporary or casual work, a big drop in household savings, a rise in uncertainty and the ugly prospect again of deflation as Japanese become reluctant to spend.
Japan is also handicapped by its inflexible and inward-looking approach, a failure to understand the rest of the world that swings between blissful ignorance and contempt, as was seen in Toyota Motor Corp’s failure to understand the damage to its reputation by its slow reaction to fix faults in its cars. It is ironic that Japan has greatly depended on exports, but the savvy global brand exporters are only the tip of a giant domestic iceberg.
China’s attitude to the rest of the world is even more critical - to both sides - not merely on vexed questions of the value of the yuan and trade disputes. This would be potentially dangerous anyway given China’s already giant global boots as the world’s biggest exporter.
But China also has a hidden iceberg of domestic problems, including massive and increasingly misplaced investment, incipient bubbles, rising inflation, major issues of social and welfare policy, not to mention a yuan that Beijing might prefer to devalue to keep exporting to a world that increasingly is trying to curb its consumer spending.
It is time for more openness from Beijing, a more cooperative front and cooler heads in assessing and addressing real economic problems - otherwise the Year of the Tiger will be tempestuous indeed, for China first, then for the rest of the world.
Kevin Rafferty is author of Inside Japan’s Powerhouses, a study of Japan Inc and internationalisation
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