Due to below par second qaurter Japanese GDP growth, China has overtaken Japan to become the worlds second largest economy. Bloomberg report
China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three- decade rise from Communist isolation to emerging superpower.
Japan’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said today. Japan remained bigger in the first half of 2010, the government agency said. Japan’s annual GDP is $5.07 trillion, while China’s is more than $4.9 trillion.
China led the world out of last year’s global recession with an economy that’s more than 90-times bigger than when leader Deng Xiaoping ditched hard-line Communist policies in favor of free-market reforms in 1978. The country of 1.3 billion people will overtake the U.S., where annual GDP is about $14 trillion, as the world’s largest economy by 2027, according to Goldman Sachs Group Inc. chief economist Jim O’Neill.
Although not everyone sees a smooth, inexorable rise for the Dragon economy. Geo-political analysts at STRATFOR see large imbalances building, the Chinese are sacrificing living standards for global market share and economic power.
STRATFOR thus sees the Chinese economic system as inherently unstable. The primary reason why China’s growth has been so impressive is that throughout the period of economic liberalization that has led to rising incomes, the Chinese government has maintained near-total savings capture of its households and businesses. It funnels these massive deposits via state-run banks to state-linked firms at below-market rates. It’s amazing the growth rate a country can achieve and the number of citizens it can employ with a vast supply of 0 percent, relatively consequence-free loans provided from the savings of nearly a billion workers.
It’s also amazing how unprofitable such a country can be. The Chinese system, like the Japanese system before it, works on bulk, churn, maximum employment and market share. The U.S. system of attempting to maximize return on investment through efficiency and profit stands in contrast. The American result is sufficient economic stability to be able to suffer through recessions and emerge stronger. The Chinese result is social stability that wobbles precipitously when exposed to economic hardship. The Chinese people rebel when work is not available and conditions reach extremes. It must be remembered that of China’s 1.3 billion people, more than 600 million urban citizens live on an average of about $7 a day, while 700 million rural people live on an average of $2 a day, and that is according to Beijing’s own well-scrubbed statistics.
Read more: China: Crunch Time | STRATFOR
STRATFOR CEO, George Friedman, goes as a far as predicting the breakup of the country in his book the “Next 100 Years“. To quote from their China Crunch Time article
STRATFOR sees a race on, but it isn’t a race between the Chinese and the Americans or even China and the world. It’s a race to see what will smash China first, its own internal imbalances or the U.S. decision to take a more mercantilist approach to international trade.
Read more: China: Crunch Time | STRATFOR
Others, including China perma-bull Jim Rogers, have recently expressed dismay at China’s continued policy of mercantilism as the Yuan has been revalued, but downwards in recent months. Worse, in a recent blog entry Ambrose Evans-Pritchard excoriated the recent export ban imposed by the Chinese on rare earth metals. Evans-Pritchard hints that this may be an attempt by the Chinese to force Western hi-tech hardware manufacturers to relocate to China which controls 97% of the rare earth metal market.
With the new super-power flexing it’s muscles in the South China Sea, and the US responding coolly at a move that could result in Chinese control of a shipping lane for half the world’s sea-freight (itself, perhaps, a response to US control of the Straits of Malacca – an essential region on the Chinese energy supply route), we can be sure China is going to loom ever larger in importance in world affairs over the coming decades..
No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .
Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm