China to zoom past Japan as growth moves pay off

Steps needed to improve per capita GDP levels, say analysts

BEIJING - China may overtake Japan as the world's second-largest economy this year, but it remains a developing economy despite its fast pace of growth, economists said.

Japan's nominal GDP, which is not adjusted for price and seasonal variations, was worth $1.286 trillion in the second quarter compared with $1.335 trillion for China, according to data released by the Japanese government. The figures are converted into dollars based on an average exchange rate for the quarter.

Japan's GDP grew at an annualized rate of just 0.4 percent, the government said, far below the annualized 4.4 percent expansion in the first quarter and adding to evidence the global recovery is facing strong head wind.

China has surpassed Japan in quarterly GDP figures before, but this time it is unlikely to relinquish the lead, AP reported.

China's economy will almost certainly be bigger than Japan's at the end of 2010 because of the huge difference in each country's growth rates. China is growing at about 10 percent a year, while Japan's economy is forecast to grow between 2 to 3 percent this year.

The gap between the size of the two economies at the end of last year was already narrow. Chinese economists estimated China's leading advantage would maintain through the rest of 2010, reinforced by its usually more vibrant economy in the fourth quarter and possible yuan appreciation.

Japan has held the No 2 spot behind the United States since 1968, when it overtook West Germany. From the ashes of World War II, the country rose to become a global manufacturing and financial powerhouse. But its "economic miracle" turned into a massive real estate bubble in the 1980s before imploding in 1991.

Despite emerging as an economic power, China remains far behind many countries if per capita GDP is taken into account.

In 2009, China reported a per capita GDP of $3,687, as compared to $37,800 for Japan and $46,436 for the US. China ranked 103rd worldwide in terms of per capita GDP, according to the World Bank.

Richard Berner, Morgan Stanley's chief US economist, said that the news of China's GDP overtaking Japan came as no surprise. The nation's GDP on the purchasing power parity basis already surpassed Japan some time ago.

In 2007, China overtook Germany as the third-largest economy in terms of total GDP. A decade ago, it ranked seventh globally.

Gu Yuanyang, economist with the Chinese Academy of Social Sciences, said the quality of its economic growth is yet to match its pace of expansion.

"China lags far behind in the ability to transform technical progress into economic benefits and our weight of research and development to GDP is very low," he said. "We are over-dependent on foreign technologies."

Despite the fast expanding GDP, China is still bothered by such domestic problems as poverty and a widening wealth gap, which thwarts its efforts to take on more international responsibilities, said Yang Yi, a professor at the School of International Relations and Diplomacy, Beijing Foreign Studies University.

He said how much China could contribute to the international community depends on how well it could address domestic economic problems.

Lei Yanhua, researcher with the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce, said responsibility on the international scene should result in a greater say in global bodies.

"When China takes more responsibilities internationally, it should have a greater voice in major international organizations on key global issues," he said.

China Daily

(China Daily 09/13/2010)