China’s Economy Passes Japan (#2)
Here’s a stat that seems all but inevitable: China’s GDP has just passed that of Japan, to become the 2nd largest country’s economy in the world, after the US. (note these are nations, and not regions, like North America, Europe, Asia).
“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.
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.
China overtook the U.S. last year as the biggest automobile market and Germany as the largest exporter. The nation is the world’s No. 1 buyer of iron ore and copper and the second- biggest importer of crude oil, and has underpinned demand for exports by its Asian neighbors . . .
While China’s output was also larger in the fourth quarter of 2009, Japan’s GDP rebounded to exceed China’s in the first quarter, according to data compiled by Bloomberg News. According to IMF data using purchasing-power-parity calculations to adjust for exchange-rate differences, China overtook Japan in 2001.”
Goldman Sachs chief economist, Jim O’Neill, notes that the 1.3 billion people in China will overtake the U.S.’ $14 trillion economy by 2027.
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Source:
China GDP Surpasses Japan, Capping Three-Decade Rise
–Kevin Hamlin, Li Yanping. With assistance from Marco Babic and Sunil Jagtiani in Singapore, Russell Ward and Keiko Ujikane in Tokyo and Zhang Shidong in Shanghai
Bloomberg Aug. 16 2010
http://noir.bloomberg.com/apps/news?pid=20601087&sid=amT8rSlABQTM&
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August 16th, 2010 at 9:33 am
If it helps better understand recent U.S. economic history, the key insight you need to know might be: “So goes China, so follows America”….
August 16th, 2010 at 9:47 am
China led the world out of last year’s global recession
yeah- good that things are swell now- we just need to get more American’s tapping into their home equity to buy some sweet Chinese goods- oh wait . . . equity?
hahahahahahahaha
August 16th, 2010 at 10:04 am
Economic systems can be measured in aggregate, through statistics such as GDP. But what is the purpose of an economic system? If you believe the purpose of an economic system is the welfare of the individual economic units comprising it, the only meaningful measure across systems is per capita, or if it were statistically feasible, per economic sub-unit such as households. Per capita income gets us closest to a measurement of the true viability of an economic system. And when China overtakes the US in aggregate, its per capita income will still be on average below what we call poverty in America.
August 16th, 2010 at 10:05 am
“Goldman Sachs chief economist, Jim O’Neill, notes that the 1.3 billion people in China will overtake the U.S.’ $14 trillion economy by 2027.”
I wonder if any casinos in Vegas would take the under bet on that quote.
….
Pro-tip: Since the quote came from Goldman, you can also be sure that some Goldman desk is already probably flooding the under bet.
August 16th, 2010 at 10:06 am
A bit of a yawn.
1.3 billion vs 127 million people. It actually shows how backward China really is.
August 16th, 2010 at 10:11 am
What happens in the 2020′s depends a great deal whether a stable regime emerges after the collapse of the housing bubble and whether they can find anyone to buy all their stuff when US and Euro consumers stop. Chinese government legitimacy is hinged on the economic growth of China; if that fails, there could be trouble. And, China’s economic growth depends on its mercantilist policies which have just about hit a dead end. As US and Euro economies slow, US and Euro politicians are going to have to join the protectionists. The majority are pretty fed up supporting both the bankers and the Chinese manufacturers.
August 16th, 2010 at 10:44 am
- When adjusted for currency value China surpassed Japan’s GDP several years ago.
– GDP is at bottom meaningless, particularly China’s where other ‘factors’ are simply made up. An ‘honest’ GDP measures money transactions and ignores externalities.. China copied the US development model and pretty much ruined its own country! They have ‘money’,'Reserves’ and ‘Treasuries’, but what have they lost?
– At issue is which country reaches the storm drain first? Japan, China or the US? America is hindered by a broken political system that is coopted by (inept) business interests. the US is also culturally backward. China is hindered by an overwhelming lack of domestic aggregate demand- it’s is both an ongoing recession (bailed out by Europe and the US on a continual basis) and a nacent depression (the amount and depth of social dissatisfaction with the status quo). Both China and Japan are hindered by adherence to the defunct Anglo- American industrial efficiency model which is absolutely dependent upon cheap resource inputs such as oil. The greater (and more current) the (mal)investment in the model the more severe the consequences of that model’s breakdown.
Since much of Japan’s and the US’ ‘investment’ is well in the past (our infrastructural backwardness is actually an advantage) and China’s so much in the present (empty new cities) the likelihood is that China will be forced to an accounting first and to the greatest degree. This is the same situation as existed in Japan at the time of the Plaza Accord when Japanese (mal)investment in excess capacity led to both a gigantic bubble then a crash that is ongoing since 1990.
What happens next? Japan will likely lead the US back to the soil (de- industrialize) while China hyperinflates then dissolves in a series of civil wars (many factions backed by the adventurous US military).
Like Jim Chanos and others I don’t like China’s development.
August 16th, 2010 at 10:50 am
The Chinese economy increased 90 fold in 32 years? That’s a 15% annual growth rate. Not to shabby, if it’s correct!!!
August 16th, 2010 at 10:58 am
As previous posters noted – China has lots o’ people…
China’s per capita GDP has nudged north of Swaziland, but still has some climbing to do to reach the Dominican Republic in terms of output per citizen.
But there are a ton of them.
August 16th, 2010 at 11:01 am
>> Goldman Sachs chief economist, Jim O’Neill, notes that the 1.3 billion people in China will overtake the U.S.’ $14 trillion economy by 2027.
Is that “$14 T economy” discounted by the Fuzzy Numbers or not? How about China’s — apples to apples here?
http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers
August 16th, 2010 at 11:14 am
I love Chinese Food.
August 16th, 2010 at 11:29 am
Yeah, and only about 10% of that $14 trillion is really just claims on future earnings (i.e., government borrowing). Except it hasn’t been $14 trillion since 2007.
August 16th, 2010 at 11:59 am
If you look at the amount of natural resources necessary for the 1.3 billion people in China to live anywhere near the standard of living of the U.S. you quickly realize that not everyone can live at that level. Does anyone ever factor that in to their projections?
August 16th, 2010 at 12:18 pm
in a word, no
August 16th, 2010 at 1:01 pm
This shows the importance of economic growth over time.
In advocating a given tax or regulatory regime, one should be conscious of its effect on economic growth.
August 16th, 2010 at 1:07 pm
If you look at the amount of natural resources necessary for the 1.3 billion people in China to live anywhere near the standard of living of the U.S. you quickly realize that not everyone can live at that level.
that’s exaclty right- global wage parity
August 16th, 2010 at 1:55 pm
Jim O’Neill = BRIC permabull.
If you wanna see a bubble, check out Chinese house price appreciation at the link below. Makes FL and NV look like amateurs.
http://www.ft.com/cms/s/0/cd3b5ec4-a886-11df-86dd-00144feabdc0.html#
(requires free registration, but they don’t bug you)
August 16th, 2010 at 2:39 pm
Mike – Great article.
68% for China and 20% for Australia . . no, no bubble at all there. Nothing to see here, move along!
August 16th, 2010 at 3:52 pm
Deans take on this story:
http://www.cepr.net/index.php/blogs/beat-the-press/china-has-long-been-the-worlds-second-largest-economy-nyt-kills-electrons-for-nothing
August 16th, 2010 at 4:06 pm
S Brennan – only his way of calculating China’s GDP is about as useless as the NYT’s.
“In other words, China could have passed Japan in GDP by this measure two years ago if it had allowed its currency to rise by 20 percent against the dollar.”
If China re-valued it’s currency 20% two years ago I’d hazard a guess that their economy would have shrunk, not grown, over the last two years.
China cannot allow it’s currency to appreciate 20% because if it’s labor is suddenly 20% more expensive it’s economy will likely collapse.
August 16th, 2010 at 4:52 pm
The qualititative factors are important here as well. China has:
the largest standing army in the world (what else to do with all those males after decades of female infanticide?)
a voracious need for natural resources, financial and intellectual capital .
a desire to recapture its former might, geographic empire and influence.
a feudal system with a practically inexhaustible supply of peasants and corresponding labor.
a global diaspora
an ability to act and plan on a long range timeframe with 50 – 100 year stages.
Better start learning Mandarin so we can beg for mercy!
August 16th, 2010 at 5:27 pm
Thor: Yeah, I think some players are shorting Australia as a proxy for China as completely dependent on the China bubble. Wish there was a good way to do it from inside an IRA.
Any suggestions appreciated.
August 16th, 2010 at 5:36 pm
Thor: Meant to give you props on the revaluation comment. No way China could keep exporting.
From another aspect, Michael Pettis has explained over and over that a major function of PBOC is to buy dollars from Chinese exporters with remimbi (never can spell it). This makes the PBOC short it’s own currency and very long dollars. If it lets its own currency rise and the dollar sinks, it stands to lose an enormous amount.
August 16th, 2010 at 6:15 pm
Mike – I see you and I have similar reading lists ;-)
Thanks btw!
August 16th, 2010 at 7:51 pm
Jim O’Neil is a Manchester United supporter, so he must be right.
August 16th, 2010 at 7:55 pm
I have been in China very often starting in 1974, most of 2007 and twicw yearly since. It is doing really well. In the most recent stimulus they have completed the infrastructure build-out, like the US a generation ago.
What did the US get for its $1 Trillion stimulus?
The advantage in China is that any corrupt politician gets shot. You should try that in Washington. It would certainly create some openeings?
August 16th, 2010 at 7:58 pm
As for the yuan, it’s dropped 1.8% since the end of the peg:
http://www.telegraph.co.uk/finance/currency/7947089/US-and-China-to-clash-over-yuan-fall.html
When are we gonna wise up and start a trade war? It will hurt them and the mulitnationals a lot more than the US populace.
August 16th, 2010 at 8:05 pm
Here’s a something Mish pointed out tonight. Someone following up on Hugh Hendry’s video:
Rise of the Chinese Ghost Town
http://blogs.worldbank.org/transport/node/526
August 16th, 2010 at 8:26 pm
If you look at the amount of natural resources necessary for the 1.3 billion people in China to live anywhere near the standard of living of the U.S. you quickly realize that not everyone can live at that level.
1. Funny how nobody mentioned this in the U.S. when in the 1930s most Chinese lived at near-starvation existence and had to kill their own infant daughters because of a lack of food.
2. Certainly points to the need for getting off the gravy train of ridiculously unsustainable consumption levels the U.S. has ridden since WWII, a train ridden and driven solely on the premise that rest of the world would not want or would ever get a taste of it.
3. The ‘standard of living of the U.S.’ so fluid and relative as to be almost not discernible. In actuality, while many Americans would fight and vote to the death for their SUVs and McMansions and 4 acre lawns, in private they would actually admit the whole thing is a sham and if not for peer pressure they would be perfectly happy with much less ostentatious accommodations. Scratch a rich person or a nouveau riche and they will regale you with tales about how much they enjoyed their childhood living under much more modest conditions. It was all simpler then, they will say. Funny.
August 16th, 2010 at 9:39 pm
@Mike in Nola
“When are we gonna wise up and start a trade war? It will hurt them and the mulitnationals a lot more than the US populace.”
And what good do you suppose that would do. Chinese workers earn $25 per week as compared to the same amount per hour in the US. So even a doubling in the value of the Yuan or 50% Import tariff on Chinese manufactured goods would not redress the differential. Incidentally, that would also be illegal under the world trade system put in place at the behest of the US which inordinately benefits US Corporations, who don’t even meet their US tax obligations.
In any event, China is well along in transitioning its economy from exports to domestic consumption and has $2 Trillion in reserves to cushion the transition.
So a trade war with China would have the net result of futher highlighting US disengenuity to the rest of the world and increasing consumer prices in the US.
If that’s what you want, and it could be argued that a bit of inflation might not be a bad thing right now, then go ahead. But it seems to me that the real problems are a little closer to home, not a million miles from Washington DC where Congress serves at the behest of Corporate interests, whereas in China, intelligent strategic decisions are made in the true best interests of the Chinese people.
August 16th, 2010 at 9:59 pm
philipat: Beg to differ with you on the transformation of the Chinese economy. The decisions are made to favor manufacturers over the people. And I don’t think they are all that intelligent. They look intelligent because they got China to major power status, but they have nowhere to go from here without a long, hard slog that will threaten the public order.
See, e.g., http://mpettis.com/2010/08/chinese-consumption-and-the-japanese-%E2%80%9Csorpasso%E2%80%9D/
China is much more fragile economically and politically than we are. We can easily feed ourselves. Any big shock would keep them preoccupied trying to keep the country from collapsing.
As you may have guessed, I’m not a fan of the WTO and don’t really care what it says. Time has proved Ross Perot correct. The sooner it is dismantled, the better.
Shoue we just keep going the way we are until all the jobs and money are sucked out of the US?
August 17th, 2010 at 12:13 am
Forget What You’ve Been Told, China Won’t Be the World’s Second Largest Economy For Long
http://www.foxnews.com/opinion/2010/08/16/gordon-chang-china-economy-japan-united-states-gross-domestic-product/
110M empty apts, empty cities and malls …. talk about your bubbles