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China Passes Japan As World’s Second Largest Economy? Don’t Make Me Laugh

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The GDP is a measure of an economy’s total output, the market value of all of its goods and services. Recently the media reported that China has surpassed Japan in terms of GDP. What this means is that the Chinese economy produced goods and services valued at a few hundred billion more than the Japanese economy did. But what does this really mean? Is China actually richer than Japan? Are the Chinese coming?

A better measure of the wealth of a nation is the per capita GDP. In terms of its per capita GDP, China ($6,600) is poorer than Poland ($14,000) and nowhere near Japan ($33,000). In fact, China is in about the same place as El Salvador, when its economy is considered in the light of per capita GDP.

Clearly, something isn’t quite right with the notion that China has surpassed Japan as the world’s second largest economy. You see, numbers can be deceiving. While China may have surpassed Japan in terms of growth of its total economic output, it has not exceeded El Salvador in terms of the purchasing power of its consumer. It is the purchasing power of the consumer that really matters, however. Thus, to actually equal or exceed Japan’s economy, China’s GDP would have to be today at least $100 trillion. It won’t be that until 2020 or 2050, depending on projected economic growth and assuming that the per capita GDP manages to keep up. It is entirely plausible to assume that China might reach the $100 trillion GDP mark in 2020 while having per capita GDP of a poor nation, if its consumers continue to remain poor.

Output and growth are nice, but unless that growth translates into a commensurate change in standard of living and a growth of the purchasing power of the consumer, it means very little. In fact, such growth without commensurate income increases is a recipe for political instability. Today, the Chinese consumer isn’t much of a force in the global economy, which is why China’s economic fortunes are directly tied in to its export markets. But to actually grow in real terms, the Chinese economic growth will have to translate in the growth of wealth of the average Chinese consumer. When and if that will happen is an open question. It is not open to question, however, that the Japanese consumer can outspend the average Chinese.

The fact is that China’s stellar growth has been largely a function of smoke and mirrors. Ballooning trade surpluses, currency undervaluation, and emphasis on GDP growth—while all this seems impressive to a casual observer, it belies the fact that the Chinese consumer has not become wealthier than the consumer in Japan. 

About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • Rojt88

    China is fond of reminding people that it is a developing country that ranks just 103rd in terms of per capita GDP. And Japan’s per capita GDP was more than 10 times higher than China’s US$3,600 last year and China has more than 150m people living on less than $1 a day.American talking heads just love the Chinese modesty and ignore the looming crisis.

    But the fixation with talking down China’s rise and the tenacity with which Chinese officials cling to the “developing country” myth has a purpose. Without pleading poverty China would find it difficult to argue that it cannot impose curbs on greenhouse gases and demand free technological IP transfers, reduce export and agricultural subsidies, reduce protective import tariffs, that it cannot introduce universal suffrage and multi party democracy.

    For example, last month when the IEA said China is the world’s largest energy consumer the news was met by a storm of denials from Beijing.

    By hiding huge off book savings “Grey Income” of US$1.4 Trillion, suppressing the RMB against the US dollar, by giving out misleading and artificially lowered GDP numbers, by claiming poverty, China is deferring global obligations for it’s ultimate goal of the only super power.

    And, the USA and other developed countries go along with the farce because of political consequences while ordinary working stiffs get whacked by the Chinese juggernaut.

    When the Chinese GDP exceeds the US there will still be tens of million Chinese squatting over slit trenches and China will still claiming poverty and backwardness. I guarantee it.

  • Hello

    !0 years ago, in year 2000, China’s economy was (1/4) the size of Japan’s GDP.

    2000-2010 (10 years later), China’s GDP eclipsed Japan’s economy.

    THAT IS INCREDIBLE AND UNPRECEDENTED IN HISTORY.

    No nation on Earth has achieved sustained 10% growth at the size and scale China has for the past 30 years.

    China is truly unprecedented in modern era.

  • Andreas

    GDP per capita is irrelevant due to inflation. Look at REAL income to compare real standard of living

  • Real

    Andreas, China’s GDP per capita (PPP) is 8,394. Japan’s GDP per capita (PPP) is 34,362.

  • Igor

    What counts is the per capita GDP. All that a big national GDP does is allow you to have a bigger army, which is wasteful. Meanwhile, the condition of the average Chinese deteriorates: farmers who can’t beat the new international competition (dominated by western agri-biz monopolies anxious to wipe out competitors with predatory pricing so they can establish proper international monopolies) are committing suicide, and Chinas cities are choking on unending deadly smog (as a result of the governments heedless disrespect to their own citizens and their submission to the deregulation demands of it’s own Chinese monopolies as well as the western monopolies they suck up to in order to take over sectors of the rich western markets).

    China should serve as an example of what happens when a country sacrifices every bit of concern for it’s citizens in a sick desire for international admiration.