Japan overtaken by China as No. 2 economy

By Agence France-Presse
Monday, February 14, 2011 16:53 EDT
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TOKYO – Japan lost its 42-year ranking as the world’s second-biggest economy to China in 2010, with data on Monday showing a contraction in the last quarter due to weak consumer spending and a strong yen.

While Japan was expected to fall behind a surging China in the year, the data underlined the weak state of a Japanese economy burdened by deflation, soft domestic demand and pressured by the industrialised world’s biggest debt.

“It is difficult for the deflation-plagued Japanese economy to achieve self-sustained growth,” said Naoki Murakami, chief economist at Monex Securities.

While China’s leap forward reflects a shift in economic power as the country transforms itself from poverty-hit communist state to global heavyweight, it highlights the need for shrinking Japan to energise its economy, analysts said.

Japan’s post-war “economic miracle” put it at number two behind the United States for more than four decades, but stagnation after the Japanese property bubble burst in the 1990s helped put China on course to supplant its neighbour.

However, Japan remains around 10 times richer on a per-capita basis, noted top government spokesman Yukio Edano. GDP per head in Japan is around $40,000, say economists.

Predictions vary as to when China may overtake the United States as number one economy, but it should happen by 2025, according to estimates by the World Bank, Goldman Sachs and others.

Most Americans already believe China is the world’s leading economy, a poll said Monday.

Some 52 percent of Americans said China was the “leading economic power in the world today,” against 32 percent who said their own country, the Gallup poll said. The percentage who said China has soared over recent years.

Seven percent identified Japan as the leading economic power, according to the poll, which surveyed 1,015 US adults this month.

Japan’s real gross domestic product slipped by an annualised 1.1 percent in the December quarter as the expiration of auto subsidies hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports.

In contrast, China grew nearly 10 percent in the same period.

While Japan’s first contraction in five quarters was not as severe as forecasts of a 2.4 percent slide, the preliminary data is subject to revision.

The economy grew 3.9 percent in 2010, its first annual growth in three years. But this was not enough to keep it ahead of surging China.

Nominal GDP of $5.474 trillion in 2010 put Japan behind China’s $5.879 trillion, the data showed. China first eclipsed Japan in the second quarter.

Despite Japan crawling out of a severe year-long recession in 2009, its recovery remains fragile with deflation, high public debt, an ageing population and a strong yen all concerns for policymakers.

Pressure is on Prime Minister Naoto Kan, who has seen his approval ratings tumble as his government looks to boost the economy without deepening the debt amid a legislative impasse over a $1.1 trillion budget for next fiscal year.

Last month Standard & Poor’s cut Japan’s credit rating one notch to “AA-” from “AA”, saying the government lacked a “coherent strategy” to ease a debt running near 200 percent of GDP, the highest of any developed nation.

Nearly a third of government spending is being swallowed up by a social security system catering to a rapidly greying society, Standard & Poor’s warned, with that ratio set to rise without reforms as Japan continues to age.

Private consumption, accounting for about 60 percent of Japan’s GDP, slid by 0.7 percent quarter-on-quarter in October-December as the car subsidies expired and cigarette sales were dented by Japan’s biggest ever tobacco tax hike.

Exports slipped in the quarter as the yen surged to 15-year highs against the dollar, making Japanese goods more expensive overseas and eroding repatriated profits.

But many analysts expect the economy to rebound in the March quarter as the rising tide of global recovery lifts Japan, amid a recent pick-up in corporate spending and exports.

“The contraction will not last long,” said Murakami. “Companies’ manufacturing activities are recovering rapidly in January-March this year from their bottom in October 2010.”

The government played down Japan’s slide to third biggest economy and said it would benefit from having a booming neighbour.

“We welcome, as a neighbouring nation, that China’s economy is advancing rapidly,” said Kaoru Yosano, minister for fiscal policy.

The Bank of Japan is expected to leave its key rate near zero Tuesday in its ongoing battle with deflation

Agence France-Presse
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  • Anonymous


  • Anonymous

    Since necessity is the mother of invention, perhaps the US’s lagging economy will teach it how to get by with a military which spends less then that of the rest of the world combined.

  • Guest

    No surprises here. After all one of their biggest assets is owning the United States of America.

  • Guest

    One word, edwards_com, and you touched a truth of volumes.

  • Anonymous

    China got to second place the same way Japan got to second place – by draining American capital with consumer goods produced by lower cost labor and free access to the American consumer markets given to them by the feckless leaders of both of our political parties. Our feckless leaders of both parties subscribe to suicidal domestic (non-regulatory) and international (free unregulated trade) economic policies that benefit transnational and national financial institutions (that include conglomerates which are only non-productive financial institutions in disguise).

    The hideously delusional “globalist” ideology – embraced by both parties and endlessly promoted by the corporate media – that sees all other nations’ governments and peoples as trading partners with values compatible with that ideology has systematically destroyed our industry, our job base, and finally, our ability to define our own future. The world is NOT flat – it’s damned lumpy. If we continue to accept that notion and adapt accordingly, our standard of living will be reduced that of the poorest nations on earth – and to no ones benefit except a tiny number of elites. The world always has been lumpy and will be for the foreseeable future. Both parties have to go.

  • Anonymous

    And from Prairie 2 ( http://www.prairie2.com/ ):

    “The Fed has now passed China to become our largest creditor as they continue buy Treasury bonds on the open market and now hold 1.1 trillion compared to China at 896 B and Japan at 877 B.”

    “The good news is that China is no longer our biggest creditor”…

  • Anonymous

    “Some people say”……..it would be fun if a gang of “jack hammers” tore up the inlets of MalWarts so cars could not enter. I think it would be terrible.

  • Anonymous

    Like landing on the moon for those that missed it. Or did they? My dad always said that other countries had sights that were looking elsewhere, while we were “polishing” our chrome bumpers.

  • TheDevilCanDance

    This doesn’t mean anything. The Chinese economy (local industry) is doing good, but the government is investing trillions of dollars into the local infrastructure, The Chinese economy is a bubble economy, and within the next 10 years you will witness a radical downturn. Everybody talks about the Chinese “miracle”, meanwhile more than 85% of Chinese live under the poverty line, opposed to Japanese who have one the top standard of living in the world. There is a reason why the Chinese economy is doing good. The production & industrial system rely on slave workers

  • Anonymous

    It’s only a matter of a few years now until China overtakes the USA. When it comes time to pay the piper…well who KNOWS what might happen?

  • Mr. Neutron

    Sure, GDP doesn’t mean anything, it’s standard of living that’s important. That’s what they say in Lichtenstein (GDP = $4.16 billion, GDP per capita = $122,100).

    Yet plenty of economists, foreign policy analysts and military people think GDP is pretty important:
    It’s the country as a whole that builds a military, develops a Space Program, or supports domestic corporations.

    I wonder if Americans will forget about the importance of GDP after they are beat by China and India ? Maybe they will emphasize how important per capita GDP is, like Lichtenstein – but probably not, since they are only #10:

  • TheDevilCanDance

    Wow. you are quite an economist. you are comparing Lichtenstein with the US or China. Lichtenstein has no industry, no population, its not a real country,more of an offshore bank in the middle of Europe.

    You should also compare Monaco with India,but I digress…..I am not contesting the fact China has a ” good” economy. all I am saying is,its economy comes at a price, and it wont last long for a reason., China`s economy cannot feed its people & provide them with a decent standard of living.

    You are citing CIA sources, The CIA,absolute failure at predicting and analyzing anything…..

  • Hassan i Sabbah

    Considering the physical size and population of China versus that of Japan, that’s not as great an achievement as it sounds.

  • Hassan i Sabbah

    Just remember, regulated trade comes at a price: No Walmarts, no K-Marts, no Targets, no Costco, no retail at wholesale prices. Not that that’s necessarily bad. Look at what these outfits have done to the union movement in the U.S. Just keep the consequences in mind as you debate this. It’s not a one way street. Be ready to pay twice as much for what you buy.

  • Hassan i Sabbah

    We actually are spending less on hardware lately. We just have these two little engagements in the East that are draining our economy. And of course the framework of empire is getting a bit pricey.

  • Don Corleone

    I imagine if US debt were taken into account, the US would be a bit lower in the list.

  • Wyrdless

    We actually did withdrawal the vast majority of troops from Iraq, I have a buddy who served, and that is what he said. Since, he was there for 3 years, I believe him.

  • Wyrdless

    Japan has been hit by deflation.

    That is funny, really, they actually just didn’t print money as fast as America, Europe and China so their currency is rising. Also, this article mention, lower consumer demand as if that is the worst thing ever. This is an example of the Keynesian bias in economics.

    In reality less spending = more saving = lower interest rates = higher investment = efficient production

    This will be good for the elderly population of Japan,
    deflation = higher currency value = cheap raw materials = cheap industrial goods.

    Japan will be forced to inflate soon enough, they are highly indebt to themselves through forced savings plans and if the US currency drops, their foreign reserves will suffer. Both of those will lead Japan to ‘loosen or ease monetary policy’

  • Anonymous

    It might not be a bad idea for the younger generation here to learn to speak Chinese. You will be able to communicate with your landlord.

  • Wyrdless

    “”China got to second place the same way Japan got to second place – by draining American capital with consumer goods “” You hit that right on the head!


    The Japanese improved American cars by competing with them, and this has lead to better cars at lower prices for everyone. So competition is good in that sense. After WW2 America produced 50% of all goods, becasue Europe was destroyed and those were the only 2 places with industry. those special conditions are never coming back and expectations based on it, will never work.

    I do agree we shouldn’t be giving China, a dictatorship which has killed more people than any other government, ever, free trade rights. India is our natural ally in this regard.

    I really don’t see any reason why someone in Bahrain, Brazil or wherever shouldn’t be able to sell me something or visa versa. I don’t see how that is even the governments business (assuming it is not a weapon)

    America isn’t going to drop to a third world level, we will have another depression, the youth will surge forward ahead of the, soon to be poor baby boomers, and things will change. Freedom itself creates money and higher standards of living. Unless we continue to fall into nanny state dictatorship, America will do fine.

    Quick question, soon “mandatory disbursements” are going to be forced on baby boomer 401Ks. What happens when 100 million people sell stock at the same time for 10 years becasue the government forces them to under penalty of fines/imprisonment?

  • Anonymous

    I have in laws that swear by the joint. A jackhammer stunt would be foolish.

  • Anonymous

    Viet Nam, another bogus war, was our tipping point. The Third Quarter of 1967 was the last time we were totally independent for Raw Materials. Since then we just keep flushing them down the Rat Hole of the military.

  • Anonymous

    Commence Rant: I’m well aware of the argument and it’s a bogus one – the standard argument of the corporatists on our side of the trade and the command-economy propagandists on the other. It singles out one small aspect within a larger context in order to make that aspect appear beneficial when it, clearly, is not.

    The econ-101 argument that all parties benefit from trade is predicated on domestic trade and extends to international trade only when…

    1) the trading economies are of approximate equal development status, When they are not, only the immediate parties to the trade benefit mutually from free (unrestricted) trade – the collateral effects of that trade are to the benefit the less developed economy and detriment of the more developed as domestic industry and workers producing those goods will be displaced – along with their wages earned, taxes paid, families supported, etc. The classic rebuttal – that goods are being produced more “efficiently” can be true when all other things – like living standards – are equal, but becomes only a euphemism for lower pay-scales, benefits and protection of workers and environment in the producing economy.

    2) neither is manipulating the mediums of exchange in which the trade takes place in their favor. If one is, then it is a “hidden tariff” on that one’s imported goods & services and a “hidden subsidy” on their exported g & s.

    3) the quality and service-life of goods imported is equivalent to displaced domestic goods. When the quality/service-life of the imported “same-named” good or service is less than the displaced domestic good, “less expensive” imported goods bear a large “hidden inflation” cost in that the lessor good will have to be replaced sooner, or more often over time, in order to obtain the same utility.

    When added up (re U.S. trade policy with China and others), all three sum to a horrendous cost to the U.S. economy and society, their present, and future. Overall, China is nowhere near the standard of living of the U.S.. It was actively manipulating its currency before formally pegging their currency below market exchange-rates re the dollar, and their recent “easing” is only partial, leaving the U.S. still at a tremendous disadvantage (and, debt being cumulative and surviving all economic turbulence, we are several trillion in arrears and adding more daily). Their goods (as well as goods from other developing countries) range from only fair to miserable in terms of service-life/quality as any experience of goods in big-box product lines will attest.

    So, you aren’t getting “retail” at “wholesale prices”. Your big-box “retail prices” are actually prices that are enormously subsidized by huge net outflows of U.S. capital and U.S. debt financing to cover the the U.S.’s enormous imbalance-of-trade with China (and others) wrought by ignoring violations of the three assumptions already described. It has and continues to drive the U.S. economy and society into the ground and make “stimulus packages”, “quantitative easing”, and all other attempts to goose the economy and create (worthwhile) jobs as futile as throwing money into a black hole. Just more payoffs for political special interests while the central issues remain unaddressed.

    And, the so-called damage to the union movement – that the big boxes you cite have done – pales into insignificance relative to the damage done to all American workers – union and non-union – by violations of the assumptions above. That the liberals/Democrats have failed to oppose this politico-economic folly – wrought by the Republicans – with rationale economic alternatives and, in fact, have joined them in that folly, is to their everlasting condemnation. They, like you, divert attention from the central issues by whining over what Wal-mart etc do to their non-union employees while the larger problems are eating all American workers – and all potential union members – for lunch.
    End of Rant:

  • http://pulse.yahoo.com/_QMPOO3PZFN7XV2XZKCGSXXR3WM Joe Somebody

    the problem is exactly that we “want to buy” regardless of what our needs are. Consumerism is a disease intentionally foisted upon us to prop up the failed and abusive Free Trade systems that enrich the few while destroying the planet.

    ignorance, greed, short sightedness.. We don’t just produce things needed for life anymore, now we produce MANY more things for “entertainment” and novelty.. things we don’t need in the ways we create them, but profit-seeking in industry to capture the market drives all the variances and waste that are so destructive.

  • http://pulse.yahoo.com/_QMPOO3PZFN7XV2XZKCGSXXR3WM Joe Somebody

    China has 350,000,000 people in their emergent middle class. China’s middle class (people living close to the way most Americans do) is larger than all of America, including our 100 million “not so well off”. If they continue growing at 10% a year for 10 years, they will have 500 or 600 million people living in the “middle class”; that’s why they are building infrastructure. … and isn’t infrastructure the core around which a modern society is built? Without it, nothing else can flourish..

    China is laying the ground work (literally) for a much better environment than we have here in the U.S… if for no other reason than they are using current technology while the U.S. used technology available in the 50s and 60s and still hasn’t done much to upgrade on a large scale (too busy warmongering and empire building for the benefit of the few).

  • TheDevilCanDance

    You have no idea what you are talking about, you are recycling some pieces from the economist….
    Have you ever been to China?,most people who live in rural area have no electricity and no hot water. The life style of 85% of Chinese is abysmal….but this is good for the morons worldwide who can purchase all the cheap and shitty stuffs that China produces )

  • http://pulse.yahoo.com/_QMPOO3PZFN7XV2XZKCGSXXR3WM Joe Somebody

    I don’t read the Economist.

    From National Geographic: http://ngm.nationalgeographic.com/2008/05/china/middle-class/leslie-chang-text/2 near the bottom, estimates range from 100 million to 150 million, they own cars and take vacations and eat out. Hardly no water or electricity.

    from http://english.peopledaily.com.cn/90001/90778/90862/7071235.html — a recent study predicts near 700 million “middle class” by 2020. Twice as many people as the entire population of the United States.