It may sound similar to our earlier post, last August — but this time, it’s really, really official, even “historic” as some US media reports claim. China has decisively and definitively become the world’s No. 2 economy, leaving Japan firmly in third place.
As the FT reports on Monday, preliminary data showed that Japan’s economy contracted in the last quarter of 2010 amid slowing exports and weak domestic demand. However, despite recent setbacks, including S&P’s January downgrade of Japan’s sovereign debt rating, analysts said the 0.3 per cent quarterly decline in real GDP — the first in a year — was unlikely to dent the growing belief that the Japanese recovery will resume in the current quarter.
Part of the reason is that the contraction, equivalent to an annual 1.1 per cent fall, is partially due to the expiry of various government subsidies on consumer goods that helped inflate demand in the previous quarter. And, as the FT adds, Japan’s preliminary estimates of GDP are “highly volatile, with government statisticians often issuing dramatic revisions as more detailed data becomes available”.
However, one thing Monday’s data did make absolutely clear is that China has surpassed Japan as the world’s second largest economy after the US in dollar terms. Indeed, while it has claimed the Number 2 position by some measures since the second quarter of 2010, China’s annual growth of 10 per cent recorded in the fourth quarter of 2010 has cemented its rise, as well as Japan’s slip down the ladder.
The Japanese have been resigned to their third-place ignominy for some time. But that has not stopped the Chinese revelling in their newly reaffirmed status. China Real Time, which interviewed a number of Chinese ranging from top corporate executives to poor labourers, posts a range of triumphant responses to the milestone.
But as Japan Real Time reminds us;Japan may be Number 3, but it is “still loaded”:
It may now be number three globally rather than number two, but being overtaken by China isn’t exactly a Doomsday scenario: Japan remains an extremely wealthy country.
In fact, in terms of GDP per capita, the Japanese are among the richest people in the world, as the highest-ranked in Asia and No. 18 globally between Canada and Germany, according to World Bank data. Japan’s success is still seen as model by much of the developed world, which admires its “economic miracle” after World War II underpinned by 10% average annual growth in the 1960s and 5% growth in the 1970s.
While “there’s no wafting away that whiff of gloom”, JRT adds, a general sense of equanimity, or resignation, in the nation reflects a sense Japan has joined the ranks of slower-growing mature economies in Europe and North America.
The moment is being seen as “another marker of an extended weakening” in Japan, claims the Wall Street Journal, while the New York Times asserts that two decades of economic stagnation reflect “continued decline in economic and political clout”. Worse, it adds, Japan’s liabilities will hit 204 per cent of GDP this year, outstripping the 137 per cent for debt-ridden Greece, according to OECD figures.
But wait — one of Japan’s leading pessimists, Kaoru Yosano, Japan’s minister for economic and fiscal policy, in unfazed, even expressing cautious optimism in remarks after the GDP data release. Noting that the US economy was showing signs of strength, and China and other Asian neighbours were growing fast enough to require interest rate hikes, Yosano told the Nikkei newspaper that “the environment for Japanese economic activity is not necessarily bad”.
Coming from the man who made headlines last month for his “dreadful dream” warning about Japan’s economic decline, that is optimistic indeed. And judging by the robust performance of Japan’s stock market on Monday, many others share Yosano’s view.
Japan’s silver linings – FT Alphaville
Peter Tasker: The Japan debt disaster movie – FT
China, Japan and the intervention two-step – FT Alphaville
A sweet moment for China’s ‘boy-racers’ – FTAlphaville