Japan lost its place as the world’s No. 2 economy to China in the second quarter, as receding global growth sapped momentum and stunted a shaky recovery.
GDP grew at an annualized rate of just 0.4 percent, the government said yesterday, far below the annualized 4.4 percent expansion in the first quarter, adding to evidence the global recovery is facing strong headwinds.
The figures underscore China’s emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its global influence is expanding.
China has been a major force behind the world’s emergence from deep recession, delivering much-needed juice to the US, Japan and Europe. Tokyo’s latest numbers, however, suggest that Chinese demand alone may not be enough for Japan or other economic giants.
“Japan is the canary in the gold mine because it depends very much on demand in Asia and China, and this demand is cooling quite a bit,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “This is a warning sign for all major economies that just focusing on overseas demand won’t be sufficient.”
China has surpassed Japan in quarterly GDP figures before, but this time it’s unlikely to relinquish the lead.
China’s economy will almost certainly be bigger than Japan’s at the end of this year 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 percent and 3 percent this year. The gap between the size of the two economies at the end of last year was already narrow.
Japan’s nominal GDP, which is not adjusted for price and seasonal variations, was US$1.286 trillion in the April-to-June quarter, compared with US$1.335 trillion for China.
Japan has held the No. 2 spot after the US 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 so-called “economic miracle” turned into a massive real estate bubble in the 1980s, before imploding in 1991. What followed was a decade of stagnant growth and economic malaise from which the country never really recovered.
Japanese Prime Minister Naoto Kan now faces a long list of daunting problems — a rapidly aging and shrinking population, persistently weak domestic demand, deflation, a strong yen and slowing growth in key export markets.
In contrast, China’s growth has been spectacular, its voracious appetite fueling demand for resources, machinery and products from the developing world, as well as rich economies such as Japan and Australia. China is Japan’s top trading partner.
China’s rise has produced glaring contradictions. The wealth gap between an elite who profited most from three decades of reform and its poor majority is so extreme that China has dozens of billionaires, while average income for the rest of its 1.3 billion people is among the world’s lowest.
Japan’s people are among the world’s richest, with a per capita income of US$37,800 last year, compared with China’s US$3,600. So are Americans at US$42,240, their economy still by far the biggest.
“We should be concerned about per capita GDP,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
China overtaking Japan “is just symbolic,” he said. “It’s nothing more than that.”
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