China's Economy is Overtaking Japan's, Here's What it Means to You
Just as Japan’s economy has been slumping over the past two decades, China’s has been vigorously building steam. And, as Bill Emmott points out in an article today, it won’t be long until Japan gets bumped down a notch and China takes its place as the world’s second largest national economy after the US.
Emmott downplays the significance of the particular data point, but notes that it’s an interesting, and potentially fortuitous, moment in time for Japan. From the Times Online:
“The statistical point can be dealt with simply. Does any German remember the moment in the 1970s when Japan overtook West Germany as the world’s second-biggest economy? With a much larger population (120 million now, against 82 million Germans) it was natural for Japan’s output to be bigger once it approached German productivity levels. So it is with China, only more so, since its population of 1.3 billion is ten times Japan’s. Thus, its economy will “surpass” Japan’s at a time when its income per head is less than one tenth as large. And, if China did not have an artificially cheap currency, it would have overtaken Japan already.
“Those income-per-head comparisons help to show why to be overtaken is good for Japan. To find yourself plonked just off the coast from a huge population of eager new consumers is a wonderful opportunity. China is already Japan’s biggest trading partner, and Japan sells a lot more to China than it buys from it. If the Chinese currency is revalued this year — and especially if the market is eventually allowed to set its exchange rate — the terms of trade will move even more in Japan’s favour, both for goods and for services.”
The Daily Reckoning’s Bill Bonner has also seen promise in that weakened Asian economy, and earlier this month cited Japanese stocks as the opportunity of the decade:
“While there are many things that seem likely to go down, there aren’t many that seem destined to go up. Let’s see, what has been beaten down, dissed, battered, and abused for the last 20 years or more? What is it that people don’t want? What is it that they expect to go down…possibly forever?
“Of course…Japanese stocks!
“So there is our Trade of the Decade:
“Sell US Treasury debt/Buy Japanese stocks.”
It’s an important story worth following, and you can read more about the relationship between the economies of Japan and China in the Times’ coverage of how after years of stagnation Japan is stirring.