When China will overtake Japan? The clock has started

When China will overtake Japan? The clock has started

RIA Novosti political commentator Dmitry Kosyrev

It is unusual to sum up the results of the year in January but some people have calculated that this year China will overtake Japan, becoming the world's second biggest economy after the United States. Arthur Kroeber, managing director of the Beijing-based company Dragonomics, has just made a statement to this effect. This forecast was already made in the fall but this time Kroeber is backing it up with statistics.

Last Sunday the Chinese Customs Service published statistics showing that China has become the world's leading exporter: its exports amounted to $1.2 trillion. It has already outstripped Germany, but not the United States or Japan. Germans count more slowly but their exports are expected to be a mere $1.17 trillion.

It is a strange time for China to take the lead, now during a recession rather than an upsurge. China's exports in 2009 decreased by 16% but German exports dropped much more. 

It may be that this recession will greatly help China to outstrip Japan, which has already lost 9% of its GDP since 2007. The crisis, which started in 2008, is not the only cause of this. For the last 30 years the Japanese economy has been experiencing problems, primarily due to sluggish domestic demand. The Japanese explain it by pointing to a change in their attitude to life, which "has become too boring."   

When that new generation of Japanese people, born right after World War II, was busy creating an economic miracle, they enjoyed life and spent a lot. But now this enthusiastic generation is reaching retirement age. During this decade Japan's manpower will decrease by 7.6 million or 10%. There will be more pensioners and fewer active workers.

Now Japan has a new government led by the Democratic Party. It is planning to spend money on increasing the birth rate and improving education. In other words, it wants to invest into people rather than the country's infrastructure. However, this investment will not produce the desired effect in 2010. It can help the economy grow, probably by about one percent. This is when China will seize the initiative.

That forecast about China soon becoming the world's biggest economy is nothing new. It was first made at the beginning of last decade. What is new is the attitude of these, and other, countries to this prospect.

The recent emotional outburst was caused by the predictions of Robert Fogel, a 1993 Nobel Prize winner from the University of Chicago. He gave his estimate of what would happen if all countries continue to develop at current rates, for example, basing his projections on China's continued growth at its 2009 rate of 10.8%. Fogel calculated that if this happens, then China's annual GDP will reach $123 trillion in 2040. Obviously, this will be the world's biggest economy but the scale is truly stunning. This is three times more than the entire world produced in 2000, and the annual income of $85,000 per man is double the figure predicted for the European Union for the same year.

If this were to happen, the Chinese economy would amount to 40% of the world economy, with the relevant figures for America and the EU being a mere 14% and 5%.

These predictions are much bolder than recent estimates by the Carnegie Endowment, according to which by 2050 the Chinese economy will only be 20% bigger than America's.

Fogel is not trying to spin us a yarn about a geopolitical bogeyman. He is now studying comparative labor productivity of educated and uneducated people. He knows that according to the estimate for America, a college graduate is three times more productive than a person who has completed nine years at school. In formulating his estimates of China's growth Fogel takes into account the fact that the number of college students in China grew by 165% from 1998 to 2002, the number of students studying abroad went up by 152%, and has continued growing.

Fogel is using his research to work for the reform of American education planned by President Barack Obama. He referred to China just to illustrate an idea, which has nothing to do with it.

As always happens in such cases, the Nobel Prize winner was told why he got it wrong. Maybe China became the best car market last year but only 4% of China's population have their own cars. What will happen if this figure rises to American levels, seeing a 20-fold increase? Where will China then get asphalt for its highways and gasoline? China will not have enough water for agriculture and other industries. Finally, it was ideologists rather than strict economists who explained that China is not democratic enough to sustain steady growth. The centralized public-private partnership has proved too successful in minimizing the consequences of the current downturn. China's leaders may decide that if this is the case, China does not need liberalization and this decision will definitely curb the growth. This is what the theory states on this score.

Be this as it may, we have again been reminded that China deserves respect. The United States has long treated it with respect. On the one hand, American companies and labor unions demand that the administration reduce the imports of car tires, steel pipes and many other products from China. On the other hand, the American media observe that not a single anti-Chinese measure is adopted in Congress without a battle. This trade with China deprives steel pipe producers of jobs but gives them to many other people. Not a single congressman can afford to vote without finding out what part of his electorate will be affected by these or other restrictions on trade relations with China.

The opinions expressed in this article are the author's and do not necessarily represent those of Trend

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