Monday, October 5, 2009

NYT: China Set to Pass Japan as World's 2nd Largest Economy

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For those of us in our mid 30s and older it is quite amazing to see what has happened to Japan. About 2 decades ago much of the talk you hear about China (ex demographics) today applied to Japan. Now, after 2 lost decades people are asking if Japan will be the next Switzerland - rich and comfortable, but of little global import. Or is even that too hopeful?

  1. [Sep 21, 2009: NYT - Japan Struggles to Balance Growth and Job Stability]
  2. [Oct 28, 2008: Pooring of Japan Too?]
  3. [Jul 29, 2009: Japan's Herbivore Men - Young American Men's Future?]
  4. [Nov 17, 2008: Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime]
  5. [Feb 26, 2009: NYT - When Consumers Cut Back - An Object Lesson from Japan]
  6. [Feb 8, 2009: NYT - Japan's Big Works Stimulus is a Lesson]

It is interesting to watch our 2 largest creditors jockey - one flailing, one sailing. I'm sure as Americans today say "that could never happen here", Japanese 20 years ago said the same.

via New York Times
  • For years, Japan has been readying itself for the day that it is eclipsed economically by China. But as a result of the global slowdown, Japan’s difficulty in managing its economy and China’s rise — on vivid display Thursday as Beijing celebrated the 60th anniversary of the founding of the People’s Republic — that day may come sooner than anyone predicted.
  • Though recent wild currency swings could delay the reckoning, many economists expect Japan to cede its rank as the world’s second-largest economy sometime next year, as much as five years earlier than previously forecast.
  • At stake are more than regional bragging rights: the reversal of fortune will bring an end to a global economic order that has prevailed for 40 years, with ramifications across arenas from trade and diplomacy to, potentially, military power.
  • China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral.
  • Not long ago, Japan was “the economic miracle,” an ascendant juggernaut on its way to rivaling the United States, which has the biggest economy. Now, many here ask whether Japan is destined to be the next Switzerland: rich and comfortable, but of little global import, largely ignored by the rest of the world. Yet even this widely held hope among the country’s 127 million people may be slipping from Japan’s grasp.
  • The per-capita gross domestic product of Japan, which surged past that of the United States in the late 1980s, stalled at $34,300 in 2007; it is now a quarter below American levels and 19th in the world. Both income inequality and poverty are on the rise.
  • (Over the last 2 decades) Japan stagnated as huge public works projects aimed at reviving the economy went toward protecting moribund industries instead of fostering new ones, failing to lift Japan out of its doldrums while creating a huge debt burden. (thankfully, we are not at all like Japan...ahem)
  • The richest man in Japan, the retailing entrepreneur Tadashi Yanai, was 76th in the most recent global Forbes list, behind moguls from countries like Mexico, India and the Czech Republic — a far cry from the late 1980s, when Japanese industrialists like the railroad tycoon Yoshiaki Tsutsumi were among those at the top.
  • China has also surpassed Japan in having the biggest trade surplus and foreign currency reserves, as well as the highest steel production. And next year, China could overtake Japan as the largest automobile producer.
So if you believe in the consensus in America, Japan has no chance with what they are attempting now.
  • A new government has vowed to take Japan on a new development path, one that relies less on the exports that have long driven growth and is more focused on increasing domestic demand. The Democratic Party, which recently swept the long-ruling Liberal Democrats out of power, has promised to strengthen social welfare and redistribute wealth more evenly.
As we said in our September piece above, Japan tried to follow some sort of hybrid Japanese/US model (heavy on deregulation, emphasis on nomadic temporary workforce) - found the form of capitalism was not working, and now appears to be moving to a Western European style economy. Obviously I am making a simplistic statement of a very complicated situation with thousands of moving parts - but seeing one party that has been entrenched for so long finally swept out shows the masses finally have had enough and are willing to try something new. Not much different than our 2 party system which is essentially "the same party" now. We'll see how many more decades before we see a similar "enough is enough, we'll try anything different" cry. Ross Perot was probably a few decades too early. ;)

I don't talk about REALLY long term predictions on the website, but I believe as the globe flattens and many more Americans are flattened by global wage arbitrage and reduced lifestyle / stability, you will be seeing some quite historic changes in attitudes domestically as well.
  • Per-capita income in China is still less than a tenth that in Japan. But by other measures, the Chinese economy long ago overtook that of Japan.
  • In terms of overall purchasing power, China surpassed Japan in 1992 and will overtake the United States before 2020. (<---- what? impossible you say!)
  • In some ways, this reflects economic fundamentals: As countries develop, growth tends to slow. Annual growth in Japanese gross domestic product averaged 10.4 percent in the 1960s and 5 percent in the 1970s, but only 4 percent in the 1980s and 1.8 percent in the 1990s, according to Goldman Sachs. In the first decade of this century, growth has been even slower.
  • “Japan is neighbors with a rapidly growing market,” said Nobuo Iizuka, chief economist at the Japan Center for Economic Research. “That is a great advantage, not a threat. The question is, can Japan build on that advantage?”
  • Still, said C. H. Kwan, a senior fellow at the Nomura Institute of Capital Market Research, based in Tokyo, “this is a big psychological shock to Japan.”
  • Based on current growth and currency trends, Mr. Kwan forecasts that the Chinese economy could surpass that of the United States in 2039. And that date could move up to 2026 if China lets its currency appreciate by a mere 2 percent a year.
As I keep saying, we live in interesting times and I think the next few decades are going to make the last few look like peanuts. The big question for China now is can they secure enough of the world's resources to make a run at the US.
  • “We’re no longer talking about China making lots of shoes,” he said. “China is about to leave everyone behind in a big way.”
Selling China in 2009 would be like selling American in 1909.- Jim Rogers



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