China vs Japan by Zahid Ashraf

                  

China’s triumph in overtaking Japan as the world’s number two economy masks a worrisome over-reliance on exports and investment, and lagging social development, analysts said.

Japan lost its 42-year hold on the second spot behind the United States in 2010, according to full-year data released Monday in Tokyo, cementing China’s rebirth from poor communist backwater to global heavyweight.
The shift became increasingly inevitable after the world’s most populous country triggered explosive growth with economic reforms launched in 1978, when it “made up only 0.4 percent of international trade,” said China-watcher Jean-Francois Huchet.

“It is completely normal that a country with a population like China can compete with a nation like Japan in absolute terms,” said Huchet, director of the Centre for Contemporary Chinese Studies in Hong Kong.

But despite three decades of near double-digit annual growth, the per capita income of China’s 1.3 billion people remains about 10 times smaller than Japan’s $40,000, and backward conditions prevail in vast areas of the country.

But despite three decades of near double-digit annual growth, the per capita income of China’s 1.3 billion people remains about 10 times smaller than Japan’s $40,000, and backward conditions prevail in vast areas of the country.

“Although some rich areas (of China) are approaching those of developed nations, other regions are still dealing with problems faced by developing nations,” Huchet said.

When human development indicators such as education are taken into account, China still lags far behind Japan, he said.

On the international stage China’s economic rise has made it a force to be reckoned with.
Beijing oversees a vast war chest of foreign exchange reserves valued at $2.8 trillion, and resulting clout means its decisions weigh heavily on the economies of rich nations like never before.

“China’s place in the global economy is such that other nations must adapt to this situation,” said Chen Xingdong, a Beijing-based economist for BNP Paribas.

But this is not always to the liking of its trading partners.

One illustration is China’s approach to international trade rules, including those of the World Trade Organisation (WTO), which analysts say Beijing either doesn’t implement or brazenly flouts.

“Chinese enterprises, which receive credit from state banks, for example, can all be considered directly or indirectly subsidised,” Chen said of what could be seen as an unfair trade practice at the WTO.

China also faces persistent criticism over its tight control of its currency with the United States leading accusations that Beijing manipulates the yuan to make its exports more competitive overseas, gaining an unfair trade advantage.

China also faces persistent criticism over its tight control of its currency with the United States leading accusations that Beijing manipulates the yuan to make its exports more competitive overseas, gaining an unfair trade advantage.

The state continues to have a dominant role in the economy through its grip on the currency, and by directing investment and laying out the strategies of big enterprises, most of which are state-owned.

China typically deflects criticism by insisting that it remains a “developing” country and thus should be allowed more leeway in managing its economy.

As China closed in on the number two spot last year, Commerce Ministry spokesman Yao Jian stressed Beijing’s position that it still faces an “enormous gap” with developed nations in the quality of its growth.

These include serious imbalances like a widening wealth gap between the rich and poor, lopsided economic growth in favour of coastal regions and cities, and well-documented environmental degradation.

The government is also facing accelerating inflation stoking public anxiety that has resulted from a massive injection of liquidity into the economy as part of efforts to overcome the global financial crisis.

“The social tension is much higher than five years ago,” said Shanghai economist Andy Xie.
“It is not only that some people benefit less than others. For a lot of people now, things are going backwards.”

While living standards and incomes have undoubtedly risen, new challenges have emerged for China’s people, including the army of up to 200 million migrant workers who work far from home doing tough work for often meagre pay.

Such workers have diligently placed their meagre savings in bank accounts that are now declining in value due to inflation, Xie said. “Don’t forget Chinese people are savers, not borrowers,” he added.