China ready to become no.2 Economy of the world ?

China Daily posts a good article on difference between Chinese and Jap economy.

The global economic landscape may see a milestone change this year, for China is widely regarded to replace Japan as the second largest economy in the next few months. But for that to happen China's economy has to grow by 6 to 8 percent, while Japan's has to contract further.

Last year, China's GDP was $4.22 trillion against Japan's $4.84 trillion. And even though China's GDP may overtake Japan's, the two economies have major quantitative and qualitative differences.

The first is the extent to which economic growth has benefited the peoples of the two countries. International Monetary Fund figures show Japan's GDP per capita purchasing power parity was $34,100 last year - 24th in the world - while China's was only $5,962 - 99th in the world.

To evaluate the extent of benefits the two peoples have enjoyed, we have to consider the income gap in the two countries. After World War II, Japan started building an egalitarian society, and once boasted a "society of 100 million middle class", that is, all Japanese believed their incomes had reached the middle-class level. Japan was the first country to provide healthcare for all its citizens, too. An Asian Development Bank survey in 2007 showed that Japan's Gini coefficient was 0.24, the only Asian country below 0.3, while China's was 0.48, considerably higher than the 0.4 alarm line.

The UN Development Programme's Human Development Index (HDI), which combines measures of life expectancy, literacy, educational achievement and per capita GDP, is a more comprehensive indicator than per capita GDP in evaluating the degree of economic and social development, and the quality of people's life. According to the Human Development Report 2007-08, Japan's HDI was 8th in the world, much higher than China's 81st.

Second, China is still far behind Japan in environmental protection. The Japanese enjoy a much better environment than the Chinese. For example, the air quality in most Japanese cities is better than in Chinese cities. About two-thirds of Japan's land area is covered with forests, one of the highest in the world. And Japan's environmental industry has developed rapidly, accounting for $386.2 billion of the $600-billion global market. The US' market is worth $100 billion, and China's, only $20 billion.


In the 1980s, the Chinese admired Japan's dazzling cities, skyscrapers and popularity of home appliances. In the 21st century, they admire its clean environment the most. Pollution in China causes an average annual loss of up to 13 percent of GDP, and has become severe enough to put the health of its people at risk. Sixteen of the world's 20 most polluted cities are in China, and 400 million urban Chinese residents breathe polluted air. A whopping 27.9 percent of China's land area, or 2.67 million sq km, is threatened by desertification and 37 percent, or 3.56 million sq km, by erosion.

The third difference between the two countries is the use of science and technology to boost productivity. Science and technology contribute up to 70 percent of Japanese economic growth, while China's proportion is only 39 percent. Japan spends 3.5 percent of its GDP on research and development, whereas China spends only 1.3 percent. Japan's index of dependence on foreign technology is lower than 30 percent, while China's is higher than 50 percent. Besides, China's labor productivity is one twenty-sixth that of Japan.

Since the 1980s, China has followed in Japan's footsteps to become the new "factory of the world". While as a "world factory" Japan seized the high end of the industrial chain in the international division of labor, China is still at the bottom of that chain.

Furthermore, Japan has contributed three-fourths of the 32 significant new technology products to be commercialized, with the rest coming from the US and Europe.

Four, Japan is still far ahead of China in energy efficiency and resource utilization. Since the 1973 oil crisis, Japan has become one of the top energy-saving countries by developing energy-efficient technology, while China's performance is considered poor. For example, to produce a ton of crude steel, Japan needs 0.6 ton of coal, while China needs 1.5 ton and the US, 1 ton.

Moreover, Japan can produce 980 kg of steel products from 1 ton of crude steel, whereas the US and Chinese average is 700 kg and 600 kg. And Japan's energy consumption to produce 1 unit of GDP is only one-ninth that of China.

The fifth difference can be gauged in terms of gross national product (GNP), which means the values created by people of a country. GNP is different from GDP, which stands for values created by production within the boundary of a country. China has been actively attracting foreign direct investment (FDI), while Japan is reluctant to do so. In fact, Japanese firms are fairly active in investing overseas, and they have been the top FDI investors for the past 15 years. That makes China's GDP higher than its GNP, while it is the opposite in case of Japan.

FDI contributes to 40 percent of China's GDP, and accounts for 20 percent of its economic growth. Overseas firms in China generate 60 percent of its exports. That's why even if China's GDP were to surpass that of Japan, China would still lag behind Japan in economic and social development. It is difficult to say how many years China will take to catch up with Japan's overall development.

But there is a message here. The Chinese government has to make sincere efforts to improve those aspects of society that are not included in GDP, such as the quality of people's life and the environment.

The author is a researcher with the Institute of Japanese Studies under the Chinese Academy of Social Sciences.