China’s double-digital economic growth over the past years has helped it replace Japan as the world’s second largest economy.

In terms of gross domestic product China exceeded Japan from the second quarter of 2010 and its full-year GDP was more than 39 trillion yuan ($5.93 trillion), as indicated by statistics from the National Bureau of Statistics. That means China now has the second largest global economic status that Japan held for four decades. China’s percentage of the global economy also increased from 1.8 percent in 1978 to 8.5 percent in 2009.

However, despite its economic size, China’s economic quality and overall development are still far behind its neighbor and many economic indexes show there still exists a wide gap between them.

China’s per capita GDP is only one-10th of Japan’s. Statistics from the International Monetary Fund (IMF) show that China’s per capita GDP is only $4,412, far below Japan’s $42,431 and Japan does not include its overseas assets in its GDP value, a statistical method that makes its real national wealth underestimated.

Japan began to push for the transformation of its development strategy from trade-reliant to investment-reliant from the beginning of this century. In a white paper drafted in 2005, Tokyo put forward the strategy of increasing the return ratio of its overseas assets and improving its international investment structure and quality. It also vowed to double the country’s payment surplus to the GDP ratio by the end of 2030. To this end, Japan has actively taken measures to remove various obstacles to its direct foreign investment.

In the last five years, the country has harvested an annual average of $50 billion in interest on overseas securities, and its enterprises have made enormous profits on overseas investment. All these have greatly increased Japan’s gross national product.

Compared with its neighbor, China’s overseas investment is still in its initial stage and its GNP, a more accurate reflection of a country’s economic power, is less than Japan’s.

Compared with Japan’s GDP, of which individual consumption contributes nearly 60 percent, China’s economic growth has been largely driven by domestic investment and exports, a growth model it can no longer sustain. From 1979 to 2009, investment alone contributed 38.42 percent to China’s economic growth on average.

Also, despite the fast growth of China’s national wealth, the gap between its rich and poor has been widening in recent years, with the Gini coefficient, a measurement of a country’s distribution inequality, expanding to 0.48, a level far higher than the international “alert line” of 0.4. The income gap between the country’s top 10 percent and lowest 10 percent had already widened to 23-fold in 2007 from the 7.3-fold in 1988.

According to U.N. data, the Gini coefficient was 0.25 in Japan in 2001, which was a low level even when compared with other developed countries. Japan’s huge middle-class population, which accounts for more than 70 percent of its total population, constitutes a huge driving force for sustainable consumption.

Japan has around 60 percent of high value-added products in its exports and a green GDP development model that give it a huge advantage over China, whose exports of low value-added products have resulted in huge energy consumption.

Despite being labeled as the world’s workshop, China still cannot be called a manufacturing power. The country’s manufacturing volumes account for 6 percent of the world’s total, but the sector’s input in research is only 0.3 percent of the world’s total. That means China’s manufacturing technology and innovation are still at a relatively low level.

In technology and knowledge-intensive sectors, China’s enterprises are still in a disadvantageous position and its manufacturing still lies at the middle and low end of the world’s industrial chain. All these, if not changed, will weaken China’s potential for further and sustainable development.

Compared with China, Japan’s manufacturing productivity still leads the world, even though its manufacturing sector has maintained slow growth in recent years.

Statistics from Japan’s Ministry of Economy, Trade and Industry show that the country’s manufacturing productivity has maintained an annual average of 4.1 percent, which is behind only the 4.7 percent of the U.S. when compared with the U.S., Britain, Germany and France. Japan has regarded the development of advanced manufacturing technologies, innovations and new products as the best way to sharpen the international competitiveness of its manufacturing sector.

A string of factors, such as an insufficiency of resources, the large proportion of rural and impoverished population, and an unreasonable economic structure, are obstacles to China’s further and rapid development.

Over the past six decades, China has developed well from a poor and backward socialist nation. The country is now at a new starting point for bigger development. However, China’s development model is facing the severe challenge of profound transformation.

For a country that is at this particularly crucial stage, it is more important to push for its economic transformation from the quantity-focused to the quality-focused than to purely expand its economic size.

By Zhang Monan

Zhang Monan is an economics researcher with the State Information Center in China. ― Ed.

(China Daily)

(Asia News Network)