Chinese economy surpasses Japan

China is now the world’s second largest economy after it surpassed Japan, according to numbers released Monday (today).  Experts are estimating that it will surpass the U.S. by 2030.

Two thoughts:

1. The article says,

Economists say that China’s economy is too heavily dependent on exports and investment and that it needs to encourage greater domestic consumption — something China has struggled to do.

First, I’m not sure this will be a problem.  Right now people in China don’t yet have the money to engage in consumerism, but once those salaries hit a critical threshold, I’d be surprised if it continues to be a problem.

Second, I’m not sure that I understand this completely.  I guess you can’t have a company like, say, Ikea, if your population isn’t buying home furnishings.  But shouldn’t we be discouraging consumerism for the sake of the environment?  After 9/11, Dubya told us all to go out shopping, and I’m not sure that was such great advice.  Spending and consuming is one way to get the economy going, but if you’re exporting and investing and making money from outside the country, I don’t see what the problem is.  (I may be missing something here, so please feel free to explain it to me.  I looked up this WSJ article that says more consumption will create less dependence on foreign customers, but that doesn’t seem to me to be a reason to encourage your people to spend.)

2. The article says:

Assessing what China’s newfound clout means, though, is complicated. While the country is still relatively poor per capita, it has an authoritarian government that is capable of taking decisive action — to stimulate the economy, build new projects and invest in specific industries.

That, Mr. Lardy at the Peterson Institute said, gives the country unusual power. “China is already the primary determiner of the price of virtually every major commodity,” he said. “And the Chinese government can be much more decisive in allocating resources in a way that other governments of this level of per capita income cannot.”

This is quite interesting.  Does this mean centralized federal monetary and financial policy is the wave of the future?  (Some conservatives and libertarians already think that we have this.)

6 thoughts on “Chinese economy surpasses Japan

  1. Japan’s been doing stimulus for about 20 years now and they’re getting nowhere fast. The 90s were entirely stimulus driven, and it didn’t help in the end, so obviously stimulus isn’t the key factor in China’s growth. China’s taking advantage of all the capital that’s been developed while their economy has been stagnant, so their growth has been extremely fast and productivity has skyrocketed, but once they reach a certain threshold there’s no guarantee it’ll go higher. You can only be so productive with capital before you have to innovate new capital to increase that productivity, though it seems their investment environment is very friendly to that.

    So yes, while the authority can alter prices, they don’t because price fixing was one of the decisions tanking the Chinese economy for years. They can change anything whenever they want but the government is learning from experience that confidence in the market is the biggest driver of growth, which you don’t get from price fixing and flippant policy changes.

  2. Some say that Japan didn’t go far enough with stimulus. That is, they paid for stimulus, but they didn’t pay enough to make sure that the infrastructure was on its way back up.

    I think the U.S. may be in trouble partly because of consumption. We’re so used to getting consumption numbers sky high that we get nervous about the economy when it isn’t. Also, we need to focus on new energy solutions, where the research should be funded by the government.

  3. Stimulus programs never work in the long run, and the response is always that they didn’t go “far enough”. Same with the Great Depression, which lasted 15 years thanks to stimulus. Japan’s stimulus program never really stopped, and today it’s still suffering from it. Greece did a stimulus program for the past 100 years (coined more accurately as “civil expansion”) and… well, Greece happened. You don’t need empirical evidence to show that pumping cash into the public sector and inflating your currency don’t lead to economic growth.

    USG already pays huge subsidies for energy alternatives. I guess that’s also not going far enough.

  4. I think Japan’s recession has to do a lot with institutionised corruption and bad management then purely blaming it on ‘stimulus’ package. After all, JAL collaspe not because of constant hand-outs, but because of dodgy deals with local airports (white elephants) that amounts to something 40% of the costs.

    I agree that it’s not a long-term solution, but it’s a great short-term tool to soften boom-bust cycles, especially one that is exaggeration by a global credit crisis. And it’s extremely useful if the market structure in place is structural sound (whether it is or not would be another question).

  5. I think consumerism can be made less problematic if we continue to create demand for more sustainability and efficiency. As long as it’s not a resource problem, but then, part of efficiency is training people not to buy things in a frenzy of waste. There is an efficiency in temperance on the part of the consumer.

  6. Trade in general is good. The more I think about it, the more I see how it helps relationships between people. I agree with you, and I think we need to find a way to trade responsibly.

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