The Chinese dragonnaut powers on. The papers last one week have been all about how China has offically pipped Japan to the No. 2 World Economy slot. While this has happened in dollar terms now , on the more meaningful Purchasing Power Parity basis , that position was achieved almost a decade ago. (see Ballpark 5)
Going beyond the comparing ranks game , actually there is a lot to be said for the two countries complementing each others economic well being. For Japan , China offers a gigantic and growing market for its producers – in sharp contrast to its own sluggish and deflationary domestic conditions. It also provides a low cost manufacturing base to enhance competitiveness of those Japanese products. On both counts , China benefits from the increased Japanese investment . China’s huge export strength meanwhile is skewed towards more low end , non-value added products and commodities which the Japanese do not even produce anymore., let alone compete on in export markets. Even for items like electronics or PCs , the more China exports of these , the more Japan gains through increased exports of components to them. In fact . the more China grows the more Japan benefits from its overall technology / knowledge / R&D edge.
Going forward , this week’s news is like a first scene of the first act of what looks like it will be a fascinating , long drawn Asian drama ; scene two is being played out simultaneously – China and India. A-ha !
