China and Japan


In a lot of ways, I feel like Chinese people would be better off if instead of one giant country they lived in 15 medium-sized ones. The current situation leads, I think, to some accurate facts that produce misleading ways of thinking:

After three decades of spectacular growth, China passed Japan in the second quarter to become the world’s second-largest economy behind the United States, according to government figures released early Monday. […] The recognition came early Monday, when Tokyo said that Japan’s economy was valued at about $1.28 trillion in the second quarter, slightly below China’s $1.33 trillion. Japan’s economy grew 0.4 percent in the quarter, Tokyo said, substantially less than forecast. That weakness suggests that China’s economy will race past Japan’s for the full year.

Spectacular growth has certainly been key here, but the other thing is that China has a large economy because so many people live there:


With a population of that size, China would have to have a far, far, far larger overall economy than Japan’s in order to provide people with half Japan’s standard of living. Under the circumstances, I find this sort of commentary puzzling:

“This has enormous significance,” said Nicholas R. Lardy, an economist at the Peterson Institute for International Economics. “It reconfirms what’s been happening for the better part of a decade: China has been eclipsing Japan economically. For everyone in China’s region, they’re now the biggest trading partner rather than the U.S. or Japan.”

As best I can tell, this is just false. Despite twenty years of very strong Chinese growth and twenty years of very weak Japanese growth, China is still nowhere near “eclipsing” Japan as a prosperous center of high-skill, high-wage work where people enjoy a high standard of living. In East Asia it’s Singapore that now leads the pack in prosperity, and Japan is about tied with Taiwan. China is still well behind Malaysia, to say nothing of South Korea or those three. The recent growth has been spectacular and a hugely important event, but people shouldn’t let illusions of pure scale confuse them about how far China’s come.