China marches towards world's No. 2 economy

LONDON (CNNMoney.com) -- China is on track to overtake Japan as the world's second-largest economy after the United States, figures released Monday show.

Japan's gross domestic product, or GDP, totaled $1.29 trillion for the three months ending in June, the nation's Cabinet Office announced. China's official figure for the same period was $1.34 trillion.

Economist Frederic Neumann at HSBC in Hong Kong said China is forecast to overtake Japan by the end of the year -- making China the world's No. 2 economy. However, official annual figures won't come until early 2011.

The International Monetary Fund expects China's output to reach $5.4 trillion by the end of 2010. By comparison, it estimates Japan's GDP at $5.3 trillion.

Another analyst says the whole matter is academic.

"Basically, China's underlying growth rate is going to be about 8 percent over the next decade. Japan's underlying is going to be about 1 percent," said Jesper Koll, an economist with JPMorgan in Tokyo. "In 10 year's time, the Chinese economy will be twice the size of the Japanese economy."

China vs. Japan: China's economy has been growing at a breakneck pace. It achieved a growth rate of 10.3% in the second quarter, according to official data.

Growth in Japan, on the other hand, has been sluggish. In the three months ended in June, growth slowed to just 0.4%.

China's economy has been driven by its exports -- its trade surplus hit an 18-month high of $28.7 billion in July -- and supported by its massive population.

By comparison, Japan has struggled with a strong currency, which has hurt exports. The yen touched a 15-month high against the dollar earlier this month. It also is coping with an aging and shrinking population.

Last month, China's chief currency regulator told China Reform magazine the country had already surpassed Japan in output.

While there are signs that China's expansion is starting to cool, the country's growth is still easily outpacing more developed economies.

It still trails the United States by a wide margin, but some economists believe China could even eventually unseat the United States as the world's largest economy. Although, it would probably take at least a decade before that happens.

For 2009, the International Monetary Fund listed the United States as the world's largest economy at $14.26 trillion, followed by Japan at $5.07 trillion and China at $4.91 trillion.

But for a view as to where the world is heading, take a close look at automotive sales data coming out of the two countries. It is instructive -- and a bit frightening.

In the U.S., politicians and executives are patting each other on the back for having survived the recession of 2008-2009. At the same time they are hunkering down for what they call the "new normal" -- auto sales running at about two thirds of the 16 million units a year they got used to calling normal earlier in the 2000s.

China, meanwhile, continues to steam ahead at a remarkable rate, marking milestone after milestone. According to JD Power, car sales there are forecast to surge this year by 20% and reach 15.6 million units.

http://money.cnn.com/2010/08/16/news/international/japan_china/index.htm

Intersting comment, considering the US economy on the same chart, which is more than triple net GDP at less than 1/3 population is a service economy

I am using KGBman's terminology from previous topics.

A "service economy" of the US services roughly the US population (its not export-oriented).  And that is enough for 15 trillion in gross GDP, and is theoretically infinite (acceleration in demand for services is self-sustaining as standard of living improves)

Chineese "production economy" services arguably a billion people to some extent, across the developed world, and growing segments of its own population, and yet that is only enough for 5 trillion.  Looking forward, there will never be a need for 500 pairs of underwear for a person, or 15 microwaves.  This implies, that China is only growing due to the increase in consumers (as opposed to demand per consumer), while the US is growing due to increase in service demand per consumer.  It then stands to reason, that China's current mode of growth is more finite, and will at some point plateau until they transition to a service economy, and less developed countries take over the production.

US numbers are in non-guarantied paper, that US itself prints, China's growth is backed by real things people buy.

80% of what counted as US GDP is made of servicing Chinese products....  China's growth is almost exclusively due to internal consumption... US growth is completely on paper.... toilet one at that... 

Evgeny:

What worries me is that all the products they make are crappy. They don't make quality products, they make A LOT of goods at low labor costs with poor quality. That's how they took over the US manufacturing economy. Stalin would've dreamed about it (I put it in a sarcastic way of speaking).

Evgeny, I think you don't understand the manufacturing process.  The level of 'sh!ttyness' of the products depends on the specs ordered by whatever company is paying to have them manufactured.  There's plenty of high quality stuff made in china.  For instance, iphones and ipads (i have both) are fantastic products of very high quality.  Both made in China.  Lenovo is another example (even before Lenovo purchased IBM thinkpad division, they were still being made in China).

 So the quality has nothing to do with China or Chinese manufacturing.

KGBMan:

US numbers are in non-guarantied paper, that US itself prints, China's growth is backed by real things people buy.

80% of what counted as US GDP is made of servicing Chinese products....  China's growth is almost exclusively due to internal consumption... US growth is completely on paper.... toilet one at that... 

Actually, the numbers given for China are in dollars.  So the comparison is in fact apples to apples.

Egor:

KGBMan:

US numbers are in non-guarantied paper, that US itself prints, China's growth is backed by real things people buy.

80% of what counted as US GDP is made of servicing Chinese products....  China's growth is almost exclusively due to internal consumption... US growth is completely on paper.... toilet one at that... 

Actually, the numbers given for China are in dollars.  So the comparison is in fact apples to apples.

Not really ;) think about it... What currency china use inside ? who's the largest US creditor....  there is a huge difference..

Egor:

KGBMan:

US numbers are in non-guarantied paper, that US itself prints, China's growth is backed by real things people buy.

80% of what counted as US GDP is made of servicing Chinese products....  China's growth is almost exclusively due to internal consumption... US growth is completely on paper.... toilet one at that... 

Actually, the numbers given for China are in dollars.  So the comparison is in fact apples to apples.

Not really ;) think about it... What currency china use inside ? who's the largest US creditor....  there is a huge difference..

But you do realize that since they are a creditor to the the very same countries with which they are running a huge surplus on the trade imbalance, they are essentially selling goods to them on credit, with questionable chances of ever being repaid.   In that sense, a case can be made that it's China's GDP that's more "toilet paper".  

And even if they are repaid by some miracle, it will be with the same currencies that you've just labeled toilet paper. Not their internal one.

(Another way to look at the same situation is they are not exporting on credit, but selling products for real dollars/euros/etc. However they are loaning that GDP back to the importers, a loan that will be repaid in dollars/euros/etc, or not repaid at all).

Either way you look at it, the big picture is the same.

The US, despite being a service economy, or "on paper economy", whatever you want to label it as, is actually a fairly classical economic model that is time tested, and not even running anywhere near potential capacity due to foreign debt and trade imbalances.

Sic semper tyrannis
~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"