Monday, August 2, 2010

China surpasses Japan as the second largest economy in the world

China surpasses Japan as the second largest economy in the world

China’s economy grew 10.3% in the second quarter of 2010 - to reach $ 1,33 trillion. Japan in comparison grew 0.4% to reach $1.28 trillion. It would seem to imply that China has now overtaken Japan to become the second largest economy in the world. The media has touted it as another feather in China’s cap and has reported it with a mix of grudging admiration and trepidation. Zhang Lin, a young conscientious journalist decided that objectivity was in order, and decided to seek the views of a cross-section of people to this apparent milestone.

The first stop was at a prominent university in Beijing. Professor Xiao, head of the department of philosophy in a leading university remarked, ” If you really think about it, this landmark is of little consequence or importance. It is as meaningless as any of the other comparison or achievement standards that we set for ourselves (most of which seem to be well rounded numbers as hundred billion, one trillion and so on). It is a creditable achievement that China’s economy has been consistently on the rise and China has been able to lift millions out of poverty and give a large proportion of its citizens a decent existence. But it is entirely irrelevant that it has surpassed Japan or any other country in economic might.”

Zhang Lin’s eyes shone as she heard the professor. “How true!” she thought. Why do we need to always think in terms of benchmarks and milestones? Let’s look at what it really means for the lives of the Chinese people. “I need to check how does the common Chinese man (or woman) react to the news.” Driven by this thought she decided to take a train to the hinterland and talk to some Chinese farmers.

On the way out, Zhang Lin was tempted to knock at the office of the head of the economics department. Professor Zheng’s furrowed brow suggested deep cogitation. “China is the most populous country in the world,” the professor said. “It is expected that if it continues on the path of growth it will assume one of the top slots sooner or later. The fact that it is larger than Japan is of no consequence as Japan only has one tenth of China’s population. China had edged past the economies of France, Germany and UK which it surpassed in its stride in the last 3 years. In fact if China continues to grow at this pace, it will also overtake the US and become the number one economy in the world in 2030 or earlier.”

Wang Lan a farmer in the Henan provinve was ploughing his field when the Zhang Lin approached him with the news. “Shushu (uncle),” the reporter said “China has overtaken Japan to become the second largest economy in the world. What do you think about this news?”. Wang Lan looked at the reporter with a mixture of amusement and bewilderment and burst out “I hope my crops don’t get eaten by the floods and I can get a good yield. May be better than they get in Japan!” 720 million rural residents of China still have an average per capita income of less than a thousand dollars a year. Every year they eke out a meager living in face of drought and floods. China’s challenge is to make the growth inclusive and broad and improve the lives of its still large rural population.

When Liu Xing, a worker in the toy factory in Dongguan when informed of this achievement said, “I get RMB 1000 per month in the factory, how much does a factory worker in Japan get?” It is estimated that 150 million migrant workers from rural areas work in large cities of China. While wages in China are increasing, clearly their incomes and living standards are far from the standard of living in Japan or any of the other economies that China surpassed in its stride in the fast few years. When you look at it on a per capita basis, the fact is that China only has a per capita GDP of $3,800 as compared to Japan at nearly $ 40,000 and the US at $ 43,000. Clearly China has a long way to go if it needs to provide the same standard of living that Japan and US have been providing to its citizens,

What is of importance is whether China will be able to sustain the momentum and continue to grow at this pace for the next 30 years so. Even more important is the question whether the growth will be inclusive, embrace the poor farmers and the migrant workers and not destroy the environment.

Economic power is often equated with political might. With the second largest economy in the world, is China the second most powerful nation in the world, should the world fear China and put up defenses to protect itself from the juggernaut that’s China ? Professor Wang at one of the local universities in Guangdong did not seem to think this way. “China becoming the second largest economy in the world does not imply that it is has become the second most powerful nation in the world or the second most influential country. Economic might and a large consumer base gives you bargaining power for trade, large foreign exchange surpluses provide you with an investment muscle to further progress your interests in other parts of the world but does not put a crown on your head and make you a figure of either fear or admiration.”

In another part of the world Sarah Palin, the failed Republican candidate in the last American presidential elections took the call from Zhang Lin and said on the telephone “Senator McCain and I would have never let is happen if the Americans had voted for us rather than Obama. Today the second largest, tomorrow the largest – where will it stop? I have four children and none of them speak Mandarin. And I don’t want them to be looking for jobs in Shanghai. I hope Obama will do something.”

President Obama’s office chose not to respond to the development or Sarah Palin’s remark. Inside sources say that the White House is carefully evaluating the consequences of the development and will respond “as appropriate”.

Written by Ashok Sethi