POSTED: 01:30 a.m. HST, Aug 17, 2010
TOKYO » Japan lost its place as the world's No. 2 economy to China in the second quarter as receding global growth sapped momentum and stunted a shaky recovery.
Gross domestic product grew at an annualized rate of just 0.4 percent, the government said yesterday, far below the annualized 4.4 percent expansion in the first quarter and adding to evidence the global recovery is facing strong headwinds.
The figures underscore China's emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its global influence is expanding.
China has been a major force behind the world's emergence from deep recession, delivering much-needed juice to the U.S., Japan and Europe. Tokyo's latest numbers, however, suggest that Chinese demand alone may not be enough for Japan or other economic giants.
"Japan is the canary in the goldmine because it depends very much on demand in Asia and China, and this demand is cooling quite a bit," said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. "This is a warning sign for all major economies that just focusing on overseas demand won't be sufficient."
China has surpassed Japan in quarterly GDP figures before, but this time it's unlikely to relinquish the lead.
China's economy will almost certainly be bigger than Japan's at the end of 2010 because of the huge difference in each country's growth rates. China is growing at about 10 percent a year, while Japan's economy is forecast to grow between 2 to 3 percent this year. The gap between the size of the two economies at the end of last year was already narrow.
Japan's nominal GDP, which isn't adjusted for price and seasonal variations, was worth $1.286 trillion in the April-to-June quarter compared with $1.335 trillion for China. The figures are converted into dollars based on an average exchange rate for the quarter.
Japan's people still are among the world's richest, with a per capita income of $37,800 last year, compared with China's $3,600. So are Americans at $42,240, their economy still by far the biggest.
"We should be concerned about per capita GDP," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. China overtaking Japan "is just symbolic," he said. "It's nothing more than that."
But the symbolism may be exactly the "wake-up call" Japanese leaders need, said Schulz of the Fujitsu Research Institute. "Japan is always strangely inward looking," he said. "And nobody is doing anything about it."