This historic moment was greeted with caution and modesty by Beijing, at both the official level and by the people at large. At a Ministry of Commerce press conference the day after the release of Japanese data, the spokesperson downplayed the significance of the occasion and emphasised China’s continuing status as a ‘developing country’. He said, in a sombre tone, that China’s per capita GDP was still only US$3,800, and currently ranks 105 internationally. There are still 150 million people living on less than one US dollar a day in China. This echoed a message earlier this year from the head of National Bureau of Statistics that China is still a poor country with large population eking an existence off limited natural resources.
Beijing’s leaders have not indulged in narcissistic self-congratulation and their measured response to this development is a far cry from the Maoist era megalomania that characterised the disastrous Great Leap Forward. The quality press in China also engaged in much soul-searching and reflection at this historic juncture. There was candid acknowledgment of China’s problems such as environmental degradation, social equality and relative poverty of its population.
From a quantitative perspective, China’s economic growth has been impressive. The quality of development has left a lot to be desired. Anyone with a passing interest in China would realise the scale of environmental degradation that growth has brought with it. Elisabeth Economy’s aptly titled book The River Runs Black reveals the hefty price China is paying for its economic development. The idea of ‘green GDP’ is only slowing gaining currency.
Japan, on the other hand, is an internationally acknowledged leader in energy efficiency and conservation. The Japanese government and the corporate sector have invested substantial resources in renewable resource technology and environmental protection after disasters such as Minamata during the early stages of Japan’s post-war industrialisation.
Deng’s famous exhortation ‘to let some people get rich first’ has proved terrifyingly prophetic. A key policy priority for Beijing now is to put a brake on the country’s run-away gini-coefficient. Glaring wealth disparity has the potential to tear China’s fragile social fabric apart and undo years of impressive development. Japan’s famed middle class citizenry might be a benchmark of relative social equality which China aspires to emulate.
In terms of innovation and creativity, Japan has gifted the world with Sony, Nintendo, Toyota, Panasonic and the list goes on. China’s corporate and product developments still lag behind, As James Fallows suggests, ‘start counting how many Chinese corporate brand names you can think of, and see how many fingers you have left over when you stop.’ China is still perceived as the land of the sweatshop and makers of cheap products of dubious quality.
This is not to underestimate China’s tremendous achievement in the last three decades. It has reached a turning point in its development where it can look beyond the symbolism of the scale of its GDP and address important issues associated with development such as social equality, environmental protection and innovation. If it doesn’t, China’s development risks plateauing out.
Japan’s achievements remain a model for China. Beijing’s policymakers can also learn from Japan’s past mistakes such as the waste in government picking industry winners and its unchecked asset bubble.
That the Chinese leadership is not crowing about China’s victory in the GDP stakes and that it appears conscious that China still has a long way to go to catch up with Japan in other respects are both good signs.
Justin Li is principal in the Institute of Chinese Economics and an associate of EAF.
Innovation is obviously important for advancing the economy in catching up with international frontiers and China needs to adopt international best practices in economic and intellectual property rights policies.
To start with, intellectual property rights have to be protected according to international practices and balanced with economies of scale to promote innovation and remove unnecessary barriers to adopting new products, methods, technologies and techniques.
Secondly, China should use the market mechanism and prices to promote efficient resource allocation and correct market failures such as externalities, as opposed to resorting to administrative orders to do so.
Thirdly it is important to balance symbolism with real benefits in meaningful way. For example, it is reported that many local governments in China ordered some factories to stop or limit production and stopped power supply in order to achieve the symbolic indicator of emission intensity for the end of this year (2010) set earlier, apparently to show China’s resolve to achieve its announced target for 2020 to the international community. That kind of practice probably can only be adopted by China and a handful of countries in the world now but that is silly and wasreful.
When will major organizations start using useful raw data such as the GNP figures for China and Japan in yuan and yen respectively. It will then become apparent that China has not yet made silver because of the huge exchange rate change this last year. In January I predicted that China would overtake Japan about July, but if the Yen holds up this will probably be delayed about a year.
They do. PPP (Purchasing Power Parity) data adjust for that anomaly and on PPP data China has been bigger that Japan for almost a decade.