Introduction

This paper highlights a comparison and constrast of two major world economies namely Japan
and China. They have similar geographic shapes.i.e mountains, lakes, planatation, cultures and
somehwat similar history but different business, politics, religion, and demographics but we
shall be focusing on their economics. While China is home to one fifth of the population, Japan
is a small nation located on a island.

Miwa Suzuki,1 wrote on Feb 16, 2010 that China is on verge of unseating Japan as the world’s
No.2 economy. As the Japanese consumers hold their purses tight thanks to Global financial
crisis, the country is lacking cash to fuel its growth and its trade activities have hit a plateau.

Retailers, exporters and producers in Japan are having problems as the world second largest
economy is trying to shake away the after effects of GFC(Global Financial Crisis).

Currently most of the Japan’s income is coming from Tourism, and the nation is trying to revive
its economy through relaxtion of various policies allowing more foreign investment in the nation.
Japan sees this as a welcome boost for its economic revival that has suffered for two decades
after its stock and properties market went bust in early 1990’s ushering in deflation and sluggish
economic growth.

China has an average income 2500 US dollars in 2009,still way too far from nearly 5000 US
dollars for a Japanese salaried person, according to official figures. Its only a matter of time , that
China with more than 1.3 billion population and a 8.7 % growth rate will surpass Japan by year
2011 according to several economists.

The automobile industry which is major economic driver for JAPAN are increasingly relying on
emerging players like China and outsorucing many of their core activities to them due to cheap
labour and rapid market growth.

Both Japan and Chinese government has taken notice and have relaxed their visa rules, to
individual tourists and foreign investors as demand for non – group travel increases. According
to Shirakawa2

"The time will come within the coming decade that Chinese companies will buy Japanese
companies or that Chinese funds will buy Japanese properties. It could pose a question of
whether Japanese can accept it emotionally"

1
http://news.theage.com.au/breaking-news-world/chinas-economic-rise-has-silver-lining-for-japan-20100216-o6tw.html

2
http://news.theage.com.au/breaking-news-world/chinas-economic-rise-has-silver-lining-for-japan-20100216-o6tw.html

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In the preceding section we would be discussing , the economy of Japan and China by
considering the following aspects such as

 Economic growth / GDP

 Inflation or deflation
 Employment and Unemployment
 Output and Productivity
 Exchange Rate
 Interest Rate

Economic Growth and GDP

Economic growth refers to real levels and growth of living standards around the world. The GDP
is a good gauge of a nation’s economic prosperity and its growth signifies nation’s growth.

As we all know GDP refers to both total income and total expenditure on outputs and services,
thus it tells us what a nation is earning and how well it is spending.

Japan is a true emblem of ‘Rise from ashes’ . After a totally destructive 2 nd world war and
suffering two major market crashes since 1960’s it has witnessed phenomenal success well into
new century. A high tech- highly competitive environment with emphasize on quality of work
has taken JAPAN to new heights and brought in league with players like USA, and Germany.

Latest news indicate that Japan economy in 4Q 2009 has grown 3.8 percent. 3 The government
said Thursday that gross domestic product in world's second-biggest economy expanded at an
annual pace of 3.8 percent in the October-December quarter, revised down from 4.6 percent in a
preliminary report last month.

China embarked on a major economic reform after 1978. It encouraged centralized government
controlled economy, by initiating formation of rural enterprises and private businesses relaxed
state control over some issues, and liberalized foreign trade and investment. It specially invested
in industrial production and educated it work force. All these strategies have worked well.

What is surprising that China rapid economic growth over past 25 years since 1978 as measured
in GDP is on average 9.37 % per year. Its global share of growth is 25 % while that of World no.
1 USA is merely a 20%.

Going by GDP , we see that Japan is somewhat slower than China in terms of Economic growth
but let’s see how the year 2010 ends for them.

3
http://www.todayonline.com/BreakingNews/EDC100312-0000031/Japan-revises-down-4Q-economic-growth-to-
3,8-percent-annual-rate

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Inflation And deflation
Inflation is the percentage change in price index from the previous period. Thus is reflects the
rise in prices and how much the value of our money losing per year. Deflation is fall in prices,
and it increases buyer purchase power.

As shown in the table below, Japan is experiencing deflation of 1.3 % So there with US 8.7
dollars we can buy items with US 10 dollars at the moment. This means more increase in
consumer purchase power.

INFLATION IN China jumped to a 16-month high last month and factory output expanded
strongly, adding to pressure on the government to consider raising interest rates and allowing the
currency to appreciate. Consumer prices rose 2.7 per cent in February over the year before, up
from 1.5 per cent in January and getting close to the 3 per cent target . Industrial production also
accelerated, increasing 20.7 per cent in January and February over the year before, above
analysts’ forecasts and the 18.5 per cent rise recorded in December. The jumps in inflation and
industrial output follow a bigger-than-expected increase in exports last month. 4

4
http://www.irishtimes.com/newspaper/finance/2010/0312/1224266109038.html

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A table is shown below.

Unemployment and Employment

It refers to the percentage of work force contributing to a nations growth. As evident from table
above Japan is having 4.9% unemployed ratio while China is having 4.3% of its work force
jobless. Though GFC has been a major reason for increase in this rate worldwide, Japanese and
Chinese market tend to be a little more different. In China its centralized government monitored
economy so workers health, turnover ratio and workers well being is taken care of. Japan is
unfortunately lagging behind in these issues as 16 - 18 hours / per day is considered a norm.
Also workers efforts are not that valued owning to highly competitive work environment causing
increased turnover ratio contributing to the rise in unemployed rate. Also one more notion is the
age of working force. While in China its young and adult , in Japan more than 55 % is nearing

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retirement in next 5 years, i.e. Japan have limited time to find successions and train young
workers for future responsibilities.

Output and Productivity

Output and productivity is directly related and determines the quantity of goods and services
produced each hour of workers time. According to New York times, 5 USA are the world’s most
productive , followed by their Irish counterparts. While China is fastest rising according to the
International Labor Organization.

On the other hand as of 25th Feb 2010, Japanese Government painted a mixed picture of its
economy with industrial output and retail sector rising more than predicted but consumer prices
were still in deflation. 6Industrial output rose a seasonally adjusted 2.5% in January from
December, the Ministry of Economy, Trade and Industry said, marking the 11th straight month
of increase.

The figure beat the 1.1% rise expected by economists surveyed by Dow Jones Newswires and
the Nikkei business daily.

Despite the brighter output and export data, a government report on prices showed deflationary
pressure has yet to abate. Japan's core consumer price index for January fell 1.3% from the same
month a year earlier, according to data released by Japan's Ministry of Internal Affairs and
Communications. The drop in core CPI marked Japan's 11th consecutive month of deflation.

The result matched economists' average forecasts as reported separately by Dow Jones
Newswires and Japan's Kyodo News. Compared to December, core CPI -- which excludes
volatile fresh-food prices -- was down 0.6%.

Overall CPI, which includes all prices, was down 1.3% from a year earlier and down 0.2% from
the previous month.

5
http://www.nytimes.com/2007/09/04/business/worldbusiness/04output.html

6
http://www.marketwatch.com/story/japan-output-rises-in-january-but-prices-fall-2010-02-25

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Exchange Rate

Refers to the rate at which one nation’s currency is traded for goods and services(real rate ) or
other country’s currency(nominal rate). As shown in the table below in comparison to Japanese
Yen.

Japanese Yen7

 1 JPY   in JPY 

  American Dollar    0.01105   90.4976 
  Chinese Yuan    0.0754219   13.2588 

So 1 US dollar equals to 90.497 JPY

Chinese Yuan

 1 CNY   in CNY 

  American Dollar    0.146509   6.8255 
  Japanese Yen    13.2588   0.0754219 

And 1 US dollar equals to 6.8255 CNY

So commenting from exchange rates we see that Chinese currency is way too stronger than
Japanese currency. And this exchange rates means everything to foreign investors especially. But
we must remember that China accounting procedures and standards are very different from those
used in most of the Europe and western countries.

Using triangular arbitrage tool , one can gauge the best in terms of real value of money and how
it can used to generate profit. The exchange rates coordinates buyers and sellers in both domestic
7
http://www.x-rates.com/d/JPY/table.html

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and international market by providing easy means for transactions which can be mundane to
worth in billions of US dollars.

Interest Rate

Serves to indicate the profit one can earn on money. The real interest rate is obtained by taking
difference between nominal interest rate and inflation rise. Thus inflation directly effects the
interest rate which is going in the country. The interest rate tells you how fast the purchasing
power of one’s bank rises over time.

Japan standard interest rate is at 0.10 % and is governed by the Bank of Japan’s Policy Board.
The BOJ rate is the official discount rate and is corrected keeping the inflation in account. While
in China the official rate is 5.31 % . Here the decision is governed by the People’s Bank of China
Monetary policy Committee.

Thus it means that if as a investor I have 1000 AED , then China would be better investment
option than Japan since there I could earn 5.31 on every 100 dirhams, But if I invest in Japan
then I would just make 10 fils on every 100 dirhams. But we must also consider banks,
regulation and monetary policies before making major investment decisions.

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Conclusion

Japan need to be more careful as it moves ahead . Easing monetary policy and improviing the
financial structure would help a great deal. Also easing visa rules and making Itself more
friendly for foreign investments would greatly improve its futire growth prospective. China on
the other hand is going great guns and must just keep doing that what is right. By encouraging
development of rural enterprises and focusing on urban Industrialization , it can see it self
climbing the world top ten economies ladder quickly.

By encouraging the growth of rural enterprises and not focusing exclusively on the urban
industrial sector, China has successfully moved millions of workers off farms and into factories
without creating an urban crisis. Finally, China's open-door policy has spurred foreign direct
investment in the country, creating still more jobs and linking the Chinese economy with
international markets.

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Tables

Japanese Statistics

Page 9 of 12
GDP growth in China 1952-2009

GDP Rmb Real

GDP
billion at GDP per annual
Index in
current head growth
real
Rmb rate
terms prices    (%)

1978 471.6 362.4 379 11.7

1979 507.5 403.8 417 7.6
1980 547.1 451.8 460 7.8
1981 575.5 486.2 489 5.2
1982 629.0 529.5 525 9.1
1983 698.9 593.5 580 10.9
1984 805.8 717.1 692 15.2
1985 912.1 896.4 853 13.5
1986 989.7 1,020.2 956 8.8

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 1987 1,103.5 1,196.3 1,104 11.6
1988 1,228.2 1,492.8 1,355 11.3
1989 1,279.8 1,690.9 1,512 4.1
1990 1,333.5 1,854.8 1,634 3.8
1991 1,454.9 2,161.8 1,879 9.2
1992 1,660.0 2663.8 2,287 14.2
1993 1,877.5 3,463.4 2,939 13.5
1994 2,114.0 4,675.9 3,923 12.6
1995 2,304.3 5,847.8 4,854 10.5
1996 2,530.1 6,788.5 5,576 9.6
1997 2,745.2 7,446.3 6,054 8.8
1998 2,959.3 7,834.5 6,038 7.8
1999 3,169.4 8,206.8 7,159 7.1
2000 3,422.9 8,946.8 7,858 8.0
2001 10,965.5 8,622 8.3
2002 12,033.3 9,398 9.1
2003 13,582.3 10,542 10.0
2004 15,987.8 12,336 10.1
2005 18,386.8 14,040 9.9
2006 21,087.1 16,084 11.1
2007 24,661.9 11.4
2008 31,404.5 9.6
1st 3
qtrs 21,781.7
2009

References

Page 11 of 12
The following resources were used only as reading material .

1. http://news.theage.com.au/breaking-news-world/chinas-economic-rise-has-silver-lining-
for-japan-20100216-o6tw.html < accessed on 11th March 2010>

2. http://www.todayonline.com/BreakingNews/EDC100312-0000031/Japan-revises-down-
4Q-economic-growth-to-3,8-percent-annual-rate < assessed on 9th March 2010>

3. http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=JPY <
assessed on 12th March 2010>
4. http://www.irishtimes.com/newspaper/finance/2010/0312/1224266109038.html<
assessed on 12th March 2010>
5. http://www.nytimes.com/2007/09/04/business/worldbusiness/04output.html< assessed on
13th March 2010>

6. http://www.marketwatch.com/story/japan-output-rises-in-january-but-prices-fall-2010-
02-25< assessed on 13th March 2010>

7. http://www.x-rates.com/d/JPY/table.html< assessed on 13th March 2010>

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