China and Japan: How Asia's Top Two Economies Compare

China Japan: Asia’s Top Two Economies Compare

Asia’s two largest economies, China and Japan, present contrasting narratives heading into second quarter of 2024.

China overtook Japan as the world’s second-largest economy in 2010. Now, Beijing grapples with some of the same economic headwinds as Tokyo in the late 1980s, leading to what has become known as Japan’s “lost decades.” This has sparked ongoing debate over whether China is set to follow its neighbor into long-term economic decline.

China posted a higher-than-expected growth rate of 5.3 percent year on year in the first quarter after reportedly meeting its goal of 5.2 percent for 2023.

While certain industries, including electrical components and electric vehicle charging stations, saw remarkable growth, green shoots in key areas like exports were seen more in the first two months and were tapering off by March.

Many subject matter experts, including China’s former No. 2 Li Keqiang, have called into question Beijing’s growth reports.

China’s cabinet-like State Council has again set a goal of “approximately 5 percent” real GDP growth for 2024. The International Monetary Fund (IMF) forecasts 4.6 percent.

Meanwhile, Japan’s economy expanded from a rate of 1 percent GDP in 2022 to 1.9 percent last year. The Japan Center for Economic Research assessed that the country’s economy expanded by 0.54 percent in Q1 2024 and forecasts just 0.73 percent for the whole of 2024.

When it comes to GDP per capita in nominal terms, meaning unadjusted for inflation, Japan led with $34,017 as of 2022, reflecting its high standard of living. China was estimated to have a GDP per capita at $21,482, indicative of its larger population, more uneven wealth distribution, and status as an upper middle-income country.

Demographics play a critical role in shaping economic policies and potential growth.

As of 2022, 69.2 percent of China’s 1.425 billion-strong population was of working age (15-64 years old), according to the Organization for Economic Cooperation and Development (OECD). The proportion of Chinese in the workforce was 69.2 percent after peaking at 72.9 percent in the late 2000s.

Japan, with a population of 124.9 million, has a smaller proportion of working-age individuals at 59.4%, reflecting its aging demographic. The number of working-age Japanese peaked at 69.8 percent in the early 1990s, according to OECD date.

Chinese economists and demographers have pointed to the rapidly aging workforce, coupled with its plummeting birth rate, as calls to action to avert a Japan-style slide into stagnation.

“Japanification” hinges on whether China will mirror Japan’s experience of economic stagnation seen in the 1990s after its asset bubble burst in the 1980s.

Proponents say headwinds like China’s high debt levels, aging population, and burst real estate bubble may lead to low-growth and a deflationary spiral. Opponents argue China’s larger, more diverse economy; stronger state control over the economy; and potential reforms, could help it avert disaster.

“Over the last three decades in Japan, we have been struggling from a deflation economy where wages have not risen, prices have not risen and investment has not progressed,” Japanese Prime Minister Fumio Kishida said recently in an interview with Newsweek.

“Over the past two-and-a-half years I have been promoting a new form of capitalism, creating a virtuous cycle of growth and distribution that would be triggered by wage hikes, which would in turn increase consumption and motivate companies to make further investments and raise wages,” he said.

He added that the economy is showing “positive signs” for the first time in three decades, citing higher wages, record stock market performance, and greater private investment.

And as a result, for the first time in 30 years, the Japanese economy is now showing positive signs.”

“There are legitimate concerns about the Chinese economy being beset by a debt overhang that drags down the financial system and stifles growth,” Eswar Prasad, Cornell University professor and a former International Monetary Fund official in charge of China, told Newsweek.

“The government still has room for maneuver, but will need to undertake significant market-oriented reforms, a liberalization of the financial sector, and more support for private enterprises,”

“Whether China ends up with the same fate as Japan’s is therefore up to the government and its willingness to acknowledge the dire straits the economy is in and take measures to support rebalancing of the economy and rebuild private sector confidence,” he added.

Japan’s Economic Ministry and China’s Foreign Affairs Ministry did not immediately respond to written requests for comment.

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