China as number one? Remember Japan in the ’80s

August 18, 2010

An Asian nation with a roaring economy will eclipse the United States … America has entered a cycle of decline, while the sun is rising in the East … soon all our products will be made overseas and America will falter … doom is at hand.

The above paragraph does not describe Monday’s news about the expansion of the Chinese economy — this is what opinion-makers were saying about Japan in the 1980s. And how’d that work out for you, Tokyo?

“Experts,” the New York Times intoned on Monday, are impressed by “China’s clout” and believe “China will pass the U.S. as the world’s biggest economy as early as 2030.” If experts think this, then it’s certain not to happen.

Yet the sentiment is widespread. This recent Pew Research Center poll found that a plurality of Americans — 44 percent — think China already is the world’s number one economic power, while just 27 percent of Americans think the United States still anchors the global economy.

It is wise therefore to remember what was said about Japan in the 1980s. Japan’s GDP growth was rapid, Japanese investors were snapping up New York City real estate, Sony just bought CBS Records. Japan’s Ministry of International Trade and Industry was whispered about as possessing near-supernatural prowess. Commentators said only “industrial policy” – direct government control of business decision-making – could save America from becoming a vassal to Tokyo’s super-ultra-unstoppable economy.

The epitome of this thinking was a 1980 book called “Japan As Number One,” by Ezra Vogel of Harvard, which became a bestseller in Japan and sold well in the United States, too. “It is a matter of urgent national interest for Americans to confront Japanese successes,” Vogel warned, before Japan takes control of the global economy. As Meredith Woo of the University of Virginia has written of the early-1980s U.S. mindset reflected by this book, “Japan seemed superior to America in every way.”

You know the rest: the Japanese economy stagnated in the 1990s while the U.S. economy roared, Japan replaced Turkey as the “sick man” of major nations, the Japanese experienced a real-estate crash, low growth, deflation – and MITI was folded in 2001, after compiling a track record of one bad decision after another.

But historical perspective isn’t the U.S. long suit. Here we are thinking about China what we once thought about Japan. There are good things to be said for Chinese political, cultural and economic trends. But overall, China is a chaotic nation with a weak social fabric, perilously poised on the assumption of rapid economic growth. China has far more potential for major social problems than the United States.

As for those experts who think China will pass the United States for number one economy in just 20 years?
This year China is on track for a $5.2 trillion GDP, very impressive compared to where China was economically just a generation ago — but still staring at taillights of the United States, whose GDP should finish the year at around $15 trillion. Even if China’s annualized growth stabilizes at 6 percent — and most nations would be quite happy with that level — it will take China until about 2030 to match America’s $15 trillion GDP.

But the United States won’t be sitting still. If U.S. growth is 3 percent, half of China’s, in 2030 the American GDP will be about $27 trillion, comfortably ahead. If the United States sustains half the growth rate of China indefinitely, China’s GDP will not pass America’s for several generations.

China might end up number one — or become Japan: the Sequel. China’s national economic policy of mercantilism, coupled to its social policy of attempting to discourage individualism, seem awfully similar to what backfired for Japan.

For more than a century, Westerners, and especially Americans, have experienced some form of yellow-peril fear. Exaggerating the shadow of Japan was a manifestation of such fear in the 1980s, and exaggerating the shadow of China is a manifestation today. I’ll take a “buy and hold” attitude to stock in the United States, thanks.

For points that didn’t quite make the main column, click here.

29 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

“China’s national economic policy of mercantilism, coupled to its social policy of attempting to discourage individualism, seem awfully similar to what backfired for Japan.”

Hmm, experts on China and Japan probably would give more nuanced explainations than recycling uninformed stereotypes.

Posted by darkforest | Report as abusive

united states will never have a growth of 3 percent//, you will suffer like the ussr.. you have your military alomost everywhere , they shall never rturn .. once you can;t pay them they will find another financer,china can finance them.. us cant..how long do you dream to continue your growth just by printing dollas and burrowed money… you dont have to wait for 2030, just wait till 2015,once china’s domestic consumption is adequate then see.. they will appreciate the yuan,stop buying your bonds.just imagine once the yuan is appreciated ,china will buy all you have…white house might be bought by them ,forget about your house, you poor writer//… dont underestimate the nationalism in china,they have suffered a lot , its your time now…
stop your divide and rule policy…

Posted by sunilsah | Report as abusive

Good article!

The ‘Chinese miracle’ is a very positive thing because so many people are lifted out of poverty, a great nation has joined the rest of the world, and international political and cultural tensions have decreased.
However, the US has a tremendous potential for economic expansion, if only through immigration. Compared to Europe and China, this country still has huge economic resources, including water and arable soil in abundance. BTW, same thing is true for Canada.
By European or Asian standards, The US and Canada could be the home of one billion people, easily.

Posted by yr2009 | Report as abusive

Considering that China has more than four times as big population it would require them to achieve only 1/4 of US GDP per capita which is not that far fetched…

Posted by PwlM | Report as abusive

One point that gets overlooked is China’s age demographic. Their one-child-per-family policy is going to catch up to them when half their population is too old to work.

Posted by drewbie | Report as abusive

Japan’s economy stagnated in the 1990s because of the appreciation of the Japanese Yen in the previous decade. Because of that appreciation, the growth rate of the Japanese economy dropped to 0%. This appreciation of the Japanese Yen occurred under pressure of the US.
The USA is trying to do the same with China. The outcome might be the same as in the case of Japan or it might be different.
If China submitted to the will of the US and allowed its currency to appreciate and became overvalued, then the economy of China would stalled as it was the case with Japan; but, if China refused to submit to the will of the US and followed its own policy in accordance to its own will, then it might sooner or later become the World’s number one economy.

Posted by Jeanmichel | Report as abusive

I regret I waste a few minutes reading this kind of nonsense. Rule of thumb: You cannot imagine a nation like China, which had all glory in history, to stay behind in poverty forever. China will be No.1 in size of economy in 10-20 years. Clear enough.

Posted by Spacetime | Report as abusive

Why wouldn’t China become the world’s biggest economy? It has 1.3 something billion people and everyone is basically controlled by the state. They can plan long term and all the US has been able to do for the past ten years is try to reinvent colonialism. The Chinese haven’t taken on such expensive market making and haven’t colonized anyone but themselves and perhaps Tibet.

A lot of what drives the US economy and politics is PR and BS. The economy has been trying to boost itself with the fine and expensive art of the perfectly positive lie. Obviously Wall Street was running on it for years.

And the Chinese have something we don’t have: an inexpensive foreign policy. They can put all their eggs into making more eggs. This country only seems to succeed when the economy is running on speculative fevers (all of which collapse eventually) or by seeding the world with future armed conflicts. But I suppose every country with a major manufacturing base is doing that to sell its weapon systems. The US isn’t alone in that.

I am not at all sure that this country can really claim that it is free. Something has happened to the electoral process in this state because not a single candidate for Congress is admitting party affiliation on any of the campaign signs that are appearing. Have we become a one party system too? And there is the constant threat of eroding civil liberties and surveillance from the powers that be and that want to stay there at all costs.

Even if the US allowed itself to be flooded with inexpensive mainland Chinese workers, we would still loose because the mainland Chinese can live cheaper in comparison to most people here. But there are a lot of desperate and pig selfish people here who wouldn’t mind having a plantation scaled Mac Mansion with a row of cheap shacks for the “employees” (preferably out of site or outside their gated communities) with just enough provided to keep them alive. That is the essence of trickle down economics isn’t it?

Actually that was the good old days of 20 to 30 years ago. Now – any economic trick will have to do to keep most people’s too expensive life styles floating at all.
What the Chinese have that this country doesn’t have is the ability to find “happiness” or satisfaction in relatively small personal gains and greater and greater allowance for personal autonomy. When you start with next to nothing, it’s all up. We, on the other hand can’t get much fatter before our hearts gives out from the exertion. And this country really can’t plan or adapt worth a cent. Too many people need immediate returns on their investments or the overpriced rattletrap starts to collapse.

Posted by paintcan | Report as abusive

The growth comes at the cost of somewhat unchecked pollution controls. Have you seen pictures of Chinese traveling with nose-masks? The cost of pollution amounts currently at 6% in related health costs and other that areprojected to go up over the next two decades, curtailing the pace of growth.

A western life-style at-large for most populous China, will spell disaster in terms of increased pollution, use of chemicals and related health costs.

Posted by Mott | Report as abusive

One other thing. Don’t look at GDP for a comparison of strength. If the Chinese eventually allowed their Yuan to equal the US dollar- their economy would grow enormously simply because it was being tallied in larger numbers. And they would have a vastly improved purchasing power. It would very likely be number one now. Just look at the development of Beijing or Shanghai on Google Earth and ask yourself whether what you see built on the ground looks like it is in any way inferior to what is built here?

In fact they build with reinforced concrete, masonry units, brick and steel. Those are all the materials that are so expensive here. They are not building square miles of stick built overpriced rot traps. And out economy also depends on them having insurance against theft, lawsuits and property damage in case the flimsy piles burn down or a tree falls on them or someone gets injured o the premises. Money spent on insurance is not productive except of more money.

Economists can do a great job of patriotic double talking.

Posted by paintcan | Report as abusive

China wont stay behind in poverty forever, they’re already doing an amazing job of climbing out of that hole, however, for them to surpass the USA would take an effort 10X what they’re doing today and that’s only assuming the USA will backslide and not forge ahead like it has always done. Naw, the USA may currently be a bit down but it’s far from out. It’ll take time but America’s engines will be revving up again in the forseeable future.

Posted by GLK | Report as abusive

How can American labor compete with billions of Chinese peasants who will work in deplorable conditions with low wages and little environmental safeguards?

Posted by philosopfizer | Report as abusive

America needs factories to employ it’s people, bc they pay more than service sector jobs. Non-military factories creating green technology and energy products. And we need advanced well designed tariffs to keep them here. We need money from work to buy our own products which creates more demand, which causes more factories to produce more things. Will we be selling these products to China too someday? The US needs to change its laws to encourage more FACTORIES.

Posted by mjimih | Report as abusive

Missing an important difference between Japan and China: population. Japan had/has less than half the population of America when their boomtime was on; China has more than four times the population than America! The room for China to stretch its legs in enormous. Even with per capita GDP of 1/3 America’s then it would still be the no.1 economy by a long shot. I’m also fairly impressed that people continually ignore India as a potential economic power – they have a population explosion still… their big problem is building infrastructure (which can be hard to get done in such an enormous democracy!)

Posted by CDN_finance | Report as abusive

Certainly Chinese has not intention to be the leader of the world in the same model as Americans because it is not tenable to have 1.4 billion people driving cars. Building 16,000 km of bullet train is a strong insight that China is in the wrong path respecting outcome conditions.

China has an ingredient that I admire and is missing also in Brazil. Corrupt people are easily disposed capital punishment. Americans are rewarding fat cats with bonuses for driving the world to this ugly economic meltdown that cost 10 million jobs just in the US. I think that fat cats have no chance in China and easily they could be stopped with death penalty instead of bonuses for annihilating the world economy.

I like China line of hardship as far as it helps to keep the country in the right track. Americans are going to become 85% obese by 2040 but I think that China Red Party easily could solve it as far as it shows threatening the welfare of their people.

Brazil does not grow so fast because our corrupt democracy cost around 20% of the public asset feeding politicians that only care for themselves instead of building roads and schools, providing a better infrastructure that our country needs to grow.

Americans are victims of their greed and using their economic power to foster the weaponry industry and bully other countries.

China are better prepared to lead the world than Americans and easily they can get rid of fat cats and keep obesity at bay. I like to see people getting capital punishment when their acts clearly jeopardize the outcome of their country.

Posted by ElsonBrazil | Report as abusive

with 800 million Chinese still below the poverty line, their will be no problem for China to continue its staggering growth. The reason Japans growth stopped, is because it ran out of low skilled laborers to develop. If Japan was a little less racist and let people from other countries become citizens, their growth never would have stopped.

Growth in the US will continue, not because of any great increase in income per person, but because the US welcomes people from all over the world, particularly highly skilled professionals, that open new businesses and buy up surplus homes.

Some day China’s GDP will pass the US, lets hope that by that day, we all have a lot more in common and a better understanding of each others respective cultures.

Posted by kc10man | Report as abusive

[...] This post was mentioned on Twitter by i.h, Once-ler. Once-ler said: the yellow menace http://bit.ly/a4XbSd [...]

Nothing is going to stop China though. They’ve got too much to prove and such a large population.
The similarity to Japan only goes as far as geography.

Posted by Simplerman | Report as abusive

China will not topple the US, until China finds a way to stop US from sabotaging China’s economy.

US has constantly sabotaged any Asian country on the rise by manufacturing one crises after another.

Posted by OCTheo | Report as abusive

Just wait until China starts to sell the massive US government bonds. It’s AD340 for America now.

Posted by CyprusClive | Report as abusive

in the 80s it was ‘japan threat’ and now ‘china threat’. people in the US feel threaten during this two eras because the US government deliberately proliferated fear to the amass, which lead to the next quote: ‘we have to do something to stop them, we can’t be #2′. the US is trying force china to appreciate it’s currency, guess what? back in the late 80s the US did the same thing to japan and the yen rose, and guess what happened to japan? you got it. the US won’t sit there and let anyone surpasses it.

Posted by fatboy | Report as abusive

India cannot compete, because of its small “human” population — while India says it has 1 billion people, it treats 1/10 of them as human and the other 9/10 as animals.

Posted by Spacetime | Report as abusive

“You know the rest: the Japanese economy stagnated in the 1990s while the U.S. economy roared, Japan replaced Turkey as the “sick man” of major nations, the Japanese experienced a real-estate crash, low growth, deflation – and MITI was folded in 2001, after compiling a track record of one bad decision after another.”

Our economy may have roared, but from where we stand today it seems clear that we were building without a strong foundation. We have now had our own real estate crash, are experiencing low growth, and analysts can’t seem to decide whether we’ll experience Japan-style deflation or devaluing inflation. Our own fiscal and monetary policy certainly seems to indicate we also have made one bad decision after another.

Your math makes the questionable assumption that our GDP will grow at 3% per year until 2030. If our government continues to run the same deficit, our entire discretionary budget will be given over to interest payments long before 2030. What will happen to our GDP then?

No doubt China will struggle with its own problems in the future, but as someone mentioned above, their population is so large that each person will only have to be moderately more productive in order to send their GDP skyrocketing. Further, if the Chinese government makes even a passing effort to learn from the mistakes of Japan, Europe, and the US, they can avoid considerable heartache. Exhibit A: Their forced cooling of the real estate market.

Posted by Sisyphus | Report as abusive

If I racked up 12 trillion on my credit cards like the US, I’d also be the world’s number 1 economic power.

Posted by RichMy | Report as abusive

[...] This post was mentioned on Twitter by tangent24 and i.h, Once-ler. Once-ler said: the yellow menace http://bit.ly/a4XbSd [...]

One only thinks that the PRC/US relationship is economic because the historical and political context is improperly rendered. Recall the murder of an Asian student in Detroit back in the 1970s because it was thought that he was part of the Japanese auto industry, and you immediately get a sense for the level of “political reaction” that will take place in the United States if PRC mercantilism keeps degrading the US economy’s job creating potential. Soon after this killing, the US, in a smart effort to suppress descent, began serious arm-twisting at MITI so that auto exports to the US were capped for many years. My primary concern is that PRC politicians, completely in the dark about the history and politics of the US, will overplay their hands. Already, they seem to have forgotten that Chinese culture, as a galvanizing vanguard, failed a few hundred years ago. Realistically, China is building a new society by running from its own history of failure, but where is China running too? The issue of Greater China’s political and cultural destination can not be overlooked forever.

Posted by SuperMike1661 | Report as abusive

curiously, this column suggests without a slightest sign of doubt that the only possible course of a given economy is the growth trend.
one sided, indeed, while there always play role powerful emergent factors, as I expect in 20 years climate change, hunger and thirst, military conflicts, and not last the dangerous inadequacy of the ruling class to intervene far more heavily in our economic daily life.
just one of these could wipe away all the American /or Chinese/ positive thinking.
I’ll better unwind all my “financial” assets and turn toward real values. stocks? no, thanks, no matter whether they are American or Chinese

Posted by mittag | Report as abusive

Well this is not the 80′s and China is certainly not Japan, they are a rising power in Asia and the world for that matter, a fact that needs to be faced.

Posted by Dahc | Report as abusive

Conveniently the author leaves out the most important part of the equation and that is if the YUAN is undervalued by 25-40% the way they say it is, add to that the paltry 1% GDP the USA will see in reality for the next few years the Chinese will pass us a hell of a lot sooner than the 2030 figure he has come up with. In reality it’ll be more like 2015-2020 as they’ve already taken the Manufacturing Crown from the USA in the first part of this year and if you’d figured in the undervalued YUAN they actually passed the US for that title a couple of years ago. If you’re going to start analyzing things the first part you have to learn in order to come up with the correct answer is that you have to compare apples to apples and in this case that means to re-value the currencies so they are equal. If the consensus is that a certain currency is undervalued like the YUAN in this case, you must adjust it before you even start calculating. And when the numbers are adjusted for that the answer changes a whole lot. And let’s us a real GDP for the USA as we all know now that 3% is about 3X what it will be and that’s if we’re very lucky!

Posted by Radical_1 | Report as abusive

Why wouldn’t China become the world’s biggest economy? It has 1.3 something billion people and everyone is basically controlled by the state and we don’t hear much about their unemployment problems if any. But I know they have them. Back in the 50’s Arnold Toynbee actually thought China had some significant lessons to teach the west. He was probably right. They can plan long term and all the US has been able to do for the past ten years is try to reinvent colonialism. The Chinese haven’t taken on such expensive market making and haven’t colonized anyone but themselves and perhaps Tibet.

A lot of what was driving the US economy and politics was/is PR and BS. The economy has been trying to boost itself with the fine and expensive art of the perfectly positive lie. It’s called marketing and advertising. Obviously Wall Street was running on it for years. I can’t stomach the near fraud of the financial channels – not mentioning some names of some notorious “star” analysts. They don’t bother to talk about conflict of interest issues.

And the Chinese have something we don’t have: an inexpensive foreign policy. They can put all their eggs into making more eggs. This country only seems to succeed when the economy is running on speculative fevers (all of which collapse eventually) or by seeding the world with future armed conflicts. But I suppose every country with a major manufacturing base is doing that to sell its weapon systems. The US isn’t alone in that.

Even if the US allowed itself to be flooded with inexpensive mainland Chinese workers, we would still loose because the mainland Chinese can live cheaper in comparison to most people here. If the Chinese started paying US prices for everything in that country – or conversely – if the US succeeded somehow in forcing everything the Chinese use or buy to be priced at equivalent US rates, (a very even playing field) they would loom large overnight. Don’t just look at GDP for comparisons of economic strength. What one spends on consumer goods does not mean you necessarily get more or better. One can spend a fortune to live at the bottom of the desirable real estate scale in a city like New York or pay significantly less further from the prime locations and have better quarters for the same money. Who has the better quality of life? Just look at the development of Beijing or Shanghai on Google Earth and ask yourself whether what you see built on the ground looks like it is in any way inferior to what is built here? But it is being built with better materials and methods than commonly used here. They aren’t building square miles of stick built rot magnets most of which are dependent on the automobile to be accessible at all.

And The Chinese apparently haven’t learned the wonderful road to building GDP through insurance premiums and other support expenditures simply so one can be sure the stick built rattle trap can be replaced when all those gadgets and expensive fixtures get damaged or someone sues the homeowner. GDP figures measure all money changing hands, not just money that actually produces tangible useful goods. From personal experience I know that simple medical procedures can cost fortunes.

What I suspect the Chinese have that this country doesn’t have is the ability to find “happiness” or satisfaction in relatively small personal gains and greater and greater allowance for personal autonomy. When you start with next to nothing, it’s all up. We, on the other hand can’t get much fatter (literally) before our hearts give out from the exertion.. And this country really can’t plan or adapt worth a cent. Too many people need immediate returns on their investments. And the country is very tightly controlled by level over level of special interests – from private property rights to major business interests. They all stand in the way of adaptation to changing circumstances. This country cannot maintain its lifestyle without subsidies of some kind to the top or to the bottom or at every level in between.

Posted by paintcan | Report as abusive

repost no. 2 @ blogs.reuter.com/greg-easterbrook
01:24 8/21/10 by John Sweyer, FKGrp

One only thinks that the PRC/US relationship is economic because the historical and political
context is improperly rendered. Recall the murder of an Asian student in Detroit back in the 1970s
because it was thought that he was part of the Japanese auto industry, and you immediately get
a sense for the level of “political reaction” that will take place in the United States if PRC
mercantilism keeps degrading the US economy’s job creating potential. Soon after this killing, the
US, in a smart effort to suppress descent in the US, began serious arm-twisting at MITI so that
auto exports to the US were capped for many years. My primary concern is that PRC politicians,
completely in the dark about the history and politics of the US, will overplay their hands. Already,
they seem to have forgotten that Chinese culture, as a galvanizing vanguard, failed a few
hundred years ago. Realistically, China is building a new society by running from its own history
of failure, but where is China running too? The issue of Greater China’s political and cultural
destination can not be overlooked forever.

Posted by SuperMike1661 | Report as abusive

[...] rise of China’s brand image in the developed world is reminiscent of Japan in the 1980s when the image of “Japan Inc.” rose while those of the US and Europe [...]