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China and Japan: How Asia’s Economic Giants are Shaping the Region’s Outlook

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Thirty years ago, Japan was growing so quickly that some predicted it would overtake the United States, while China’s economy was small and closed. Much has changed. China has overtaken Japan as the world’s second largest economy, but as China shifts to a “new normal” of lower growth, observers are increasingly concerned that it may no longer serve as the world’s economic engine. Meanwhile, proactive Japanese economic policy has renewed interest in Japan’s prospects. In this presentation delivered at a recent Asia Financial Forum in Seattle, Cindy Li and Sean Creehan explain how China and Japan impact the global economy.

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China and Japan: How Asia’s Economic Giants are Shaping the Region’s Outlook

  1. 1. China and Japan: How Asia’s Economic Giants are Shaping the Region’s Outlook Sean Creehan and Cindy Li March 2, 2016 Country Analysis Unit Federal Reserve Bank of San Francisco “The opinions expressed in this presentation are statements of the speaker's opinion, are intended only for informational purposes, and are not formal opinions of, nor binding on, the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System.”
  2. 2. Japan’s Economic Performance is Better Than You Think Source: OECD In fact, it’s the highest among the G7 over this period if you adjust for the size of the working age population -2.0 -1.0 0.0 1.0 2.0 3.0 Germany Japan Canada United States United Kingdom France Spain Italy Real per capita GDP growth in the G7 (%) 2000-2014 average 2010-2014 average
  3. 3. Demographics a Constraint, Productivity Lags 58 60 62 64 66 68 70 72 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Working Age Population Aged 15-64 (% of population) Source: OECD 0 10 20 30 40 50 60 70 GDP per hour worked (US$ constant 2010 prices) Japan Italy United Kingdom Canada Germany France United States
  4. 4. Japan Goes Out Source: United Nations World Investment Report, June 2015 -100 0 100 200 300 400 500 2009 2010 2011 2012 2013 2014 Outbound FDI flows (US$bn) United States Hong Kong, China China Japan Germany Canada France Italy United Kingdom 0 5000 10000 United States United Kingdom Germany Hong Kong, SAR France Japan China Canada Italy Outbound FDI Stock (US$ bn as of end-2014)
  5. 5. China and Japan’s Evolving Roles in the Global Economy United States 25% Japan 17% China 3% Europea n Union 31% Rest of World 24% 1995 United States 24% Japan 6% China 16% Europea n Union 22% Rest of World 32% 2015 Source: International Monetary Fund.
  6. 6. -2 0 2 4 6 8 10 12 14 16 1995 2000 2005 2010 2015 2020 Successful reforms: 4-6% "Lost decade": 1-3% Hard landing: negative growth China’s New Normal: The Good, the Bad, or the Ugly? Real GDP growth (%) Note: The three scenarios are taken from a recent survey by the Council on Foreign Relations. Sources: International Monetary Fund, Council on Foreign Relations. IMF projections (As of 10/2015)
  7. 7. One Country, Two Business Climates? 6.1 8.2 0 2 4 6 8 10 12 14 16 18 20 2005 2007 2009 2011 2013 2015 Industrial sector Tertiary sector YoY growth rate, % Sources: Chinese National Bureau of Statistics, Chinese Ministry of Commerce. 66.2 21.5 0 10 20 30 40 50 60 70 80 90 100 2005 2007 2009 2011 2013 2015 (est) Consumption Investment Contribution to GDP growth, %
  8. 8. Cold Politics, Warm Economic Ties? 2015: 25.3% 0 5 10 15 20 25 30 1990 1995 2000 2005 2010 2015 (est) Chinese visitors, % of total foreign tourists traveling to Japan Sources: Japan Tourism Marketing Co., Japan Bank for International Cooperation. 53.7% 9.1%2.6% 27.0% 7.0% 0.6% Produce in China (to sell in China) Produce in China (to export to Japan) Produce in China (to export to other countries) Produce in China (both selling in China and exporting) Have sales operations in China but no production bases Others China's importance for large multinatioal Japanese manufacturers Share of companies surveyed that...
  9. 9. China and Japan’s importance in regional trade (2014) Source: Asian Development Bank. China Japan Rank as an export destination Rank as an import origin Share of exports (%) Rank as an export destination Rank as an import origin Share of exports (%) Japan 2 1 18.3 - - - Hong Kong 1 1 53.9 3 3 3.6 Korea 1 1 25.4 3 2 5.6 Singapore 1 1 12.6 6 6 4.1 Taiwan 1 1 26.2 5 2 6.3 China - - - 3 1 6.4 India 4 1 4.2 15 18 1.8 Indonesia 2 1 10.0 1 3 13.1 Malaysia 2 1 12.0 3 3 10.8 Philippines 3 1 12.9 1 3 22.5 Thailand 1 1 11.0 3 2 9.6 Vietnam 2 1 10.4 3 3 10.3
  10. 10. 1990 Japan vs. 2014 China 1990 Japan 1990 USA 2014 China 2014 USA GDP Per Capita, PPP (Constant 2011 international $) 29,550 37,062 12,609 52,118 Urban population (% of total) 77 77 54 81 Services value added (% of GDP) 59.8 -- 48.2 78.1* Household final consumption (% of GDP) 53 64 36* 68 Source: World Bank Development Indicators *2013 figure Sources: International Monetary Fund and World Bank.
  11. 11. TPP vs. RCEP Source: Center for Strategic and International Studies.
  12. 12. Asia Infrastructure Investment Bank Source: China Daily
  13. 13. Thank you! Learn more about the Asia Program Visit our Pacific Exchange Blog

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