The Japanese government made official the long-expected flip Monday morning in Tokyo, reporting that the economy shrank at a 1.1% annual rate for the last three months of the year, a period when China’s gross domestic product surged 9.8% from a year earlier. With those figures, Japan’s full-year GDP was $5.47 trillion—about 7% smaller than the $5.88 trillion China reported in January.
Both still remain considerably smaller than the American economy. Japan and China combined are still worth less than the U.S.’s 2010 GDP of $14.66 trillion. But the news marks the end of era. For nearly two generations, since overtaking West Germany in 1967, Japan stood solidly as the world’s No. 2 economy. The new rankings symbolize China’s rise and Japan’s decline as global growth engines.
For the U.S., while Japan was in some ways an economic rival, it also has been a geopolitical and military ally. China, however, is a potential challenger on all fronts.
China’s ascent has been the main source of popular legitimacy for the ruling Communist Party. But Beijing worries that the mantle of economic titan comes with unwanted obligations for a country still in many ways poor. “China Surpassing Japan to Become World’s Second Biggest Economy—But Not the Second Strongest,” said the headline on a recent article on the website of the People’s Daily, the party’s flagship newspaper.
The Long Rivalry
China passed Japan in 2010 to become the world’s second-largest economy after the U.S. Compare the two economies over the past 50 years.
The complex reactions in both countries reflect the fact that China still lags behind Japan in many respects—and the reality that their growing interdependence makes them partners as much as rivals.
A Historical Shift
Take a look at major events in Japan and China over the past decades.
For Beijing, being No. 2 means, among other things, new clout. China has trumpeted its willingness to use its $2.85 trillion hoard of foreign-exchange reserves to help stabilize struggling countries such as Greece by purchasing their bonds. Officials have chastised Washington for monetary policies they say could endanger the value of China’s massive holdings of U.S. government debt.
But Beijing also suspects that developed countries want to use its rise to foist on it greater responsibilities in areas like carbon-emissions reduction and currency policy. When China’s GDP passed Japan’s on a quarterly basis last summer, official media outlets ran commentaries rebutting what they called “China responsibility theories” in the West exaggerating the country’s global role. The theories, one Chinese expert told the Xinhua news agency, “are fabricated to slow down and check China’s development.”
At home, the rise to No. 2 complicates the Communist Party’s national narrative, steeped in a sense of victimhood at the hands of foreign powers—not least 1930s Japan—that China is now overtaking. Party leaders are aware that China’s image as an economic powerhouse risks calling attention to the shortcomings of a country both powerful and poor.
So the government takes credit for China’s economic accomplishment while playing it down. When the National Bureau of Statistics reported China’s 2010 GDP last month, director Ma Jiantang was asked about the looming No. 2 milestone. The rise “is the result of hard struggle and continuous progress of the Chinese people under the leadership of the Communist Party,” he said—adding that China remains one of the world’s poorer countries on a per capita basis.
The official ambivalence is mirrored in China’s public reaction. “There might be people feeling thrilled about this, but I’m not one of them,” said Zheng Maohua, a 65-year-old retired government official in Beijing. The GDP landmark “can’t reflect the true situation of this society,” which he described as “rich country, poor people.”
In the 1980s and 1990s, Japan faced the same pressures China now fears, of global demands to shoulder extra responsibilities. China’s official rise to Asia’s top economy takes the spotlight off Tokyo. While still the oldest liberal democracy in East Asia and a cornerstone of the U.S. defense umbrella, Japan no longer faces the same pressure from Western peers to exercise “checkbook diplomacy” or open its markets—even though Japan’s trade surpluses with the U.S. remain high.
Some Japanese elites are wistful for those demands. “Some of us look back to the era of Japan-bashing with nostalgia,” says Takatoshi Ito, an economics professor at Tokyo University and a former top finance ministry official. “We were frustrated back then, but ignored is worse than being bashed.”
— Loretta Chao in Beijing
and Juro Osawa in Tokyo contributed to this article.
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