China in Transition

Understanding "The Forty-year Gap between the Economies of Japan and China"

Chi Hung KWAN
Consulting Fellow, RIETI

In this column, I have consistently maintained that there is still a large gap between the level of development of the economies of Japan and China, and as a reflection of this, the two economies complement each other. In September 2001, at a time when Japan was caught up in the theory that China was a major economic threat (what I call "China Syndrome"), my comments to this effect caused a great stir in China, helped by the fact that they appeared in the LianHe ZaoBaoa Chinese language newspaper in Singapore, with the sensational title "China lags 40 years behind Japan."A search of this title using the Chinese version of the search engine Google still calls up more than 100 stories related to this topic. Perhaps reflecting the recent loss of confidence among the Japanese and the excessive confidence of the Chinese, I receive much criticism from both Japanese and Chinese readers that my view underestimates the economic level of China. At the same time, I also see that interpretations of my comments are being stretched to the extent that they may be misunderstood. Now that the fear of the Chinese threat has lessened, I would like to once again calmly review the meaning of my belief that there is a 40-year gap between the economies of Japan and China.

My conclusion that there is a 40-year gap between the Japanese and Chinese economies is derived from the following observations. Put plainly, such figures as life expectancy, mortality rate, the primary sector's share of gross domestic product accounted for by primary industries, Engel's coefficient in urban areas and electricity consumption per capita in China in recent years are very similar to those of Japan in the early 1960s. These indicators have not been chosen arbitrarily or to suit my argument. They are standard economic indicators that help show the level of a country's economic development such as its economic structure and standard of living. ( note1 ) Furthermore, even before looking at the figures we can see that many aspects of present-day China, such as its high economic growth, the ongoing construction boom, the mass influx of labor from the rural areas to the cities and serious environmental problems, are similar to those experienced by Japan 40 years ago.

Table: Comparison of key economic indicators between China and Japan
  China (latest) Japan (around 1960)
Life expectancy (years) 71.4
Infant mortality rate (per thousand) 28.4
Primary sector's share of GDP (%) 15.2
Engel's coefficient in urban areas (%) 37.9
Per capita electricity consumption (kwh) 1,158

*Life expectancy used is the average of both men and women
(Source) Official statistics of China and Japan.

This sort of comparison only covers national averages, and may not apply to individual regions and sectors. When we take into consideration that fact that regional disparities in China are much greater than those in Japan, we should note that the gap between Japan and China's coastal area around Shanghai, which is seeing tremendous economic growth, is probably less than 40 years. However, at the same time there are still rural areas in China that lag more than 100 years behind Japan. On one hand, thanks to the recent development of information-technology based industries, China is beginning to establish itself in fields that did not exist 40 years ago. On the other hand, because China does not have its own technology to build a high-speed rail link between Beijing and Shanghai, it is still debating whether to use Japan's Shinkansen technology, which was established in the early 1960s, or the linear technology offered by Germany, which is still at the experimental stage. Also, while China may be ahead of the Japan of 40 years ago in terms of hardware, such as constructing high-rise buildings and expressways, it must be said that in establishing such institutions as legal systems and a democratic form of government, China lags behind the Japan of the 1960s.

Although I say that there is a 40-year gap between the economies of Japan and China, it is not my intention to underrate the high pace of economic growth observed in China in recent years. In fact, when I tried to make a similar comparison between Japan and China ten years ago, I had to dig up pre-war figures for Japan to find those on a level with those of China at that time. And given the abnormal situation during the war and the lack of continuity of the statistics, I decided to give up the attempt. When we see the gap between Japan and China rapidly shrinking, we should realize that it is not a matter of there still being a 40-year disparity, but that the width of the gap is now only 40 years.

If China makes use of the fact that it has the benefit of being able to secure the technology and experience of industrialized nations at lower cost due to its later start, it will probably be able to achieve higher growth than Japan for the time being. As a result, the gap in economic development between the two countries will likely become smaller, and it will not take China 40 years to reach the economic level of present-day Japan. However, unless we see an extreme situation in which the Japanese economy does not grow at all for several decades, we will not see China surpassing Japan in terms of economic development, even when it reaches Japan's present level.

October 18, 2002
  1. I have not used per capita gross domestic product figures in my comparison because when such factors as inflation and the price disparity with other countries are taken into account, the purchasing power of one dollar would be very different between the Japan of 40 years ago and present-day China.
Related article

October 18, 2002