It has been predicted for some time, but it appears China will pass Japan as the world's second largest economy sometime next year.
Yesterday, October 1, 2009 was the 60th anniversary of the founding of the People’s Republic of China. My congratulations to the people of China. I attended celebrations at Queen's Park, seat of the Provincial Parliament for Ontario in Toronto. The event was hosted by Premier Dalton McGuinty, and several cabinet ministers were present including Minister of Trade and Economic Development Sandra Pupatello. A number of Chinese dignitaries and business people were present.
Twenty years ago, such an occasion would probably have passed without notice. Things have changed. Today China is a powerhouse, with a huge population, 1.4 billion. Militarily, it is modernizing its forces and increasing defense spending, and economically it is big, with a gross domestic product (GDP) of 4.4 trillion U.S. dollars for 2008.
Below is the best broad definition I can give you for GDP:
"Gross Domestic Product (GDP) is the broadest measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.
GDP includes all personal consumption, all government expenditures, all investments in plants, equipment, inventories all residential investments, all exports, minus all imports."
Also remember that technically when the GDP declines for two consecutive quarters or more, by definition the economy is in a recession. And of course, we here in the West are currently in the "Great Recession".
I guess the big question is "why is China growing so fast"?
In 1978, after decades of strict state control over all productive assets, the government of China embarked on a major program of economic reform. As a matter of fact, it was a revolution in thought and practice. This revolution awoke a sleeping economic giant. It fostered rural enterprises and the formation of private business. This rewarded human ingenuity, hard work, and entrepreneurship. The Chinese government liberalized foreign trade and investment, relaxed state control over some prices, invested in industrial infrastructure, and made the education of its workforce a priority. Last but not least, a significant increase in worker efficiency has played a big role.
A very informative story in the New York Times (read below) shows there is lots to celebrate in China.
Chinese Economic Juggernaut Is Gaining on Japan
By HIROKO TABUCHI
Published: October 1, 2009
TOKYO — For years, Japan has been readying itself for the day that it is eclipsed economically by China. But as a result of the global slowdown, Japan’s difficulty in managing its economy and China’s rise — on vivid display Thursday as Beijing celebrated the 60th anniversary of the founding of the People’s Republic — that day may come sooner than anyone predicted.
Read more, click here.
