China Becomes World's Second Largest Economy

Image Courtesy: BBC News: Business

China has overtaken Japan as the world's second-biggest economy. 

Japan's economy was worth $5.474 trillion (£3.414 trillion) at the end of 2010, figures from Tokyo have shown. China's economy was closer to $5.8 trillion in the same period.

Analysts have predicted that in the upcoming decade China will replace the US which is the world’s top economy now.

"It's realistic to say that within 10 years China will be roughly the same size as the US economy," said Tom Miller of GK Dragonomics, a Beijing-based economic consultancy.

World's 10 Biggest Economy

1. US
2. China
3. Japan
4. Germany
5. France
6. UK
7. Italy
8. Brazil
9. Canada
10. Russia

How did China make it?

There are several factors behind China’s success and some of them obviously came from Japan’s failure. Here are some major influencing factors that helped China becoming the world’s second largest economic power.

• China has the population advantage and they are successful in converting this huge population into a talented workforce.
• China's growth has been backed by a long-running manufacturing boom followed by an expansion of its domestic industries and infrastructure.
• A huge increase in the price of Japanese Yen which reduced demand for Japanese products
• A dip in domestic and export demand in Japan
• Consumer spending fell significantly in Japan
• Japan’s ageing population that is spending less, and a workforce that is relatively expensive and inflexible to operate.

"The main reasons for the contraction are the expiry of government stimulus measures and negative external demand," said Takeshi Minami, chief economist at Norinchukin Research Institute.

The Big Picture

"Most people in China are still poor, more people live in the countryside than in cities," said Mr Miller of GK Dragonomics.

"The average Japanese person is much much richer than the average Chinese person."

This is the behind the scene outlook. Though China has overtaken Japan in the economic ranking, things are completely different when seen from a different angle. Most economists argue that despite China's overall economy is growing and the average person is getting richer, it doesn't makes sense in terms of comparing with Japan. People in China are still poor and people in Japan are still rich. The benefit of becoming the economically strong country has not reached to the grass-root level. One of the reason is decline in the labor cost and eventually, though people are getting jobs in China and they're contributing to GDP but they themselves are getting less wages, which is totally opposite in Japan.

Warning for Bangladesh!

China has tattooed several significant markings such as the “World’s Factory”, or “the second biggest economy” or the “cheapest labor market” and so on. Now it is the second largest economic power and soon it is going to be the first. That’s why China’s success can have greater impact on Bangladesh’s economy especially in the RMG sector. Recent analysis shows that this has already been started and China is capturing the RMG sector gradually and this achievement will fuel this voyage more and speed up the process. That's why it is not far when Bangladesh may lose its RMG business entirely. Leaders and policy makers should consider this threat seriously because the world’s economy is changed and Bangladesh has got a tough rival. If importers find manufacturing textiles, RMG and other apparel and knitting products is favorable in China instead of Bangladesh then they won’t delay to switch. RMG sector is the vital organ in the country’s economic system. If it isn’t nurtured and cared properly then the consequence will be catastrophic. So this is the time to think and take actions.

Source: http://www.bbc.co.uk/news/business-12427321