Japan's growth unexpectedly surpasses China's, what is the real reason?

According to preliminary GDP figures for 2023 released by the Japanese Cabinet Office on February 15, the country's nominal growth rate surpassed China's for the first time since 1977.

Tăng trưởng của Nhật Bản bất ngờ vượt Trung Quốc, lý do thực sự là gì?

Consumers shop at a market in Guangxi, China. (Photo: Xinhua)

Specifically, the Japanese economy recorded a nominal growth rate of 5.7% in 2023, while China increased by 4.6%.

The surprising reversal comes as Japan begins to slide into inflation, while China is facing deflationary pressures.

The world's second-largest economy grew 5.2% in real terms last year. Real growth accelerated from the previous year, partly thanks to a rebound from 3% growth in 2022, when the economy contracted sharply due to Covid-19.

However, nominal growth – taking into account inflation – slowed to 4.6% in 2023 from 4.8% the previous year.

Countries like the US and Germany have nominal growth rates above 6%, making China's slowdown stand out compared with major developed countries outside Japan.

Meanwhile, domestic demand in Beijing remains sluggish amid a prolonged property slump and a tough job market, especially for young people. At the same time, investment in infrastructure and industrial sectors continues to boost supply capacity, putting persistent deflationary pressure on the economy.

In addition, consumer prices have decreased year-on-year for four consecutive months through January 2024, while the producer price index has been negative year-on-year since October 2022.

Policy measures taken by China in recent weeks are aimed at boosting economic growth, but the actual results are still unclear, said analyst Lillian Li of Moody's Investor Service.

“The impact on nominal GDP growth in 2024 will depend on whether those measures and future stimulus can improve market confidence and boost demand in a sustainable manner,” she said.

According to China strategist Thomas Gatley at independent research firm Gavekal, deflationary pressures in the world's second-largest economy are likely to continue, or even increase, and put downward pressure on global prices.

“With the historic property boom clearly over, the government is putting all its efforts into expanding manufacturing to drive future growth. There is good reason to believe that China will indeed remain a deflationary country in the coming years,” he said.

At the same time, China's manufacturing prowess has been a key factor in reducing global inflation over the past two decades, especially since China joined the World Trade Organization (WTO) in 2001.

Mr Gatley believes the China factor could push prices down. “China’s influence on global prices is even more clearly tilted in the direction of deflation,” he said.

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