Scenario of 8% Growth in China Inducing Recovery in Japan Incorrect

Exports from Japan to China moving in line with China’s electric power generation rather than its GDP growth


March 03, 2009

  • Mitsumaru Kumagai
  • Masahiko Hashimoto


◆Japan’s economy is contracting sharply, but there are growing expectations that China’s economy will help induce recovery--in response to a slowdown, the Chinese government has announced a series of large economic stimulus measures (4 trillion yuan in aggregate by end- CY10; 13% of GDP), leading Japan’s markets to anticipate that Japan’s economy will begin to recover should China’s economy attain 8% growth.

◆However, it is mistaken to believe that such economic growth in China will induce Japan’s recovery. The key in this report is that exports from Japan to China have moved in line with China’s electric power generation rather than its GDP growth. In China, electric power generation has plunged while real GDP has grown steadily, widening the gap between them. We believe electric power generation better represents the real situation with respect to China’s economy. Thus, even should China attain 8% economic growth, Japan’s economy will not necessarily begin to recover.

◆The possibility of China’s economic growth grinding to a halt is limited. Considering that (1) China’s economy is not a pure market economy but a socialist market economy, (2) inflationary pressure has greatly waned and a greater margin exists for lowering interest rates, and (3) the ratio of government bonds outstanding to GDP is only around 20%, should China forcefully implement stimulus measures the possibility of economic growth coming to a halt is small. Dividing the economies of the world into four in terms of the US economy and resource prices, for China with an economic structure that is highly dependent on the US and vulnerable to high resource prices, lower commodity prices greatly easing inflationary pressure is the best possible news.

◆In conclusion, while there appears to be only limited possibility of China’s economic growth halting, we cannot place excessive expectations on the scenario that the expansion of China’s economy will trigger a bottoming out of Japan’s economy.

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