China Passes Japan, Not As Important As It Seems

Derek Scissors / August 16, 2010

After months of speculation, it’s finally official: the Chinese economy, as measured by GDP, is larger than the Japanese economy. In the second quarter of 2010, the Japanese economy was valued at about $1.29 trillion, the Chinese economy at $1.34 trillion. The gap will widen next year and for the foreseeable future.

The swap of the number two and three spots in the world, behind the U.S., is heralded as (i) a sign of Chinese ascendance and Japanese stagnation; and (ii) proof of the superiority of the PRC’s state-led development model. This swap is certainly not the result of a superior development model and it might not even say too much about Chinese ascendance. This is because, while GDP does measure size, it is a flawed measure of economic performance and prosperity. (more…)