December 27, 2009 (24/7 Wall Street) — China became the world’s second largest economy in 2009, passing Japan, which has held this distinction for decades. The People’s Republic raised its growth forecast for 2008 to 9.6% from 9% which took the total to over $4.6 trillion. The Chinese government says it will have economic growth of 8%. The financial ministry has suggest that the 2009 number will almost certainly be revised up early next year.
Japan’s GDP did not grow at all this year and could actually drop by 6% or more depending on the direction of its economic revisions.
The CIA Factbook, a source of data that many experts use to compare national economies, reported that China’s 2008 GDP was $4.6 trillion and Japan’s was $4.9 trillion. The 2009 numbers are likely to be $4.75 trillion for China and $4.6 trillion for Japan.
China has had a natural advantage over Japan for years. Japan no longer has the world’s largest pool of inexpensive labor. Its cost to build exports has risen from the 1970s when it had a huge advantage over the US and Europe for the cost of building cars and consumer electronics. Japan inadvertently created a well-paid middle class that expected high wages. China, however, is still bringing people from its impoverished rural regions into large cities to work in factories. These people are paid very modestly, but the cost of living in China is low compared with Japan and the West.
China also has an abundance of natural resources, particularly energy and raw materials like metal. Japan is too small geographically and consequently never had those resources. It has always had to import most of the components of the products that it made and has been periodically plagued because it has been captive to the price increases of oil and natural gas.
It will be several decades before China’s GDP can match that of the US. America’s gross domestic product will be over $14 trillion this year. China will gain on that number quickly if US economic output stays below 2% or 3% and China continues to expand at 10% or better …
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{ 4 comments… read them below or add one }
There has been a lot talk about Israel possibly attacking Iran. If that were to happen it seems the price of oil would take a big jump. But what about the dollar, gold, and other commodities?
Larry Edelson Reply:
January 5th, 2010 at 11:35 am
I think they’d all jump! But planning for, or trading the markets, based on such events is not recommended.
Larry,
With the Fed printing money and the value falling, you say to invest in tangible assets that act as a hedge againest inflation. My question is wouldn’t income producing rental property act as a hedge also? What are your thoughts.
Jim
Larry Edelson Reply:
January 5th, 2010 at 11:36 am
Yes, and no, depends upon location, location, location!
Larry,
would you please comment on this gold ETF issue.
thank you
roger
Unbeknownst to most investors, gold is considered a collectible not a capital asset. In plain English, this means that despite the fact that many people believe they are investing in gold, the Internal Revenue Service (IRS) believes that they are collecting it.
This is no small distinction and hurts investors because it means that gold does not qualify for the 15% maximum tax bite that most of us employ as a matter of routine when we mentally calculate profits earned on investments held for more than a year. That 15% cut for Uncle Sam is the long-term capital gains tax rate that applies to most stock or mutual fund investments.
Precious metals are a completely different story. Profits from these “investments” can be subject to a 28% maximum tax rate if held for more than 12 months. And if they are sold in less than a year, the profits count as ordinary income.
Larry Edelson Reply:
January 5th, 2010 at 11:37 am
I believe that applies only to numismatic coins, and not bullion, or gold-related ETFs.
Larry,
Is China not relying on US for it’s exports to sustain growth? What will happen now that the US citizens cannot use their homes as an ATM. USA will not import as much, China will not grow, your thoughts please…