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Asia’s Dueling Duopoly

TOKYO – In today’s Asia, there are two economic powers of global standing, Japan and China. But the balance of economic power between the two is changing, and fast. Sometime this year, China’s GDP will exceed that of Japan (if it has not already done so). China’s economic footprint, moreover, is spreading rapidly across Asia and the rest of the world.

Most Asian countries are recovering strongly from the global recession that set in following the collapse of Lehman Brothers in 2008. China’s growth rate last year was 8.7%, and more than 10% in the past two quarters. Neighboring countries, like South Korea and Singapore, also are recording very high rates of growth. The only exception is Japan, where a lack of political leadership and a limited knowledge of basic economics among government ministers undermines mid-term growth prospects.

While China’s ability to maintain high growth through the “Lehman Shock” was a remarkable feat of economic management, three important changes in China hold geo-political implications for the region and the world.

The first change concerns China’s pattern of economic growth, which so far has been achieved mostly by rapidly increasing factor inputs – labor, capital, and energy. According to recent research, however, about one-third of growth in China now comes from technological progress, or an increase in total factor productivity. In other words, China’s growth pattern is coming to resemble that of industrialized economies.