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China Surpasses Japan to Become World's Second-Largest Economy

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People can't seem to stop talking about China's economy surpassing Japan's to become the world's second-largest, valued at $1.28 trillion in the second quarter, slightly below China’s $1.33 trillion. The New York Times reports that "That weakness suggests that China’s economy will race past Japan’s for the full year."

After passing Germany, France and Great Britain--and now Japan--forecasts expect China to pass the United States as the world’s biggest economy as early as 2030.

However, the BBC reports that "the Japanese are still among the most prosperous people in the world" and that  "China's economy may be overtaking in terms of total size but its wealth is spread among 10 times more people."

But, the piece asks an interesting question: is Japan's economy a warning for China?

It tells the story of fifty-seven-year-old Taro Suzuki, a taxi driver in Tokyo who was once a salaryman at a large corporation who became a property speculator during Japan's 1980s bubble.

"I made mistakes," he said. "Maybe it's not fair to say it because some drivers want to do this job and work hard for it. But when I look back at my own life I don't think I have been successful. It's the same with the Japanese economy. We never thought we would be at the stage we are at now."

The article notes that "Banks were lending freely and property prices rose so high it was said that the Imperial Palace in central Tokyo was worth more than all the real estate in California."

It points out that "People and companies were left crippled by the loans they had used to buy assets that collapsed in value" and that, "On the face of it there are real similarities between China now and Japan in the 1980s."

Mr. Suzuki now picks up passengers at places he used to enjoy as a customer.

"We'd go to Ginza and Roppongi and spend hundreds of thousands of yen drinking. We'd eat sushi, or French or Italian food. We'd do that two or three times a week, sometimes every day. That's how we did business in those days."

How long until China becomes the next Japan?


POSITION:  No positions in stocks mentioned.