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China’s overtaking of U.S. economy delayed to 2033, report says

IORI KAWATE and RYOHEI YASOSHIMA, Nikkei staff writers

 

TOKYO/BEIJING — The size of China’s economy is not expected to surpass that of the U.S. until 2033, rather than 2029 as predicted a year ago by the Japan Center for Economic Research, whose latest forecast says Beijing is damaging the country’s growth potential by clamping down on its tech and other big industries.

 

The report, issued on Wednesday, also cites China’s ongoing decarbonization drive as well as some big debt burdens, one of which has the Evergrande real estate empire teetering, as drags on growth.

 

It says South Koreans in 2027 will overtake Japanese in one measure of individual wealth and Taiwanese will do so a year later as delayed digitization in the government and other sectors hampers Japanese productivity.

 

The JCER estimated the economic growth of 18 Asia-Pacific economies through 2035. It also analyzed per capita GDP, a gauge for individual wealth, for those economies.

 

It forecasts that China’s nominal gross domestic product will overtake that of the U.S. in 2033. Last year, the JCER projected this economic eclipse to take place in 2028 if the COVID-19 pandemic were to become a more serious menace or in 2029 if the pandemic were to follow a standard scenario.

 

The center’s latest forecast is for a four- to five-year delay before China becomes the No. 1 economy.

 

The revision comes after the Chinese government tightened restrictions on major internet service providers and other private-sector enterprises, which is expected to slow labor productivity increases. In addition, investment is expected to fall following the introduction of stricter financial regulations aimed at curbing excessive investment in real estate.

 

The latest projection also factors in the U.S.’s rapid economic recovery this year, helped by a massive stimulus package pushed through Congress by President Joe Biden’s administration.

 

As for the wealth realignment along the edge of East Asia, Japan’s nominal per capita GDP stood at $39,890 in 2020, 25% higher than South Korea’s $31,954 and 42% higher than Taiwan’s $28,054. Based on labor productivity, the average number of working hours and employment rates, the JCER now sees Japan falling to No. 3 among these three economies. It forecasts per capita GDP to grow 6% a year through 2025 in South Korea and 8.4% in Taiwan, while Japan limps forward at a 2% rate.

 

The reshuffle is expected to be driven by labor productivity. In the 2020s and 2030s, higher labor productivity in South Korea and Taiwan is expected to push up per capita GDP by more than 4 points, while Japan’s per capita GDP is expected to grow at less than 2 points.

 

The JCER says labor productivity increase will hinge on the success of digital transformations.

 

South Korea introduced a national identification system in the 1960s that now allows residents to make about 1,300 types of applications and procedures by typing their ID numbers into a government portal. The numbers can also be used to take out internet service subscriptions, open bank accounts and make other private sector transactions. When the government provided cash as part of its COVID-19 response, more than 90% of all residents received the payouts within a month.

 

Taiwan is accelerating its digital transformation under the leadership of Digital Minister Audrey Tang. The government portal allows residents to register and file applications at each stage of life, from birth to retirement to death. The site also accepts corporate registrations.

 

Applying for cash payouts or allowances online is said to enable recipients to receive money three to five days earlier than if they were to apply in person, which motivates people to go digital.

 

In contrast, business transactions in Japan remain largely analog. A comparative study of Japan, the U.S. and Germany conducted this year by the internal affairs ministry shows that 25% of Japanese companies’ hanko stamps and signatures on contracts and other documents given to business partners are “not digitized at all.” Among U.S. firms, 25% said these processes have been “fully digitized,” the survey shows.

 

Japan has also been slow to digitize monetary transactions, which account for a large portion of corporate clerical work. Around 10% of companies pay taxes and other public expenses electronically. Most businesses still send employees to banks to make payments.

 

In its report, the JCER sounds a warning: The Japanese economy could fall into chronic negative growth in the 2030s unless it accelerates its digital transformation.

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