Skip to main content

In this Feb. 3, 2010 file photo, a shopper listens to a salesclerk in front of flat-panel TVs at an electronics store in Tokyo. Japan's economy stumbled in the last three months of the year, contracting for the first time in five quarters. Gross domestic product shrunk at an annualized rate of 1.1 percent in the October-December period, the government said Monday Feb. 14, 2011.

Shizuo Kambayashi/AP/Shizuo Kambayashi/AP

For Asia's two biggest economies, a role reversal long in the making is now becoming more deeply entrenched.

In a measure of the power shift unfurling in Asia, foreign markets barely reacted on Monday to Japan's fourth-quarter economic contraction, while China's trade numbers moved currency, commodity and equity markets around the world.

The two countries continue to follow sharply divergent economic paths, the latest economic data show. While China posted unexpectedly strong trade numbers and cemented its rank as the world's second-largest economy, Japan's economic picture darkened. But like most of the rest of the world, Japan is counting on China's powerful economic engine to carry it to brighter days.

Story continues below advertisement

China's exports soared 37.7 per cent last month to $150.7-billion (U.S.) from a year earlier and imports grew at an even faster clip, climbing 53.5 per cent to $144.3-billion, easily surpassing analysts' estimates.

As a result, China's trade surplus fell 55 per cent to $6.45-billion, the third consecutive monthly decline and the smallest level since last April. A narrowing trade gap driven by sharply higher imports could ease pressures on Beijing to revalue its currency, analysts noted.

The surge in both exports and imports triggered a commodities buying binge on Monday from speculators who took it as a fresh signal of a relatively sturdy global recovery and of China's own domestic expansion. Imports of iron ore, by volume, shot up 47.9 per cent from a year ago, while copper imports rose 24.7 per cent, even amid rocketing prices. The demand for iron ore directly follows the removal of curbs on steel production at the end of 2010.

Yet Chinese trade numbers in January and early February are notoriously volatile, as manufacturers rush to complete shipments in advance of the Chinese New Year holiday. This also tends to make the statistics unreliable as a gauge of how the rest of the year will play out.

"The January numbers are always a little bit wonky, because of the [Chinese]New Year," said BMO Nesbitt Burns economist Benjamin Reitzes. "People rush to get shipments out … before the holiday. Looking just at January's numbers is always risky. I wouldn't put too much into them."

But more than the usual holiday rush may be involved this time, other analysts said.

"The doubling of import and export growth between December and January seems to reflect not only the usual volatility around Chinese New Year but also confidence among manufacturers about the prospects for global demand," Mark Williams, senior China economist with Capital Economics, said in a note to clients.

Story continues below advertisement

One factor driving booming imports was demand from the processing industry, a key indicator for export demand, Mr. Williams said. The import number "seems to owe more to manufacturers' perception that global demand is picking up than to developments at home."

That's music to the ears of Japanese policy makers, who need strong demand from China and other key growth markets to pull the Japanese economy out of its funk.

"As a neighbouring country, China's economic progress is welcome," Kaoru Yosano, State Minister responsible for Economic and Fiscal Policy, told reporters on Monday. "We want to further deepen good relations between Japan and China."

This followed the news that China has officially passed Japan as the world's second-largest economy, a ranking Japan held for more than 40 years. Figures released by the Japanese cabinet showed that the country's nominal gross domestic product rose last year by 1.8 per cent to $5.47-trillion (U.S.). China's total amounted to $5.88-trillion.

China's passing of Japan in nominal GDP is "a non-story," Mr. Reitzes said. "It was just a matter of time."

Far more troubling for policy makers in Tokyo was the news that Japan's economy shrank 0.3 per cent in the fourth quarter from the previous three months - or 1.1 per cent on an annual basis - marking the first such decline in five quarters.

Story continues below advertisement

But this came after the expiry of incentives designed to boost domestic consumption. And the contraction was smaller than analysts had feared. Several have now upgraded their economic forecasts for 2011.

Japan should "break out of its economic lull" in the first half of the year, Takahide Kiuchi, chief Japan economist with Nomura Securities in Tokyo, said in a revised outlook. He had earlier predicted the pickup would not begin until the second half.

Report an error Licensing Options
About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.