Thirty years ago, Japan was growing so quickly that some predicted it would overtake the United States, while China’s economy was small and closed. Much has changed. China has overtaken Japan as the world’s second largest economy, but as China shifts to a “new normal” of lower growth, observers are increasingly concerned that it may no longer serve as the world’s economic engine. Meanwhile, proactive Japanese economic policy has renewed interest in Japan’s prospects. In this presentation delivered at a recent Asia Financial Forum in Seattle, Cindy Li and Sean Creehan explain how China and Japan impact the global economy.

1. China and Japan: How Asia’s
Economic Giants are Shaping
the Region’s Outlook
Sean Creehan and Cindy Li
March 2, 2016
Country Analysis Unit
Federal Reserve Bank of San Francisco
“The opinions expressed in this presentation are statements of the speaker's opinion, are intended only for informational purposes, and are not
formal opinions of, nor binding on, the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System.”

2. Japan’s Economic Performance is
Better Than You Think
Source: OECD
In fact, it’s the highest among the G7
over this period if you adjust for the
size of the working age population
-2.0 -1.0 0.0 1.0 2.0 3.0
Germany
Japan
Canada
United States
United Kingdom
France
Spain
Italy
Real per capita GDP growth in the G7 (%)
2000-2014 average
2010-2014 average

3. Demographics a Constraint,
Productivity Lags
58
60
62
64
66
68
70
72
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Working Age Population Aged
15-64 (% of population)
Source: OECD
0
10
20
30
40
50
60
70 GDP per hour worked
(US$ constant 2010 prices)
Japan Italy
United Kingdom Canada
Germany France
United States

4. Japan Goes Out
Source: United Nations World Investment Report, June 2015
-100
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014
Outbound FDI flows
(US$bn)
United States Hong Kong, China
China Japan
Germany Canada
France Italy
United Kingdom
0 5000 10000
United States
United Kingdom
Germany
Hong Kong, SAR
France
Japan
China
Canada
Italy Outbound FDI Stock
(US$ bn as of end-2014)

5. China and Japan’s Evolving Roles
in the Global Economy
United
States
25%
Japan
17%
China
3%
Europea
n Union
31%
Rest of
World
24%
1995
United
States
24%
Japan
6%
China
16%
Europea
n Union
22%
Rest of
World
32%
2015
Source: International Monetary Fund.

6. -2
0
2
4
6
8
10
12
14
16
1995 2000 2005 2010 2015 2020
Successful reforms:
4-6%
"Lost decade": 1-3%
Hard landing:
negative growth
China’s New Normal:
The Good, the Bad, or the Ugly?
Real GDP growth (%)
Note: The three scenarios are taken from a recent survey by the Council on Foreign Relations.
Sources: International Monetary Fund, Council on Foreign Relations.
IMF projections
(As of 10/2015)

7. One Country,
Two Business Climates?
6.1
8.2
0
2
4
6
8
10
12
14
16
18
20
2005 2007 2009 2011 2013 2015
Industrial sector Tertiary sector
YoY growth rate, %
Sources: Chinese National Bureau of Statistics, Chinese Ministry of Commerce.
66.2
21.5
0
10
20
30
40
50
60
70
80
90
100
2005 2007 2009 2011 2013 2015
(est)
Consumption Investment
Contribution to GDP growth, %

8. Cold Politics, Warm Economic Ties?
2015:
25.3%
0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015
(est)
Chinese visitors, % of total foreign tourists
traveling to Japan
Sources: Japan Tourism Marketing Co., Japan Bank for International Cooperation.
53.7%
9.1%2.6%
27.0%
7.0% 0.6%
Produce in China (to sell in China)
Produce in China (to export to Japan)
Produce in China (to export to other countries)
Produce in China (both selling in China and exporting)
Have sales operations in China but no production bases
Others
China's importance for large
multinatioal Japanese manufacturers
Share of companies surveyed that...

9. China and Japan’s importance
in regional trade (2014)
Source: Asian Development Bank.
China Japan
Rank as an
export
destination
Rank as an
import origin
Share of
exports (%)
Rank as an
export
destination
Rank as an
import origin
Share of
exports (%)
Japan 2 1 18.3 - - -
Hong Kong 1 1 53.9 3 3 3.6
Korea 1 1 25.4 3 2 5.6
Singapore 1 1 12.6 6 6 4.1
Taiwan 1 1 26.2 5 2 6.3
China - - - 3 1 6.4
India 4 1 4.2 15 18 1.8
Indonesia 2 1 10.0 1 3 13.1
Malaysia 2 1 12.0 3 3 10.8
Philippines 3 1 12.9 1 3 22.5
Thailand 1 1 11.0 3 2 9.6
Vietnam 2 1 10.4 3 3 10.3

10. 1990 Japan vs. 2014 China
1990 Japan 1990 USA 2014 China 2014 USA
GDP Per Capita, PPP
(Constant 2011 international $)
29,550 37,062 12,609 52,118
Urban population (% of total) 77 77 54 81
Services value added
(% of GDP)
59.8 -- 48.2 78.1*
Household final consumption
(% of GDP)
53 64 36* 68
Source: World Bank Development Indicators
*2013 figure
Sources: International Monetary Fund and World Bank.

11. TPP vs. RCEP
Source: Center for Strategic and International Studies.

12. Asia Infrastructure Investment Bank
Source: China Daily

13. Thank you!
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