China is certain to finish as the worlds second-largest economy this year, leaving Japan in the dust. China overtook Japan in second quarter GDP by 48.6 billion U.S. dollars and its GDP will surpass Japans by 300 billion dollars by the end of this year. Thirty years after adopting market reform and opening policies, China has clearly become a superpower in all facets, including economy and diplomacy, with its economy growing 90-fold.
Though China was the worlds seventh-biggest economy 10 years ago, it climbed to No. 3 in 2007 to beat Germany for third place and surpassed Japan this year. Global institutions project that China will become the worlds largest economy between 2020 and 2025 and consequently form a Big 3 with the U.S. and India. China has turned into the worlds market" in going beyond its reputation as the worlds factory despite warnings that it will push the global economy into crisis in 10 years, when its growth bubble is expected to burst.
Japan lost the No. 2 spot for the first time since it surpassed West Germany in 1968. Japans low growth has much to do with the long-term recession triggered by the collapse of its real estate bubble. It aspires to make another leap forward with a new growth strategy that aims for real annual growth of more than two percent by 2020. The strategy plans to focus the nations resources in the environment and welfare, the most promising sectors, and link their development with economic growth. Its areas of focus largely coincide with those chosen as new growth engines by Korea, indicating an inevitable competition in the global market.
Korea must take better advantage of the Chinese market. Last year, exports to China accounted for 23.9 percent of Korean exports, larger than those to the U.S. (10.4 percent) and Japan (six percent) combined. To secure a market foothold before its competitors, Seoul must sign a free trade agreement with Beijing. Therefore, Korea should derive a collaborative model suitable for the complementary industrial structure of both nations in this years non-official contact followed by negotiations to begin next year. Free trade between Korea and China could potentially expand to include Japan in forming a trilateral economic community.
The Korean economy lacks a mid- to long-term growth strategy. It will be challenging for Korea to overtake China just by tackling the immediate crisis. Koreas system of a five-year presidential term forces the government to focus only on visible performance, and policy direction can be easily changed by the next administration. Debate over economic issues often turns into an ideological conflict by political forces. With a nearsighted vision that does not see beyond the next 10 years, Korea could be doomed to remain in the shadow of global economic powerhouses such as China and Japan.