Chinese Demand Is Driving Japan Growth, Cabinet Economist Says

By Toru Fujioka and Tatsuo Ito

Aug. 24 (Bloomberg) -- Demand from China, the world’s fastest-growing major economy, is helping pull Japan out of its deepest postwar slump, a top Japanese government economist said.

“There’s no mistake that China’s economic recovery is contributing to a rebound in Japan and other economies in the region,” Tomoko Hayashi, director for overseas economies at the Cabinet Office in Tokyo, said in an interview on Aug. 21.

Manufacturers from Honda Motor Corp. to Komatsu Ltd. benefited from China’s 4 trillion yuan ($585 billion) stimulus last quarter, helping Japan’s economy expand for the first time in more than a year. Exports to China, which overtook the U.S. to become Japan’s largest overseas market this year, are offsetting weak spending by consumers and companies at home.

Japan’s “economic recovery will continue to rely largely on foreign demand and economic stimulus through the second half of 2009 and into 2010,” said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc.

Hayashi said China may overtake Japan as the world’s second-largest economy next year, citing International Monetary Fund data.

“I see a high possibility China’s GDP will surpass Japan’s in 2010 and I wouldn’t rule out it happening this year,” Hayashi said.

China, the world’s third-largest economy, grew 7.9 percent in the second quarter from a year earlier. Gross domestic product will expand 8.1 percent this year and accelerate to 9.1 percent in 2010, according to the median forecast of 16 economists surveyed by Bloomberg News.

Honda Growth

Honda, Japan’s second-largest automaker, will build about 90,000 vehicles more than initially planned in response to higher-than-forecast sales from emerging markets including China, Chief Financial Officer Yoichi Hojo said this month. Komatsu, the world’s second-largest construction machinery maker, said in June sales in China were better than it expected as stimulus measures fueled demand.

Hayashi said it’s too early for China to become the driving force of global growth given that the U.S. and Europe account for half of the world’s GDP, while China makes up 7 percent.

Hayashi said the recent upturn in China’s economy doesn’t signal it’s overheating. Housing prices rose 1 percent nationwide in July, which “isn’t diverting from fundamentals at all” given second-quarter growth, she said.

“China isn’t in a bubble,” Hayashi said. “China will remain a driving force for Japan’s economy.”

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Tatsuo Ito in Tokyo at Tito2@bloomberg.net