Differences in Economic Policies
of Japan and China
and the Impact on their Respective Societies

by Suren Padmalingam, April 2002



The countries of China and Japan share numerous similarities other than their geographical proximity.  They both have established extremely rich cultures and great senses of national identity.  Their histories have crossed paths during several periods since both civilizations have existed for such a long times.   The countries also share similar religions and value systems, which have influenced each other.  However, despite all of these similarities the recent history of these two countries has caused them to diverge into two very distinct modern civilizations.   A great factor in this divergence is the extreme differences in the evolution of each country’s economic policy.

The Chinese civilization is one of the oldest in the world.  The Xia dynasty, China’s first, existed as long ago as 2200 B.C.  Up until the early twentieth century  China remained a world leader in arts and sciences.  However, famine, civilian uprising, and foreign occupation crippled the nation in years to come.  After World War II,  Mao Zedong installed a communist dictatorship which allowed China to be sovereign but constricted the rights of the people to a great extent.  One of Mao’s successors, Deng Xiaoping allowed the modernization of China to begin around 1978.  He began to move the Chinese economy away from the planned socialism of Mao towards a market socialism which could carry them into the next century.  He began to decentralize economic decision-making while keeping stringent political control.  This led to an enormous growth of GDP, placing China second in world rank behind the U.S.  China continues to contain the largest population in the world, despite efforts to curb population growth by regulating births per family since the 1970s.  China also maintains the world’s largest standing army.   

 Meanwhile,  Japan’s history led the civilization down a much different path.  Because of Japan’s geographical isolation as an island, for much of its history it existed as a closed cell.   After the Meiji restoration in the late 1860s, Japan began to adopt many types of Western technologies which would eventually enable substantial growth.  After being devastated in World War II, Japan began use of a democratic parliament system installed by British and American forces.  For the decades following the war, Japan experienced unbridled growth fueled by an unparalleled collective work ethic, national pride of culture, relatively new found technology, and the government’s ability to collect capital from international sources.  The 1990s saw slowed growth especially in the recession which struck between 1997 and 1998 mostly because of financial difficulties in the Japanese banking system.  However, government spending began to stabilize the economy in 1999.

Japan is home to approximately 1/10 the population of China.  It is technically a constitutional monarchy with the emperor still on the throne acting as a figurehead to maintain a sense of surviving tradition.  Much of the power lies in the hands of business executives and politicians.  Japan’s rugged, mountainous landscape allows for minimal agricultural productivity so economic policy has been an integral part of the country’s unbelievable growth.  Japanese culture instills a strong sense of loyalty to family work and country which is an important intangible.  The Japanese economic boom of the 60s, 70s, and 80s has led to a large accumulation of capital which at first was largely invested in the U.S. but more recently has been invested in neighboring China.  A key to Japanese economic success has been their relatively small dedication of budget to defense around 1%.

For China, philosopher Confucious developed a pattern of thought which was key informing a sense of national identity.  His ideas have had a profound impact on the evolution of Chinese culture, government, and economics.   “He believed in and practiced the highest standards of morality, yet did it all in the spirit of moderation and harmony so admired by the Chinese.”  (Morton, 33).  Although his ancestors may have been aristocracy, Confucious was born into a rather plebeian family in 551 B.C.  He wanted to eliminate the moral relativism of his time.  “In contrast to the spirit of Confucious’s age and to the behavior of those addicted to the pursuit of selfish whims, the gentleman must banish from his conduct and even from his manner or expression anything savoring of violence, arrogance, or impropriety.” (Morton, 37).  Confucious stressed five virtues: humanity, courtesy, honesty, knowledge, and integrity.  This laid the foundation for  a restructuring of the Chinese moral value system.  This foundation still lies under present day China’s heightened sense of morality.

While Confucious’ teachings may have helped structure a stronger moral code in China, it may have actually hindered the evolution of Chinese economics.  First Confucianism stressed agriculture while giving commerce an inconsequential role.  Also, Confucianism saw profit-making as a selfish endeavor making competition in markets almost sinful.   The way of life prescribed by Confucious included renouncing assets and pursuing the Way.  All of these aspects of Confucious’ thought contributed to the inept economy preceding the revolution in China.

On the other hand,  Japan’s value system was formed with an inherent emphasis on refined work ethic.  This value worked to help rather than hinder Japan’s evolution into an Economic Power in the modern world.  The aforementioned sense of loyalty to work stems from an internalized sense of responsibility in Japanese citizens to work for one another’s well-being.  “Here, more than in the family, work is self –validating in the sense of affirming one’s personal achievement and maturity, and in validating one’s belonging and participation in a social group.”(Eisenstadt, 538).  When they are away from their work, they identify themselves as part of their company different to others who work elsewhere.  In this way work is another family-type unit to which the citizen belongs and gains a sense of identity from.  Since family and work are so similarly structured in life, individuals cannot help but equate to some degree their sense of membership to each and relish their ties to each in a similar manner.  The organization and unity of Japanese companies can be seen in rituals performed at work in the morning.  The rituals reinforce the collectivity between co-workers and give the group a sense of belonging.

Differences between Japanese and Chinese economic statistics can be traced to the different economic systems employed by each country.  For example,  the GDP real growth rate in China was about 8%, while in Japan it was 1.3% both for year 2000. (1)   Saving is mostly an individual decision under a market capitalism system similar to Japan’s.  When this decision is left up to the individuals in the economy it usually results in a lower savings rate and, in turn, investment than under a mixed socialist system like China’s.  Chinese government has the ability to control investment rate unlike the capitalist system which deflates the role of government in economic activity.  The discrepancy between these two countries in terms of GDP real growth can also be the result of Japan’s extreme growth in past decades and its leveling off.  China on the other hand still has much room for economic growth even though they too have experienced  impressive growth.  Economic systems’ impact on hard data can also be seen within China’s history

Japan has shown the advantages of the capitalist system in trying to recover from its late 90s recession.  According to the mofa internet source, Japan has helped create new businesses and industries through deregulation. (2) This shows how the economic system’s flexibility allows for further gradual decentralization.  China’s reforms have come through major revolution such as the 1978 revolution which was introduced by government.  This is characteristic of socialist economies in which changes begin through government introduced package reform. 

Japan’s GDP per capita in 2000 was around $24,500 while China’s was around $3600 for the same year. (1)  This can be linked to differences in unemployment rates (China’s was more than double that of Japan) especially in China’s expansive rural areas.

            In 2000, Japan’s inflation rate was negative while China experienced a .4% rate.  This shows the socialist economy government’s ability to control rates more effectively. 

Japan’s international commerce almost doubled that of China in 2000.  This exemplifies the free trade characteristic of capitalism.  Japanese exports totaled $450 billion and their imports totaled $350 million.  Exports include high technology items such as semi-conductors of course motor vehicles, office machinery and chemicals.  Imports include fuels, textiles and foodstuffs due to the rocky landscape. (Agriculture only makes up 1% of Japan’s GDP!)  China on the other hand exports only $232 billion and imports $197 billion.  Exports include footwear, toys, and sporting goods and sporting goods.  Imports include machinery and equipment,  plastics, iron and steel. 

 In China only 26% of the labor force works in the service industry while in Japan a whopping 65% work there.(1)  This could be leftover sentiments from China’s planned socialism economy.  Planned socialism condemns and may even prohibit the service industry and China was no exception.  Not until the late 70s reforms were Chinese workers allowed to maintain jobs in the service industry.  Although it may have grown very quickly this aspect of socialist economies may account for the observed differences in make-up of the labor force.

Differences in standard of living among Chinese and Japanese citizens can also be linked to the countries’ different economic systems.  Because of Capitalism allows consumers more freedom in allocating savings and expenditure, citizens in this type of economy usually get to enjoy more non-essential commercial products.  For example,  even though Japan has 1/10 the population of China, the number of cellular telephones in each country is almost equal.  Japan had 63.88 million cellular phones in 2000 while China had just 2 million more. (1) Also, Japan is home to 86.5 million televisions while China has 400 million. (1)   However, Japan has nearly double the number of broadcast stations of China.  Another indicator of standard of living in the telecommunication  sector is the internet.  Japan had 27.06 million users in 2000 while China had only 22 million in a study conducted in 2001.  (1)    This shows a difference in both the ability to afford internet service and an interest to access the wealth of information available on the net.     Telecommunication usage can show varying standards of living.

Health is the essential aspect of standard of living.  Life expectancy in China is relatively high at 62.3 years (61.2 for males and 63.3 for females). (3)    The population control mechanism implemented by government in 1979 which limited each family to one child .  This is an example of the socialist economy working positively.  The program has dropped China’s population growth to under 1%.  Japan maintains the highest life expectancy of 74.5 years (71.9 for males and 77.2 for females).  Another new indicator of relative standard of living, the Human Development Index includes several factors such as longevity, education, and economic standard of living in it calculation.  Japan ranks 9th,which places it in the high human development category.  China ranks 87th placing it in the medium human development category. China scores significantly lower than Japan in the education value of the HDI .  Free public schooling through junior high is provided for all children in Japan which could be the reason behind the education discrepancy.  Japan’s 99% literacy rate is one of the highest in the world.

The Chinese government implemented a minimum standard of living program in the 1990s.  This is similar to a social security program and helps poverty stricken citizens in urban areas.  This system exemplifies the socialism within the economy.  In 2000 an extension of the program offered unemployment insurance and pension for retired workers.  China also increased investment education, libraries, museums and broadcasting stations.

Although these countries share many things such as geographical location, major religions, philosophies, etc. they have diverged partly due to the different economic systems they have employed throughout their histories.  Both countries have enjoyed tremendous growth in the second half of the twentieth century but their modes have been very different.  Japan utilized a market capitalism which was introduced by America after World War II.  This has led to a present day Japanese culture which in many ways is very similar to American culture.  They have a desire for material wealth, value-added goods and leisure.  Hopefully they will not lose their rich culture and tradition in the midst of economic growth.  China has taken a more conservative approach and has moved from planned socialism under Mao Zedong towards a functional market socialism.  These countries exhibit the impact of an economic system on the people within a country as well as its impact on economic growth 



1. The CIA World Factbook:



4. Eisenstadt, S. N.  Japanese Civilization.  London: The University of Chicago Press, 1996.

5.  Morton, Scott W. China Its History and Culture.  New York:  McGraw-Hill, Inc., 1995.