China and Japan for case solvers
A manufacturing giant with flat prices and a shrinking population, and a rich, old economy where prices and rates are rising: the numbers, the state, and what they mean in a case.
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Key takeaways
- China is the world's second-largest economy, growing about 5 percent in 2025 with flat consumer prices, a shrinking population and a government push to raise household spending.
- China: manufacturing for the home market and for export (electronics, machinery, electric vehicles and batteries), consumer goods and e-commerce, banking (mostly state-owned), and infrastructure.
- Japan: cars and parts, machinery and robots, electronic components and semiconductor materials, retail and convenience stores, and healthcare and care for older people.
- China: the state sets direction through five-year plans and owns large companies in banking, energy, telecoms and transport.
Key idea
China is the world's second-largest economy, growing about 5 percent in 2025 with flat consumer prices, a shrinking population and a government push to raise household spending. Japan is rich and old: almost a third of its people are 65 or over, and prices and interest rates are rising after many years near zero.
Size and growth
| Economy | GDP 2025 (USD billions) | Real growth 2025 (percent) | Real growth 2026, projected (percent) | GDP per person 2025 (USD) | Population 2025 (millions) | Inflation 2025 (percent) |
|---|---|---|---|---|---|---|
| China | 19,626 | 5 | 4.4 | 13,970 | 1,405.1 | 0 |
| Japan | 4,435 | 1.2 | 0.7 | 35,970 | 123.3 | 3.2 |
Source: IMF World Economic Outlook database, April 2026 (2025 values are IMF estimates; 2026 values are projections), checked 2026-10-01. GDP in current US dollars at market exchange rates.
So-what
China is more than four times Japan's size in dollars, but a Japanese person produces about two and a half times as much as a Chinese person.
China's statistics office put 2025 GDP at 140,187.9 billion yuan, up 5.0 percent in real terms, and retail sales of consumer goods at 50,120.2 billion yuan, up 3.7 percent. The IMF's July 2026 update projected 4.6 percent growth for China in 2026, after a strong first quarter driven by public infrastructure, high-tech manufacturing and exports while household spending stayed soft. For Japan it projected 0.6 percent growth in 2026, with government support partly offsetting higher energy prices.
Structure of the economy
China is a manufacturing giant: by the World Bank's 2025 figures, industry is 35.6 percent of GDP and manufacturing alone 24.7 percent, against services at 57.7 percent and agriculture at 6.7 percent. Exports equal 21.1 percent of GDP, so the home market matters more than many people assume. Japan is a services economy (71.4 percent of GDP in 2024) with a strong manufacturing base (18.8 percent of GDP in 2024) in cars, machinery, electronic parts and materials.
Sectors that come up
- China: manufacturing for the home market and for export (electronics, machinery, electric vehicles and batteries), consumer goods and e-commerce, banking (mostly state-owned), and infrastructure.
- Japan: cars and parts, machinery and robots, electronic components and semiconductor materials, retail and convenience stores, and healthcare and care for older people.
Consumers and income
China's population fell by 3.39 million in 2025 to 1,404.89 million, and the World Bank recorded a fertility rate of just 1.01 births per woman in 2024; 14.9 percent of people are 65 or older. Disposable income per person averaged 43,377 yuan in 2025, with a wide gap between urban residents (56,502 yuan) and rural residents (24,456 yuan). Japan is far older: 30.0 percent of its people are 65 or over, 11.2 percent are under 15, and 92.3 percent live in urban areas.
In 2025, disposable income per person in China was 56,502 yuan for urban residents and 24,456 yuan for rural residents. How many times the rural figure is the urban figure?
The state and the regulators
- China: the state sets direction through five-year plans and owns large companies in banking, energy, telecoms and transport. Key bodies: the People's Bank of China (central bank), the National Development and Reform Commission (planning and big projects), the State Administration for Market Regulation (competition and product rules) and the Ministry of Commerce (trade and foreign investment). Foreign investment is open except in sectors on a published "negative list".
- Japan: the Bank of Japan (central bank), the Ministry of Economy, Trade and Industry (industry and trade policy), the Financial Services Agency (banks and markets) and the Japan Fair Trade Commission (competition).
What changed in 2024 to 2026
- China's legislature approved the 15th Five-Year Plan (2026 to 2030) on 12 March 2026; the government said it aims for "a notable increase" in household consumption as a share of GDP.
- China's consumer prices were flat in 2025 (IMF: 0.0 percent inflation), so companies could not grow revenue through price rises.
- Japan's prices rose 3.2 percent in 2025 (IMF), and the Bank of Japan kept raising its policy rate, to around 1.25 percent from 24 September 2026, citing wages, the weaker yen and higher oil prices.
What this means in a case
- In China, growth must come from volume, share and new products, not price. With flat prices and many rivals, check whether a growth plan assumes price rises the market will not accept.
- Policy sets the direction in China: a sector named as a priority in the five-year plan gets support and new rivals; a sector on the negative list may be closed to foreign owners. Ask about the rules early.
- In Japan, the customer base is shrinking and ageing, and workers are scarce: growth comes from older customers, premium products and price, and costs fall through automation. Higher interest rates now change the sums for property and acquisitions.
Japan had about 123.3 million people in 2025 (IMF), and 30.0 percent were aged 65 or over (World Bank). Roughly how many people aged 65 or over is that, in millions?
A client's plan for China assumes 5 percent price rises each year. Why should you question it?
Sources for this lesson (14)
- IMF World Economic Outlook database, April 2026: GDP at current prices, USD billions (IMF DataMapper, indicator NGDPD)
- IMF World Economic Outlook database, April 2026: real GDP growth, annual percent change (IMF DataMapper, indicator NGDP_RPCH)
- IMF World Economic Outlook database, April 2026: inflation, average consumer prices, annual percent change (IMF DataMapper, indicator PCPIPCH)
- IMF, World Economic Outlook Update, July 2026: "Global Economy in Crosscurrents of War and Technology" (Table 1 and text)
- National Bureau of Statistics of China, Statistical Communiqué on the 2025 National Economic and Social Development, 28 February 2026
- The State Council of the People's Republic of China, "China's national legislature holds closing meeting of annual session", 12 March 2026
- The State Council of the People's Republic of China, "China to boost consumption, residents' income", 5 March 2026
- World Bank, World Development Indicators: services, value added, percent of GDP
- World Bank, World Development Indicators: industry (including construction), value added, percent of GDP
- World Bank, World Development Indicators: manufacturing, value added, percent of GDP
- World Bank, World Development Indicators: exports of goods and services, percent of GDP
- World Bank, World Development Indicators: population aged 65 and above, percent of total (2025 values)
- World Bank, World Development Indicators: fertility rate, births per woman (2024 values)
- Bank of Japan, "Change in the Guideline for Money Market Operations", September 18, 2026
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