Asia's increasing dependence on China

China's economic rise in the past decade is no doubt one of the most significantevents in world economic history. But how long its prosperity will sustain remains questionable.

Despite predictions by economists, such as former World Bank Chief Economist Justin Yifu Lin, that China's economic growth could remain at about 8 percent for another two decades, the world's second-largest economy is now facing severe challenges ranging from colossal amounts of local government debts and high home prices to struggling economic restructuring.

The prospects of China's restructuring reforms, which aim to shift the country's reliance on foreign trade and investment to domestic consumption and innovation, remain blurred. Its success would surely allow China's growth to be more sustainable in the coming decades and make it more competitive in the global economic arena. But if it failed, China could fall into the "middle income trap".

In the era of globalization, China's economic fate will have much bearing on that of other regions, mostly Asia.

According to an International Monetary Fund report released in mid-April, the Asian economy is increasingly dependent on China and less on Japan.

In the Regional Economic Outlook for Asia and Pacific report, the IMF compared how much 11 export-dependent Asian economies depended on Japan and China, first in 1995 and then in 2012.

The report found that in the mid-90s, all 11 relied more on Japan than China as an export market. When it comes to 2012, 10 of those countries were more dependent on China, with the only exception being Indonesia.

Malaysia, for example, sent nearly one-quarter of its exports to Japan in 1995, a proportion that fell to just 6 percent in 2012. At the same time, its reliance on China had doubled to 10 percent.

Although a significant share of Asian economies' trade with China is in parts that ultimately end up getting sold to companies or consumers in industrialized countries, which means the US, Europe and Japan are actually more central than the data might suggest, China's rising influence and Japan's waning luster in the region is an observable trend.

Such a shift of economic prowess in Asia is in line with China's expanding GDP scale. In 1995, China's GDP was about 6 trillion yuan ($9,700 billion). In 2012, it had exceeded 50 trillion yuan.

Japan, meanwhile, has been trapped in continual stagnation after the bursting of its housing bubbles. Lack of strong and effective reform measures, the country has failed to step out of the crisis and struggled with low-level economic growth for years.

The IMF conclusion well reflects the ups and downs of the two Asian growth engines in the past two decades. It also testifies to the challenge facing the United States and Japan as they join hands to contain China's influence in Asia.

That said, such a comparison by the IMF, which aims to show how integrated the Asian economy is, seems misleading. China and Japan are at different development stages. For China, it is still in its economic height after its reform and opening up drive unleashed its growth potentials in the past three decades. It is like the Japan in the 1970s and early 1980s, when Japan's rapid rise in the global economic and corporate arena shocked the western world.

Following the rapid appreciation of the yen and its misguided policies, Japan was hard hit by the housing bubble bust and trapped in prolonged economic meltdown. China now is also facing a number of daunting challenges, such as high home prices and pile-up of local government debt and whether it can properly handle those problems will to a large extent determine its growth track in the coming decades.

China, of course, would not necessarily repeat mistakes made by Japan in the post-revaluation years. But it is set to go through severe tests as it walks the tightrope of balancing growth and reform.