Can China Overtake Japan and U.S.?
01/13/2006
John Patrick Ford,
San Diego Daily Transcript
China is no longer Public Enemy No. 1 since September 11, 2001, when terrorists took over. It is a third-rate military power and is not a threat to U.S. security. Even Taiwan is not in jeopardy.
These were the opening remarks by Douglas Bereuter, President of the Asia Foundation, speaking to a UCSD Faculty Club group as a guest of the School of International Relations/Pacific Studies. Although China attracts the most attention as a dynamic force in East Asia, the speaker also stressed the important bilateral trading triangle of China, Japan and the U.S.
When questioned how Taiwan fits into the future of the Peoples’ Republic of China, Bereuter opined that it does not want a confrontation with global opinion. However, the Beijing leaders consider the president of Taiwan, and his “illegitimate regime,” to be a wildcard and a dangerous situation for the region.
It’s been two years since I last observed issues in Asia. During this lapse, China was admitted to the World Trade Organization, Japan began a slow recovery from 15 years of fiscal stagnation and Korea evolved into a major global I-T industrial player earning a position as a First World nation.
During this month, my observations on the U.S. in Asia will update prior commentaries to reflect our potent global competitors in the Far East. Let’s start with Japan.
Japan’s prime minister, Junichiro Koizumi, captured international attention with his sweeping re-election as leader of a faltering economy, the second largest in the world. His promised reforms as he assumed control of the dominating political party nearly five years ago are now becoming reality.
Special interest bankers and industrialists resisted Koizumi’s efforts to enforce changes in traditional Japanese business practices. The prime minister’s leadership term seemed doomed to failure until the September national election. It was a surprise political ploy to test Koizumi’s clout and reaffirm his stalled reform agenda.
Sparked by the crushing defeat of his efforts to privatize Japan Post, the county’s largest banking entity, the political maneuver looked risky but awarded the prime minister a fresh mandate to proceed.
“Mr. Koizumi’s victory represents the start of radical change,” reported The Economist. The public finances are a mess, politics are ripe for reform and bank accounting is full of financial distortions, to name only the most urgent issues. The news magazine cites the “dud corporate debt,” reduced in half since 2001, but still estimated at 20 trillion yen ($1.8 trillion) worth of non-performing loans.
Columnist James K. Glassman noted recently that changes are finally happening in the Japanese business culture. Lifetime employment guarantees are over; the Nikkei stock index hit a five-year high; the Tankan confidence index peaked at a 13-year high; deflation is on the way out; the myth of Japanese supremacy in the way of doing business is smashed.
Even American industrialists and government economists are breathing easier since the Japanese model faltered. For a while in the 1980s, fear spread across the land that Japan would conquer America with its industrial clout where its military power had failed.
The tsunami that washed over U.S. shores for property and business acquisitions of American icons, like Rockefeller Center, Hollywood studios and even Yosemite National Park, was chilling. Japanese interests still dominate many U.S. consumer markets. Shortly, Toyota will overtake General Motors in auto production. Japanese financial sources own a huge portion of U.S. debt in the form of Treasury Bills. So, Japan remains a powerful trade partner despite the rise of China and the past decline of Japan’s economy.
Glassman observed that three corporate excesses brought about the long and painful decline of Japanese fiscal health: over-employment, too much capital investment and too much debt. All are now in transition of change.
That apparently fueled the rush of foreign investors to Japan’s stock market. More than $40 billion, two-thirds from North America, were pumped into equities in mid-2005, representing 60 percent of the daily trading on the Nikkei exchange, according to The Associated Press.
On another side of the trade triangle, China’s labor force casts a shadow over worldwide competition. However, some pundits predict the emerging capitalistic culture will begin to slow when demand for product outpaces capacity to supply due to the archaic communist scheme of one-child-per-family, somewhat modified today. Another potential growth block could be the insatiable demand for oil as the Chinese become motorized and industry expands.
American banks and credit associations might take a page from the book of Japanese dismal fiscal policies that kept the nation in deflation for 15 years. Until the financial institutions cleaned up their non-performing loans, the nation’s economy and currency languished in the doldrums. The growing U.S. trade deficit, huge consumer debt and the prospect of a falling housing market all combine as a threat of recession, despite the repeated forecasts of a sound economy.
Editor’s note: The next commentary in this series examines the prospect of unification on the Korean peninsula.
Ford is a freelance writer located in San Diego. He can be reached at johnpatrick.ford@sddt.com.
