Is China the Next Japan?
By Josh Gartner
For years economists have wondered whether the inevitable rising power of China was similar to Japan in the 1980s. If you remember (and that requires you to be over 22), people used to think that Japan was an unstoppable beast destined to take over the world. Movies and popular media frequently made reference to this, of in now-comical ways.
Among some of the most notable examples of this frenzy were Gung Ho (Ron Howard’s film), the scene in Back to the Future II when old Marty is talking to his Japanese bosses, and the hilariously out of date Rising Sun, which was a Michael Crichton book, turned into a movie only after Japan’s downfall had already become clear. The popular theory was that Japanese people were more dedicated to their work, and willing to put in longer hours than people in the West. This gap in work ethic meant that Japan was an unstoppable force in the global economy, and that we would all soon be working as mannies in Tokyo. As it turned out, Japan was able to maintain its place as a superpower economically, but it is hardly hegemonic the way that people expected. People in the West were not quite as lazy as we thought (shout out to the French 35-hour work week. Way to continue to promote the theory!) Japan does not own the US or Europe. On the contrary, they are still digging themselves out of a decade-long recession that actually saw deflation, something rarely seen since the Great Depression.
Experts will generally tell you that China is a completely different situation. The common argument is that the sheer population size of the country makes it an inevitable economic power. However, it seems like this point, in isolation, falls flat, otherwise China surely would have become an economic titan years ago.
The second point is that the driving force is not only population. Rather the (relatively) newly open economy has helped shed the chains of communism that previously held the country back. In combination, these two factors are propelling China ahead of the pack.
Yet for all of the rhetoric that China is the heir apparent to economic hegemony, there has been no shortage of reporting on the problems with its current policies. Most notably poor safety regulation, IP piracy (which hinders innovation), and the developing environmental disaster, all serve to set back the recent economic push. These factors should be tamping down on what some might label irrational exuberance.
Perhaps even more compelling is lack of underlying logic to why China will dominate the global economy (whereas there was a case with Japan, even thought the theory proved flawed). While there are Chinese entrepreneurs who have shown a knack for innovation and even brilliance, the greater work force shows more remnants of communistic tendencies than signs of a dynamic work ethic.
China backers will make the case that Japan’s unprecedented rise was based largely on an illusion, namely the absurdly inflated property prices that created vast amounts of paper money and spurred poor investment decisions. When this bubble burst it brought reality to the markets, and made Japan’s place as a strong, but not dominant economic player, all the more apparent.
It should be pointed out that China also shows signs of major flaws in its economy. Many have argued that there is a property bubble, although not on the scale of Japan in the 1980s. It has rampant corruption, fueling both the property problem as well as the massive amounts of NPLs (non-performing loans) that continue to raise red flags in the banking industry. And finally China’s economic system is not developed enough to reign in economic growth to curb inflation. Interest rates are essentially irrelevant when loans are not made on economic criteria.
None of this is to say that China will not become a major player in the world economy. Clearly it already has and there is no reason to believe that even a precipitous collapse, something that seems unlikely, would be so devastating the country could not recover. South Korea, for example, is in a strong position only ten years after an unmitigated disaster.
The question is not about whether China will be a power, it is about if the country will become an economic hegemon.
Josh Gartner, China Expat
October 1st, 2008 at 8:59 am
I agree with the majority of what you said — but let me through this at you: What about China as the next Singapore?
It’s attitude towards gov control of industry certainly makes the parallel interesting.
October 3rd, 2008 at 4:26 pm
Josh:
“otherwise China surely would have become an economic titan years ago”–China was indeed an economic titan years ago, before the year 1750. The sheer size (population/labor/talent, land, natural resources) of the country does make China a formiddable economic force. China had been mis-managed for centuries and it takes time to change the tide. Many of the problems in China that you’ve pointed out are the processes, not the ends.
What you should have said to prove your point is that the economy in China is still largely dependent on the policy makers. While the current batch of leaders (and the last couple batches as well) are seeming savvy in guiding the country, there is no guarantee that this will continue. Actually, even in a democratic society, this doesn’t hold true (look at 1990s Japan, and George W. Bush!). But more so in a political system like China, the fragile growing economy is more sensitive to policy shift and a lot is riding on what the future Chinese leaders would do. So far, all signals are still positive.
LW
October 7th, 2008 at 5:46 pm
China will not be the next Japan, look like the next Japan, nor any other Asian country. It will appear as the United States through a Communist, Leninist, lens and it will dominate resources, issues, large strategic regions and it will both placate and frustrate Washington D.C.
October 11th, 2008 at 5:44 am
After the 2nd world war, Japan started off modestly in 1950-1960 as copy-cat cheap goods. Today, Japan brand such as Sony, Toshiba, Toyota, etc all command a premium with high quality products.
The next wave, Korea & Taiwan. If you could recall, cars made in Korea such as Hyundai are cheap but un-reliable. Today Hyundai is producing high quality saloon cars, with high quality and featurs but yet at a very competitive price. Look at Samsung mobile phones, I am all appreciate the rich featurs and stylish design at competitve price. Taiwan is dominating the world “quitely” with a lot of ODM and OEM products.
Now China is the manufacturer of the world. Many of the Chinese exports are to the 3rd world countries. TCL, ChangHong, Haier (LCD) TVs are not very well know, but they do sell in high volume.
Look at Huawei, a vendor of Communication infrastructure equipment, sometime also known as Cisco of China, with 50% of their revenue from overseas.
In short, China is evolving from a labor intensive economy, into high-tech, high value added econmy. Today, China is putting tremendous effort in building up branding (like Lenovo buying over IBM Thinkpad) and IPs portfolio (like setting up her own 3G network - TD-SCDMA).
Given another 20 years, China will be a econmic super power.
Regards …. Hing Nan
October 13th, 2008 at 9:32 am
Agree with most of the responses here. Josh, just give it a bit of time, once China has a developped a middle class roughly the size of the US, you will notice the country will have the resources and future potential to be the economic power. You will see the day, no worries…
November 4th, 2008 at 8:15 am
It brings me reminicenses of the past, at the beginning of the 80s, whenever we travelled to China to visit the relatives still here, we used to ask them, what would you want us to bring you ?, they were then so poor and lacking of everything that they just shrugged and said, anything will do.
In the mid 80s, the trend was then to own ‘refrigerator, television, washing machine’, this was same in every household.
End of 80s, the trend was to own a motorcycle for each household.
Beginning of 90s, their basic needs have already been fulfilled and they suggested us to bring them perfumes and chocolates and biscuits.
Mid 90s, they wanted to try and taste champagne, shark fins….
Now whenver I come to visit, I bring in a few bottles of wine, sometimes South-African ones, sometimes Spanish or Portuguese, French ones too.
I think that the evolution has been so quick, the changes taking place inimaginable for someone who hasn’t experienced it.
So all these individuals make up a country, they are each trying to improve their livelihood and working hard to guarantee a better tomorrow for their children, and I think it is improper to draw a parallel of this with other prototypes like Japan or Korea or even Europe, I do not mention the USA because they have never been invaded and have never experienced what it is to reconstruct a country and rebuild a nation.
China is a mosaic of individuals, they belong to planet earth same as you, I do not think there is a need to categorize them or label them, by doing so you are making them different.