Hungry Dragon - Tasty Japan: China's Growing Economic Might

By Scott B. MacDonald

Japan has long been the major economic power in Asia. Indeed, it can be said that Japan’s national identity is closely related to its economic achievements in the postwar era. While Japan’s leaders squabble over political rules and the economy remains troubled, China is rapidly making gains on Tokyo’s once dominant position as Asia/Pacific’s economic leader. Entry into the World Trade Organization is freeing Chinese manufacturers to offer fierce competition in many global markets that Japan has long felt secure. Although still lagging in technology, Chinese companies are poised to rapidly catch up. China is a clearly a rising power determined to flex its muscles and enlarge its sphere of influence in the region. This is a process that will come at Japan’s expense. It should be remembered that China’s foreign policy is driven by how to further modernize its economy.

Japan should wake up to the challenge represented by China. This year there have already been a number of trade disputes. As cheaper agricultural Chinese goods (mainly shiitake mushrooms, scallions and rushes) have sought entry into highly protected Japanese markets, Tokyo moved to impose high tariff duties. China responded in kind. Chinese exports of fresh and frozen vegetables have significantly increased, reaching 632,000 metric tons in 2000, nearly doubling the figure for 1996. The simple fact is that Chinese veggies have a greater price competitiveness as well as having an improved quality, partially due to the guidance of Japanese companies. Japanese farms, in contrast are small in terms of acreage and their farming methods are cost intensive. Although Japan and China agreed to scrap the punitive tariffs on each other’s goods in December, Tokyo was served notice that Beijing will be assertive in penetrating Japanese markets.

More tensions over trade can be expected as China continues to develop and modernize its economy. Consider the following:

• China has the seventh largest economy in terms of world trade, is joining the World Trade Organization, and is pushing other Asian nations to take its cheaper-made exports.
  
  
• China is expected to have around $200 billion in foreign exchange reserves by year-end, one of the highest levels in the world.
  
  
• A number of analysts believe it will not be long before Chinese firms move to acquire Japanese companies;
  
  
• Chinese companies are actively investing abroad, overtaking Japanese counterparts to become the largest investor in manufacturing firms in Malaysia with total investment of $7.63 billion in the first eight months of 2001.
  
  
• Chinese investment in Thailand was 69 times greater in January-September period than in the entire previous year.

Japan must wake up to the competitive challenge emerging from China. China is already the "workshop of the world", making everything from Christmas tree ornaments and screw-drivers to AK-47s and satellites. China’s industrial infrastructure is gradually moving upscale to include electronics, semi-conductors and cell-phones. The Nikkei Weekly’s headlines on November 26, 2001 heralded: "China Adds Software to Export Arsenal". The Japanese newspaper stated: "Now the Middle Kingdom is set to rock Japanese industry even more by exporting software." There is even talk of further developing the local Chinese automobile industry with an eye to export. The message for Japan is clear — as long as the country’s leadership struggles with repairing the economy, China will make many gains at its expense.

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Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editor: Dr. Jonathan Lemco, Director and Sr. Consultant

Associate Editors: Robert Windorf, Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Uwe Bott, Jonathan Lemco, Jim Johnson, Andrew Novo, Joe Moroney, Russell Smith, and Jon Hartzell

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