Editorial: Japan's Floundering Deep-Water Reform a Lesson for China
Asia’s two biggest economies have recently seen their leaders reelected or be set to be reelected for another term.
The Communist Party of China last week announced Xi Jinping will continue to be the party leader, though five new faces have been added to China’s top decision-making body, the seven-member Politburo Standing Committee.
Japanese Prime Minister Shinzo Abe is expected to remain leader of Japan after the ruling bloc’s overwhelming victory in the general election a week ago. The result reflects not only the public’s desire for a stable government when faced with external security threats, but also the Japanese people’s support for Abe’s economic policies.
Japan has deeply influenced China’s development over the past decades, providing financial aid and technological transfers in the early years of China’s steps toward the market economy. Japan’s path to becoming a world-class manufacturer has also been closely studied and followed by Chinese officials. Traces of Japan can be seen from China’s development strategy, the export-oriented economic model, to the structure of government departments and financial institutions.
In recent years, China’s industrial, housing and foreign exchange policies have been topics for heated debate. Chinese government officials and scholars often try to learn lessons from Japan’s experience.
Chinese people’s perspective on Japan has been undergoing significant changes in recent years as China’s GDP overtook Japan in 2010, and the two countries’ diplomatic relationship turned cold. However, the importance of an objective and accurate understanding of the neighboring country has never diminished. In China’s pursuit of modernization, Japan’s successes and failures can still serve as good lessons. The Abe government’s economic reform, for example, can be a good mirror for China’s so-called supply-side reform that aims at upgrading the country’s manufacturing and services.
When Abe was reelected to become prime minister in 2012, he put out a series of economic reform plans, known as Abenomics, which focused on “three arrows” of monetary easing, fiscal stimulus and structural reforms to boost long-term economic growth. His policies, especially the first two “arrows,” have had an impact.
The new round of recovery starting from December 2012 has lasted 58 months. That’s longer than Japan’s historic expansion period “Izanagi boom” between 1965-1970 and second in ranking only behind the 73-month long expansion period of 2002-2008. The unemployment rate has been reaching the lowest point since the housing bubble burst in 1990. The stock market is also bullish.
Abe’s most significant reform is deregulation. In agriculture, a longtime restriction has been lifted, and companies are allowed to obtain ownership of farm land. Restrictions on visa policy have also been relaxed in order to revitalize tourism. Abe also shows strong support for free trade, reaching a free-trade agreement with the European Union. Taxes on companies have largely been reduced. Workers have been moving to Tokyo and other major cities. Senior foreign experts can even obtain permanent residence permit in Japan after living there for a year.
The five years of economic reforms have been bearing some fruit in Japan. But some deep-rooted problems have yet to be tackled. The third “arrow,” structural reform, is the key. But the progress in this area is not satisfactory. The labor market is still too rigid, with the traditional focus on the longevity of career buildup remaining unshakable. “Same work, same pay” is still a slogan. Less than 8% chief executives at Japanese companies are women. Japan is also facing obstacles in opening up agriculture.
The Japanese economy is facing serious challenges in the mid and long term. The central bank’s “quantitative and qualitative easing” that was aimed at achieving a 2% inflation target has not been showing the hoped-for results. The deflation that has been troubling Japan for a long time has not been dispelled. According to data from the OECD, the Japanese government’s debt-to-GDP ratio has reached 250%. Such a high level of debt is not sustainable. The government’s plan to achieve fiscal balance has also been questioned, as it has limited space to cut taxes, and the plan to raise the consumption tax has been repeatedly delayed because of strong opposition. Also, how much growing labor productivity can alleviate the impact of the aging population remains unclear. And there is no answer as to how to raise enough money for increasing social security expenditures.
The major lesson China can learn from Japan is that reforms should be undertaken as early as possible, because it will be much more difficult to make any changes if the interest structure of society has become stratified and hardened.
The political tension between China and Japan has spilled over to affect bilateral trade and investment relations. But Chinese tourists’ strong appetite for Japanese-made products, from cosmetics to home appliances, indicates Chinese consumers’ growing demand for high-quality Japanese products. As the Chinese economic transformation unfolds, Japanese enterprises will face new opportunities in the huge Chinese market.
Meanwhile, Japanese companies have also shown great interest in cooperating with their Chinese counterparts in innovative technology and services such as online payment and bike-sharing businesses. There will be room for closer Sino-Japan cooperation under the China-driven framework of the One Belt and One Road initiative and the Asian Infrastructure Investment Bank, as long as the bilateral political tension eases. There is also the opportunity that the two countries can join hands to fight against a common commercial rival. Next year marks the 40th anniversary of the signature of the Treaty of Peace and Friendship between China and Japan, which laid the foundation of the bilateral partnership. We hope the two countries to improve their bilateral relationship to pursue further cooperation in trade and commerce. China and Japan are facing similar challenges in terms of demographic structure and industrial transformation, although the two countries are at different stages of development. As a developed country, the path taken by Japan will continue serving as a good lesson for China in its journey to pursue balanced development and its people’s well-being.
Hu Shuli is editor-in-chief of Caixin Media.
The Editor-in-Chief of Caixin Media.
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