China the New Japan
There are two central aims of assessment via presentations. Firstly students have to engage
in serious in-depth research on a, for most of them, novel topic. Aim is that the research can
be done in a way, which allows the production of well-written supporting documents from
which then a presentation can be derived. Secondly the presentations challenge students to
deliver in a concise and appealing matter. Each student required to give one 20 minute
(maximum) presentations
China the New Japan
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Introduction
The paper evaluates the current economic power that China wields across the world; however, it
equally establishes whether China’s rosy performance on the global stage will dwindle away just
like Japan’s economic boom disappeared as a result of financial malpractices. Moreover, the
article looks at some of the failures that led to the falls of Japan’s economic boom, while at the
same time demonstrate that China has adopted the same policies that led to Japan’s demise. By
and large, the paper outlines the historical performance of both economies with respect to their
macro-policies. Political systems that have shaped the vibrancy that may have shaped both
economies over time are also deliberated. Technology is another factor that features prominently
in this paper. Ultimately, the paper adopts a critical analysis to argue facts home.
Learning from Japan’s Mistakes
The issue of whether or not China will become the next Japan is hard to tell. This is largely
informed by the vitality of markets, so anything is expected. Three decades after a severe
economic slump, Japan has lost its financial status to China. Regardless of the convoluted
historical connection, China has imitated Japan in its strategy of economic growth. For instance
the proper strategy of opening markets that presented a basis for internal foreign investment.
Deng believed that such an attempt could contribute to the loss of management by Chinese
Communist Party (CCP) following several years of economic decline and political anarchy. To
adopt failed economic policies of Japan is a gravest of mistakes that China is doing. The world of
finance is unpredictable and China may be in for serious financial woes if it does not take
caution. While Japan seven decades ago, utilized a considerably low-wage workforce to produce
goods so as to get foreign exchange for expanding the economy, it led to the overproduction of
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products which lacked the buyers. In this new age, China may take advantage of cheap labor and
Taiwanese firms’ technology to establish industries and train employees with the sole goal of
developing the economy. However, the overproduction of products may turn around to hurt the
economy instead.
In this perspective, China’s real economic growth started with opening up markets to a level that
politics permitted following its total grasp of Japan’s three and a half decades development from
a conflict-loser to an economic giant (Zheng & Hu, 2006). Whereas, Japan was a nation that
made efforts to grow from poverty to development, China was an agrarian economy that should
take cautiously before attempting to emulate Japan holistically.
On the other hand, China could learn from strategies that worked for Japan. In any given stock
market, the investor’s goal is being propelled back to the commencement of the biggest bull
markets. For instance, envisage being in the United States two decades ago with full
understanding regarding the way technological bubble could span out or 100 years back with a
similar understanding of such a bubble. On Japan, there was a pre-bubble market, which is
important to understand in this respect. This is followed by the nation remarkable economic
development in the 1950s and 60s that was as a result of a strong exporting mechanism that
contributed to a growth of more than 9% p.a during that period.
The Fate of the Economic Bubble
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In addition, Japan was in a position to reach a pre-war gross domestic gross product (GDP) rate
in 1955, and it had a spectacular short period when the number of the Bank of Japan increased to
more than 15% p.a (Breton, 2015). Obviously, this was worrying- during the onset of the 1960s
there were inadequate investment infrastructures (currently, it appears strange but previous
Japanese spend less on transport facilities among others), overcapacity in iron and steel sector;
and taking chances that the nation could be forced into liberalizing business activities (Zheng &
Hu, 2006). However, the economy continued to soar; GDP increased by roughly 8% annually for
the better part while the world was a little worried.
However, the main issue is for the goal of being wealthy there was no point going to Japan in the
50s and 60s. This is because; to a certain degree the stock market overlooked economic growth.
Economic growth declined to about 4.2% in the 70s to 80s. On the other hand, the stock market
increased suddenly. It increased four times in the beginning then the decades and ten times
subsequently. Japanese stock market was out of control following its overreaction to American
suspension of the gold guideline by “insistently printing money” to lower the yen while pumping
credit into financial institutions. Any particular stock market where million business accounts are
opened on a regular basis and has reached 100% within a year deserves being viewed with
suspicion. In that view, all these bring into perspective China, a nation where economic
development is collapsing; stock market as increased two times within a year with the decline.
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In addition, a country where foreigners significantly underestimate the stock market regardless of
its position in the global economy; liberalization initiatives are in progress and where the
population prints money. While it can be that China is different from Japan, it’s in debt as well as
an appalling corporate structure. The scenarios in both nations recognized, however, Japan’s
stock market was rather terrible in the 70s and shareholders were poorly treated, as such there
was nothing good about such market. Japan was able to attain a booming bull market that
resulted into one of the well-known and largest bubble with no approval of shareholder value.
China may follow suit. Nevertheless, this does not suggest that one goes overboard and invests in
China’s stocks. Although, if China follows Japan’s trend, then investors have to deal with
volatility, then there about 800% to go (Chenggang, 2015).
Stock market volatility in Japan acted as a platform for a breakthrough, though features that can
be expected in a nation which is at a point of economic crisis. This does not imply trite, but in a
global context; Japan is not the next Greece; rather it’s the third biggest economy worldwide.
Moreover, its largest financial institutions are at the same level as the United States. It is also a
worldwide power in business as well as business finance. While Japanese yen has a reserve
status, it has two out of six biggest corporations worldwide and about 71 biggest 500, outshined
by only United States and ahead of China, with about 46. Furthermore, even combining largest
corporation in the Asian region with China’s, the total cannot outshine Japan’s. If Japan takes a
risky economic approach, it provides a significant effect on other nations globally, because the
worldwide growth relies on Asia.
Japan has already presented an approach that historians will write as the momentous
international currency conflict since 1930. Japan believes that it is a leader in all areas. There is a
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likelihood of enormous economic challenges as the country attempts to address their issues, and
unfortunately, the challenges will not be restricted to Japan. These will be the actual assessment
of neo-Keynesianism theories. Japan will continue printing, monetize and expanding
significantly.
Japan and China Economic Situation Evaluated
Following the collapse of the largest economic bubble in 1989, Japan continues to be mired in a
two and a half non-recovery. In 2011, the nominal GDP was similar to 20 years before.
Approaches to assessing nominal GDP demonstrates limited growth, however when compared
China, its growth has been paltry. You can find other ways to measure nominal GDP that
indicate limited growth; but compared to the US and China, nominal growth in Japan has been
insignificant. Such lack of increase takes an extraordinary significance since when determining a
nation’s debt to GDP, nominal GDP is regarded as the denominator. In cases where GDP is
increasing while the economy is constant, the debt to GDP can increase at a remarkable rate.
In the recent past, Japan’s immeasurable and increasing debt was unsustainable, and low
confidence in its finance adversely affected the economy. Major problems increased following
Abe’s government efforts to drag the country from several years’ deflation using aggressive
economic as well as financial stimulus (Valentine, 2014). Furthermore, the government unveiled
USD 109 billion to spend and to depend on the Bank of Japan to acquire its asset, a technique
considered as spend and print (Du, Fang & Jin, 2014). Much as the government’s bond has been
stable, the debt to GDP increased to about 245% something that is not only considerably high but
also strange (Du, Fang & Jin, 2014). There are about two years of growing an economy. On one
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hand, a country can increase its working people or enhance productivity on the other hand. Japan
lacks the option of growing its working people, and it’s essentially intricate to an industrial
market to increase productivity. If the population is in reality reducing while productivity
increase is below 1%, the actual GDP increase is impossible (Hsieh & Klenow, 2009).
Besides facing enormous trade surplus for several decades, it’s currently witnessing massive
trade deficits. If a country runs into at trade and economic deficits, requires private investment to
fill the difference or central bank to print more money. In essence, this is an accounting identity,
there are other options. Deficit massive monetization means using all the available savings.
However, Japan should grow so as to address its monetary and financial mess. Implicitly, there
is a desperate need for additional exports, because its elderly population cannot provide
substantial increase in consumer expenditure. If anything, Japanese aging population are
hoarders as well as savers (Dobrzański, 2014). The Abe administration and Bank of Japan
purposed to ensure that inflation was at about 2%. With a nominal GDP increase at 3.6%, Japan
was still in deflation. The country has been attempting to generate inflation for about two years.
To get an inflation of 2%, it’s necessary to increase the price of its imports. However, the
challenge is that Japan imports approximately 16 percent of its GDP, which implies that to
achieve an inflation of 2% then its currency should reduce by roughly 15 to 20 percent on a
yearly basis. The yen has significantly reduced in the recent past.
Even though, this has to be done yearly, on business-weighted basis will all its business partners.
On the other hand, as China growth declines after years of significant historical rates, the
slowdown as well as stock market slump is leading to more uncertainty regarding the worldwide
financial backdrop.
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China’s Plummeting Economy
According to the Asian Development Bank, China growth has been growing at 7% in the last 25
years. However, pundits are concerned about the real GDP, which is likely to be lower compared
to official reports. On the other hand, other analysts project the real GDP to be more at about 4-
5%. Observers are also taking into account the country’s reducing use of copper, oil and other
products and the declining demand for electricity- as a further depiction of a falling economy.
China is largely significant to the well-being of the worldwide economy, for example, it
contributed almost 40% to the global economic development (Du, Fang & Jin, 2014). However,
the decline in the Chinese product demand is influencing a broad spectrum of firms as well as
countries that supply China with raw materials. According to a previous study demonstrates that
the present worldwide growth in GDP of 3.3% can decline to about 0.5% China’s demand
decreased considerably (Chenggang, 2015). The economic crisis in China is partly a result of its
attempt to change from several years of growth reliant on exports, manufacturing and savings to
the economy driven by rapidly increasing middle-class consumers.
Also, this change is directly impacting the economy of United States. Although, heightened
concerns regarding China’s economic growth with other emerging markets have contributed to
notable volatility in stock markets. The decreasing of materials could be adverse to the economic
outlook of US. In spite of the increasing middle-class population, China’s growth has been weak
particularly household that industrial. Without doubt, Chinese GDP share attributed to private
use has been reducing for many years while 35 percent of GPD is low compared to other nations
with related income levels. Additionally, its private use lags behind other fast developing
markets like Japan. Scores of scholars allege that the administration must provide minimum
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growth of 7 to 8 percent to avoid adverse challenges to CPP political interests’ (Zheng & Hu,
2006). The failure to maintain this minimum growth proves to be risky in industry closing,
joblessness, public demonstrations, which many experts believe that the CPP considers the risk
to its influence as well as control. Regardless of the investment boom a few years ago, China’s
economic development began to fall steadily, to the degree of less than 7-8 percent steady
revenue.
According to Zheng, Hu, & Bigsten, (2009) China is a country that has witnessed necessary
monetary resources (energy, food, and raw material) while declining supply of public facilities
(education, health care, and housing). Ironically, such inadequacies have been minimized as
growth occurred; continuous growth strangely is likely to enhance the demand for resources,
assuring their long-term shortage in future. China’s large financial institutions have been
recapitalized by capital infusion by the administration before going public. Financial institutions
led to corporations, municipalities, enterprises among others. The administration issues reserved
debt while non-government borrowings, depict debts of other establishments, municipalities and
households, has increased remarkably. China’s total debt was approximately USD 28 trillion,
nearly three-fold its yearly economic productivity. Of these funds, nevertheless, the non-
governmental debt was roughly 227 percent of the GDP; from 116 percent eight years ago (Guo
& Jia, 2005). Like Japanese growth period, substantial leverage was used in the economy via the
financial institutions. Leverage, though, is associated with the risk that designated by the
institution’s management and endorsed by regulators.
In spite of the significant growth in the institutions loans during a declining growth, Chinese
financial institutions have reported reduced non-performing loans instead of increasing, as a
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percentage of the overall asset. Like contemporary China, the Japanese economy was previously
seen to be an economic citadel that would only challenge the United States. Its rapid economic
rebound and development following the destruction suffered in WWII was dubbed as the
Japanese Miracle. Japan’s economic vibrancy implied the nation’s Corporation had the ability to
procure some notable American assets such as the Rockefeller Center and the Pebble Beach golf
course. Such dealings brought about animosity against Japanese investors. Before long, an
overflow of equity and the simmering real estate alongside the economic slump and price
deflation ushered in an era of Japan’s Lost Decade. Japan’s historical financial uncertainties
paint an exact picture of where China’s economy could be heading. However, the Japanese story
may not necessary spell doom the China’s.
Socio-economic Variables between the two countries
Regarding surface area, Japan is tiny in comparison to China, with one of the highest living
standards than China. While Japan’s internal markets are more flooded, China has unsaturated
markets (Du, Fang & Jin, 2014). The living standards in China come with more opportunities
regarding improvement, which implies more prospects for national fabrication and sell of
household gadgets. An aging Japanese populace is another limiting factor that limits the
country’s capacity to gyrate the economy. Moreover, China and Japan have rather dissimilar
economic post-war histories. While Japan was an industrialized economy that soared after the
Second World War, China was then an agrarian economy. At the present, China is experiencing
internal migration where millions of people move into the city for employment.
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Conclusion
In reality, China is really faced with a completely different issue. To use Japan as a case study is
to look in the wrong direction, except the fact that a nation can only grow is fast as the rate with
which its population and technology grow (Dobrzański, 2014). Nonetheless, irrespective of all
the market frills, capitalist economy, and China’s central government and autocratic at its best
has entered the unfamiliar territory, in a bid to ensure it puts the economy under control. With
strong facets of a command-and-manage economy, China can turn around pieces as opposed to
Japan. In the end, China can overcome the challenges that led to the fall of Japan now that they
manufacture substandard and less durable products. In a nutshell, it translates into a never ending
demand for products that seem to wear out so fast.
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