Bolster Japan-U.S. Alliance to Cope with ‘China Menace’

March 4th 2001


By most accounts, the Sept. 11 terrorist attacks on the United States have changed the world.

U.S. public opinion–which has exerted a decisive influence on the course of world events in the 20th century–is leading the country toward, on the one hand, a resurgence of patriotism and displays of comradeship among its compatriots and, on the other hand, interventionism, as opposed to isolationism, in foreign relations.

This is noticeably reflected in U.S. President George W. Bush’s Jan. 29 State of the Union address.

Here, one reservation is made by saying “most accounts,” because public opinion is by nature unpredictable, and no one can say how long this new U.S. tendency will continue.

Worthy of note in connection with this is that some countries are little affected by changes in the United States. A case in point is China, which has formed a microcosm unto itself throughout history.

The fate of the world this century will depend considerably on the future of China as well as the new posture of the United States.

A week before the terrorist attacks, Newsweek spotlighted China in its Sept. 3 edition, calling it “China Inc.” an obvious pun on what Japan was called at one time–“Japan Inc.” The two-page illustration depicted China as a huge red octopus spreading its tentacles over the globe.

This was an image that struck a nerve in news centers the world over. The Sept. 11 attacks turned the media’s attention away from China for some months. After the war against terrorism passed a critical stage, the Jan. 30 issue of the Japanese-language version of Newsweek put the focus back on China, this time playing up the danger that Chinese economic aggression poses to Japan.

On the cover was a giant blue fire-breathing dragon.

If not for the events triggered by Sept. 11, the glare of the world’s media would have been trained on China throughout the autumn as Beijing readied itself to join the World Trade Organization.

Economic Wonder

China’s economic growth must surely rank as one of the wonders of the modern world, but the problem is that it has resulted in more harm than benefit to neighboring economies. And its increasing strength threatens to destabilize the power balance in the Asian region in the long run.

Last summer, critics around the world began warning of the menace posed by China after it posted its economic figures for the first half of the year 2001. The data showed that China was the sole winner in trade competition on the international market.

Whether it can keep up the pace is an open question, and predictions abound on the future of the Chinese economy. One school of thought insists that the dragon cannot keep breathing flames for long.

Adherents to this theory point to a range of factors that could work to slow China’s high economic growth: internal tension within the socialist economic system; constraints due to environmental pollution; public demand for democratization, which is expected to rise as a result of economic development and a subsequent decline in the central authority of the ruling party.

There may be some substance to these predictions, and they certainly cannot be ruled out. However, it seems that the probabilities of such developments will be more or less lower than the chances of the Chinese economy continuing to expand for the foreseeable future.

Since no one can really predict the future, it is more expedient for us to confine our attention to those things that may directly affect Japan. This is in line with the dictates of “senyu-koraku”–wise men worry ahead of common people and enjoy themselves afterward.

In other words, the risk that China will enter a stagnant phase in both economic and military strength should by rights worry Chinese the most. It is not Japan’s business to butt in on things that are not our concern, although we may deal with such problems as and when they affect us.

It would be reckless for us to be complacent, assuming that China’s high economic growth is bound to stop in the near future.

I have long been convinced, from a macroeconomic point of view, that the Chinese people have a high potential for achieving sustainable growth.

China has a population of 1.2 billion and a long list of accomplishments that include one of history’s most advanced civilizations and a succession of great dynasties.

Each individual member of this highly talented society has been striving to be richer tomorrow than today ever since the launching of the reform policy in 1978. China’s economic growth is assured as long as its growth potential, which is based on low labor costs, is retained.

China’s ‘Multiplier Effect’

For the past 20 years since the open-door policy and reforms began, an army of several hundred thousand Chinese have been graduating from universities every year to join the country’s more advanced workforce.

Also, intellectuals who fled in the wake of the 1989 Tiananmen incident have acquired business and engineering expertise on the international market and are returning home.

Add to these factors the low cost of labor, and it is evident that few countries can compete successfully with China.

But there is a problem. China’s neighbors are concerned about its high economic growth, which they see as damaging, instead of beneficial, to their own interests.

Indeed, for Southeast Asian nations, Chinese manufacturers are their direct competitors. The increase in China’s economic might also mean the flight of investment funds away from Japan, Taiwan and Singapore, causing their own industries to suffer.

Of course, no business deal takes place without both parties profiting. But even then, the degree to which a country ultimately benefits from such a deal is governed by the so-called multiplier effect–the degree to which business profits raise gross domestic product.

The multiplier effect varies greatly depending on who receives the initial investment. Moreover, the higher the growth rate of a country, the larger its multiplier effect. Let’s say a Japanese company invests in China and both the Japanese and its Chinese partners make 1 million dollars from the venture. While the growth in gross domestic product on the part of the investor’s country, Japan, is limited to 1 million dollars in the deal, the GDP of China, with a large multiplier effect, stands to gain much more.

No way of Reversing Trend

If Japanese companies operating in China are obliged by Chinese policy to channel their profits into new investments in China, this will result in a net flow of cash to China. Furthermore, as more Japanese companies shift their production bases to China and close plants in Japan, the multiplier effect in Japan on the firms’ profits will be on the minus side. In this way, Japanese industry is becoming hollowed out.

Furthermore, foreign companies in China have encountered an endless list of troubles, such as Chinese authorities’ fickle interpretation of economic regulations, arbitrary commissions charged on foreign companies’ profits, noncompliance with contract provisions, copyright violations and failure to make payments.

However irrational Chinese business practices may seem to outsiders, I have noticed these irregularities may be fairly rational when seen from the point of view of the Chinese.

China understandably wants to obtain technical know-how from abroad. It is also understandable that, once the Chinese acquire the relevant expertise, they will not want foreign companies continuing to profit from the Chinese market.

This is just what such countries as Japan and South Korea have done in the past.

In the postwar era, Japan imported a wide range of manufacturing technologies from the United States, but hardly any U.S. manufacturing companies are making money in Japan today.

Like many other countries, China strives for independence in all but a handful of specialized fields for which it has to depend on foreign countries.

For example, China may have been fascinated by the Japanese style of running department stores. However, if they became familiar with the system, they may no longer be willing to allow Japanese department store chain operators to continue making profits in China.

There is no way to halt the expansion of the Chinese economy, just as there was no way for the United States to reverse Japan’s growing economic strength from the 1960s to the 1980s–a trend the United States accurately anticipated, but could not prevent.

Ensure Balance of power

There can be no doubt that China’s military spending will inevitably be boosted. In any country, the allocation of the budget is a hard-fought battle between government organizations, with the spoils going to the most powerful bodies.

In China, this means the military, having an overwhelming say in the government, will continue to receive the lion’s share of the budget. Military spending in China will probably double before the next decade, quadruple in the next 15 years, and balloon 10-fold 30 years from now.

It is worth recalling former U.S. Secretary of State Henry Kissinger’s brilliant analysis of the situation in Europe just before World War I.

Kissinger says peace in Europe in the 19th century was maintained by a balance of power between the region’s five major nations, none of which had any clear military advantage. However, Germany proceeded to make remarkable gains in economic strength, upsetting the balance of power without changing national boundaries, he notes.

In much the same way, China will continue to make drastic increases in its national strength, and this will gradually but inevitably upset the balance of power in Asia.

Strengthening Japan’s alliance with the United States is the only way in which Washington and Tokyo can cope with this situation.

Suppose that Japan resolves the impasse over its right to exercise collective self-defense, allowing itself to fully commit militarily to achieving goals common to Japan and the United States under the bilateral alliance.

This would enable a balance of power effective enough to facilitate peaceful conflict resolution in the Asian region for at least the next 20 to 30 years.

It is, of course, meaningless to try to reverse a predominant economic trend by economic measures. Japan should be gratified to see improvements in the living standards of our neighbor, China, after it suffered miseries for so many years as it lagged behind the mainstream of modernization in the 19th century.

It would therefore be adequate for Japan if it is able to maintain peace in Asia by paying due attention to changes in the regional balance of power that are bound to result from China’s economic progress.