China vs. Japan: Part 2 – Future Prospects and Policies

Toyoo GYOHTEN (President, Institute for International Monetary Affairs)

China as a Confucian State

It should be noted that China is a kind of "Confucian" state, where earthly profits are valued more than religious ethics. This may, at least partly, explain the extraordinary performance of the Chinese economy in recent years, since people are now allowed to seek monetary returns by following their earthly desire and "greed" with virtually no restraint.

In contrast, the history of western capitalism is characterized by checks and balances between greed to achieve maximum profit and ethics to suppress greed. The mutual interaction of greed and ethics, when it worked properly, has led to the healthy development of capitalism in the West.

In China, most people are now pursuing monetary profits with no restraining ethics. This seems to produce extraordinary energy and power and has become a strong advantage for a Confucian state like China.

According to some historians, Chinese communist dictatorship, because of its imperialistic nature, will necessarily fall by the end of the 21st century. Other historians say that there appears to be a 300 year cycle for Chinese dynasties, and the current dynasty, which started around the Opium War in 1840, might reach its peak soon and follow a declining path, possibly for another150 years.

In any case, one can be sure that China will continue to grow at least until the time when the Beijing Olympics and the Shanghai Expo are held, and inevitably will become the most influential nation, at least in Asia, in the near future. The communist regime seems quite clever and skillful for the moment in keeping high growth performance and social stability with little public dissatisfaction.

Political and Social Contradiction

However, such stability is only superficial, and there are serious potential problems with the current political regime in China. Under the Communist dictatorship no dissenting voice is heard and it is impossible to form an opposition party. Those who feel that more political decentralization would be desirable cannot openly demand the creation of a federal system of government.

While internal suppression is quite obvious under the current regime, people do not seem to mind too much, as rapid economic development is taking place and the general standard of living is improving fast, at least for now. But this situation will not last forever and internal contradiction will surface sooner or later.

Some people say that Chinese leaders should know this well and that there will be gradual democratization and Westernization in the long run. However, that is not likely to happen. Internal contradiction is too serious and a fundamental change is needed to make China a fully open and advanced society in the future.

The question is when that will happen. Certainly not within the next 5 to 10 years. The Chinese economy could grow around 7 % for another 10 years. But it is impossible to continue that way for 30 to 40 years in the future, because the economy will eventually reach the stage of maturity when people may be satisfied economically but not politically or socially.

There already are internal differences and inequalities developing rapidly in China. In fact, a conflict between coastal and inland regions is becoming quite visible and a gap between the haves and the have-nots is widening as the economy appears to be growing smoothly.

Furthermore, external pressure will play a key role in reforming China. For example, as a member of WTO, China is pressed to open its agricultural market and encourage imports in that sector. That might cause a fundamental change in the rural sector, and could eventually lead to a political change in China. China may be aiming at establishing a new type of democracy based upon collectivism as opposed to the Western-type democracy based upon individualism. However, pervasive trend of globalization will make it unfeasible.

Japan's Relations with China

What Japan should do vis-à-vis China is quite obvious. Japan must accept the reality that China is rapidly becoming the most influential country in Asia, but still is full of contradiction politically and socially. Also we should be honest in admitting our feeling for our common roots with the Chinese, while recognizing our conscious choice for American and Western values and social system.

Although there is no need for Japan to have a confrontational attitude toward China, Japan should maintain its close relations with the U.S. to restrain China's expansionary policy in Asia from the long-term viewpoint. While the U.S.-Japan Security Treaty allows Japan to stay away from the development of nuclear weapons, Japan should have a better self-defense system, including a missile defense system, by taking into consideration the serious situation in the Korean Peninsular.

At the same time, Japan should have a deeper understanding of Chinese people, culture and society, and take note of the fact that Japan and China need each other and will for many years to come. In fact, the Sino-Japanese relationship has so far lasted for almost 2000 years, which represents the longest bi-lateral relation in history. This fact alone deserves appreciation and respect.

Unfortunately, the history of the Sino-Japan relationship has not been one of equal reciprocity. In much of its history Japan learned from China, but there was a kind of role reversal between the two nations after the Sino-Japan war　at the end of the 19th century, at least from Japan's viewpoint. It might be safely said that Japan's policy toward China in the Showa period was seriously mistaken, and Japan needs to acknowledge it fully.

By the same token, China should recognize the importance of Japan as the only democratic and economically advanced nation in Asia. With its refined culture, advanced technology and peace-loving attitude, Japan should be regarded as a valuable resource for China and the rest of Asia. In this regard, China must stop the anti-Japan campaign focusing only on the Japanese invasion into China during the first half of the 20th century. Chinese younger generation should learn not only the Japanese invasion and atrocities but also the political, social and economic condition in China and the international environment at that time. Rather, China and Japan should recognize their respective values and build long-lasting friendly relations based on common roots in the East, just like U.S.-U.K. relations in the West.

Japan's Policy and Strategy

As I pointed out in Part One, "Changing Perception and Reality," what Japan needs to do is quite clear. We must revitalize our economy and society ourselves in order to compete and cooperate with China in a productive fashion. We need to deregulate the economy and encourage new industries to emerge. New market creation is crucial in offering new employment opportunities domestically to avoid the "hollowing-out" phenomenon. In this regard, it is important to reform Japan's low productivity sectors.

Some of those low productivity businesses may go overseas, including China. That should be considered a desirable move, just as Japanese businesses in automobile, electronics, etc. have been moving to the U.S. market, benefiting both the U.S. and Japan. China itself is relying on foreign capital and technology, and Japanese companies can take advantage of the situation in Chinese industries and markets.

Regarding competition in Southeast Asian countries, it might appear that Chinese companies are beating their Japanese counterparts, mainly due to low costs. But it should be pointed out that there are many Japanese companies exporting from China to Southeast Asia and the world. We need to be careful about nationality in business in this age of globalization.

Probably, the bottom-line concern is about domestic employment in each country. In this regard, Japan should take into consideration not only short-term employment opportunities, but also long-term population declines and immigration trends. In view of those long-term factors, China could also play an important role for Japan.

Finally, Japan needs more effective diplomacy to deal with rapidly changing international relations in Asia and the Pacific Rim. Political and economic strategies in diplomacy should be better coordinated to advance Japan's Free Trade Agreement initiative vis-à-vis China's skillful maneuver in its own FTA drive toward Southeast Asia.

We have to discuss openly what our national interests are. This has become ever more important for Japan in the advent of China as the most influential nation in Asia economically and militarily. Although there is unlikely to be any national consensus soon on this issue given the current political and intellectual situation in Japan, we need to achieve at least a critical mass to formulate our national strategies and polices among our political and intellectual leaders. Based on our discussion regarding national interests, we can effectively pursue important global objectives such as world peace, justice and humanity.