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Japan urged to cope with changing landscape in Asia

Nation needs to refocus its ties with ASEAN in the face of waning influence, China's rise

by Takashi Kitazume

Japan needs to come to terms with its declining influence in Asia and readjust its strategy toward Southeast Asia, where its once-dominant position has been replaced by rising China, veteran journalists from the region said at a recent symposium in Tokyo.

Tokyo should widen the scope of its cooperation with the 10-member Association of Southeast Asian Nations not only in the economic arena but also to cover security and political dialogue, they said.

Journalists from six ASEAN countries were speaking at the symposium organized Oct. 15 by the Keizai Koho Center under the theme “Japan-ASEAN partnership for further growth and development in East Asia.” Rinji Takeoka, senior general manager of international affairs at the Nikkei business daily, served as moderator of discussions.

This year, many of the ASEAN economies have enjoyed robust growth following the post-crisis slump last year. The Asian Development Bank in September revised ASEAN’s 2010 growth forecast upward from the earlier 6.7 percent to 7.4 percent — compared with the 9.6 percent growth estimated for China and 8.5 percent for India, Takeoka noted. Japan, meanwhile, was replaced by China as the world’s second-largest economy in the second quarter of the year.

Japan has to readjust itself to the changes that have taken place in Southeast Asia, where rapidly growing China has expanded its presence while the role of Japan has declined, said Kornelius Purba, senior managing editor of The Jakarta Post.

“Its dominant position (in the region) has been replaced by China and to a certain extent also by South Korea,” he said.

Purba said that many Japanese firms “practically abandoned ASEAN, especially Indonesia, after the 1997-98 Asian financial crisis” and moved their plants to China.

“Japan put almost all of its eggs in the China basket. Japan is overly dependent on China, and China is successfully filling in the big holes left by Japan” in the ASEAN economies, he said.

“China is very aggressive in providing turnkey infrastructure projects, at prices much cheaper than other international companies. . . . China’s gigantic economy is instrumental in helping the economic growth of ASEAN because of its severe hunger for resource-based imports,” he said.

Meanwhile, major South Korean companies such as LG and Samsung remained in Indonesia after the late 1990s crisis and expanded investments, Purba said. South Koreans today make up the largest foreign community in Indonesia as the number of Japanese sharply declined, he noted.

For Indonesia, Japan has long been the largest money lender and donor through its official development assistance, he said.

“Now, foreign loans are politically very unpopular, and although terms and conditions are much stricter, the Indonesian government prefers to borrow from international markets,” he said.

Japan will continue to play a key role in Indonesia’s economy, but many Indonesians today are frustrated with the way Japanese firms operate, Purba said.

“In the 1980s and ’90s many parents sent their children to learn Japanese and study in Japan. Now it is difficult to find prominent figures in Indonesia who graduated from Japanese universities,” he said.

“It is not just because mastering Chinese is a more promising prospect. It is also because Japan gives little opportunities for non-Japanese workers to get into high positions in Japanese companies. . . . Many if not most Indonesians who work in Japanese corporations can only reach mid-level careers.”

Purba urged Japanese firms, which face a declining population at home, to follow the policies of other industrialized nations in luring global workers to their ranks.

“Singapore is a good example in recruiting the best brains by providing scholarships, lucrative jobs and citizenship to brilliant youths from neighboring countries. So far, Japan remains very hesitant to deregulate its tight immigration policies,” he said.

Japan is in decline and China is rising both economically and politically, while ASEAN is looking to turn into a single community — albeit mainly in economic terms — in several years, said Kavi Chongkittavorn, editor-at-large of The Nation newspaper in Thailand. Both Japan and ASEAN need to rethink their relations against such a background, he added.

Since the end of the Cold War, Japan-ASEAN ties have been “one-sided” and focused on economic aspects, including Japanese investments in and transfer of technology to the region, Kavi said. This, he said, has to develop into a multifaceted cooperation.

“We don’t have much security-political cooperation. . . . This is one new area that Japan needs to work out. Otherwise, Japan will fall behind because Japan is no longer the economic power” it was in the 1980s and ’90s, he pointed out.

Japan needs to look at ASEAN in a different way, Kavi said.

“It’s good to say you’re a partner, but you still need a kind of dialogue. . . . This is just lacking between Japan and ASEAN,” he said.

For example, Japan often explains that its security alliance with the United States is crucial for the security and stability of Asia, but “ASEAN has nothing to do about” what goes on between Japan and the U.S., he said.

“There must be more information dialogue of this cooperation so that ASEAN can feel more confident” because the security treaty — even though it’s bilateral — has regional implications, he added.

China, Kavi noted, has “very comprehensive dialogue and cooperation” with ASEAN — from the lowest to the summit level.

“This is very strange because maybe ASEAN — deep down — does not trust China,” he said.

Kavi said both Japan and ASEAN need to think whether the changes happening in East Asia is in fact a “Sinonization.”

“In East Asia, people say, ‘We’re the driving force of (the world’s) economic growth, but we’re led by China.’ So the question is, is it ‘Asianization’ or ‘Sinonization’?

“In the age of the rise of China, this is a big question, and it’s a question that Japan and ASEAN need to ponder because never before has Japan’s influence (in Asia) been in great jeopardy. . . . Now is the time to rethink, to create a new form of cooperation” between Japan and Southeast Asia, Kavi said.

Japan remains a key trading partner and source of foreign direct investment for many ASEAN economies, including Indonesia, Thailand and Malaysia. Ahmad Shahriman Johari, chief news editor of the Business Times of Malaysia, noted how Japan has been among the top three foreign investors in his country since 2000 and his nation’s third-largest export market between 2001 and 2008.

Still, Johari said that “everyone is going to China” today even though Malaysia remains competitive with China in a number of aspects, including labor costs, legal systems and infrastructure.

“China’s big domestic market is a clear magnet for foreign investors” while Malaysia’s domestic market is small and maturing, he said. Japanese electronics firms maintain their manufacturing operations in Malaysia but only a small portion of them engage in research and development in the country and choose China or Singapore as their regional R&D base, he added.

Johari urged Japanese firms — many of which remain focused on manufacturing — to invest more in Malaysia’s service sector, which he said accounts for half of the country’s gross domestic product.

“Aeon is in Malaysia and Uniqlo is just opening up, but there is room for a lot more Japanese firms in the service sector” in the country, he said. “In ASEAN, you have 500 million people and if 25 percent of them are middle class, that’s about 125 million and that’s a big market for services. They will need life insurance, banking, to buy things.”

Many of the journalists were confident of strong performance for their nations’ economies. Malaysia looks set to achieve a 6 to 7 percent growth for 2010 — higher than an earlier forecast of 5.5 percent — although the Asian Development Bank predicts growth to slow to 5 percent next year, Johari said.

Reylito Elbo, a columnist with The Manila Times, said greater optimism prevails in the Philippines following the inauguration this year of President Benigno Aquino, who enjoys strong popular support for achievements during his first 100 days in office.

The International Monetary Fund forecasts the Philippines’ economy will grow 7 percent in 2010, higher than the government’s own target of 5 to 6 percent growth, Elbo said. And Japan, still one of the two largest foreign direct investors in the country, has many more opportunities there, including in agribusiness, infrastructure and tourism, he said.

Among the fast-growing ASEAN countries, Vietnam is uniquely positioned as an economy with one of the world’s youngest populations: 66 percent of the Vietnamese are in the working age between 15 and 59, said Hoang Nhu Hoa, chief of foreign news at Viet Nam News.

Such a population structure, in which working-age people are nearly double the dependent-age population, provides a golden opportunity for national growth, Hoa said. Last year, it was one of the few economies to achieve economic growth — at 5.32 percent — and grew by 6.52 percent in the first half of this year, she said.

Japan is the third-largest foreign investor in Vietnam after Taiwan and South Korea, and the second-largest exporter to the country after the United States, she said.

Meanwhile, Singapore, which forecasts its growth this year to reach 13 to 15 percent following the recession in 2009, faces a common problem with Japan that could derail its future growth — the falling birthrate, said Susan Long, enterprise editor of The Straits Times.

“Today, Singapore’s total fertility rate is 1.22 births per woman in her lifetime — now one of the lowest in the world and even lower than in Japan. It is projected that Singapore’s population will shrink to less than a quarter of its size in about 100 years, resulting in a severe manpower shortage and lower growth rate,” Long said.

The fertility rate is Singapore’s “No. 1 development issue” and is “as closely watched as our GDP,” she said.

“For almost 30 years, the government has tried to reverse the falling birthrate through all forms of propaganda and financial incentives, but none of them have worked. Instead, there has been a rising trend of ‘singlehood,’ delayed marriages and smaller families — just like in Japan,” Long said.

Unlike Japan, where the birthrate has fallen in tandem with GDP growth in recent years, the fertility rate has a long-term negative corelation with economic progress in Singapore, Long said. “As the Singapore economy has grown, our fertility rate has shrunk,” and the total fertility rate has dived to the all-time low of 1.22 just as the state expects blistering economic growth this year, she said.

“Singapore is obviously not alone” in this problem that also confronts many East Asian economies, such as Taiwan, South Korea and China, she said. “I propose putting research and experience from East Asian countries together. . . . This is one of the areas where Japan, which has been struggling with this problem for much longer, can exercise leadership,” she said.