Japan, China and the United States — the world’s three largest economies — all face long-term challenges even after they successfully emerge from the current global crisis, Chinese and Japanese scholars told a recent symposium in Tokyo.
The three countries need to step up cooperation to ensure post-crisis global economic and financial stability, but they still face hurdles such as lingering mutual distrust and conflicting interests, they said.
The experts were taking part in the March 30 symposium organized by the Keizai Koho Center to discuss “new Japan-U.S.-China relations after the global financial crisis.” Yasuhiro Goto, editor of the Asia and Oceania news department of the Nikkei business daily, served as moderator.
Behind the ongoing global recession is the increasingly close interdependency of the world’s major economies, said Jin Du, a professor of international studies at Takushoku University. “If those economies had not been interdependent, they would not have been simultaneously hit by recession,” Jin said.
Initial optimism — backed by the so-called decoupling theory — that Asia would be spared the most serious impacts of the U.S.-originated financial crisis soon gave way to the realization that no economies are immune to disruptions taking place in other countries, he said.
The export sectors of Japan and China have been hit the hardest. The origin of this problem, Jin said, is that the U.S. growth pattern based on debt-financed excess consumption is no longer sustainable, and the flip side is that the export-dependent growth of Japan and China cannot go on much longer.
The U.S. has been a major pillar of global demand, but its robust consumption has been supported by debts to countries like China and Japan, he said. “When this pattern collapsed, the U.S. economy was hurt, but so were Japan and China,” he added.
Zhou Yong Sheng, a professor at China Foreign Affairs University’s Institute of International Relations, said the three countries are “in a relationship of mutual dependency whereby they share both successes and failures.”
Such a relationship is evident from hard data, Zhou said. Last year, China replaced Japan as the world’s largest holder of U.S. government debts, accounting for about 30 percent of the outstanding U.S. Treasury bonds as of the end of December, he said.
Each of the three countries face near-term and longer-term challenges, Jin said. The main near-term challenge for all is of course to overcome the financial crisis, but a longer-term challenge is how nations would maintain their economic foundations in terms of finance, human capital, industries and corporations, he noted.
A key short-term challenge for the U.S. is to prevent a collapse of the financial system, with the main objectives being the disposal of nonperforming loans, revitalizing lending to small firms and individuals, and beefing up financial supervision, Jin pointed out.
Jin said he is doubtful whether tax cuts would substantially boost spending by U.S. consumers. Data suggest that American households would save rather than spend any increase in disposable income, he noted.
What holds the key, Jin said, is whether the U.S. can come to the forefront of global innovation — as it did in the information technology boom of the 1990s — in the fields of new industries, new energy or other environment-related sectors.
Jin said he is far from optimistic about the medium- to longer-term prospects for the U.S. economy because of its rapidly deteriorating fiscal health. The U.S. budget deficit has reached a level equivalent to 7 percent of its gross domestic product, and rebuilding its fiscal health would not be easy given the cost of public spending to bail out troubled financial institutions and corporations, he noted.
For Japan, the urgent task will be to halt the steep fall of its economy, he said. Japan’s debt-ridden fiscal condition also remains a longer-term problem for which there appears to be no solution in sight, and with the falling birthrate and the rapid aging of its population, the nation needs to seriously study where the source of its future growth lies, Jin pointed out.
For China, Jin said the near-term question is whether the nation can achieve its 8 percent growth target for this year.
Another concern is the rising joblessness, with recent statistics showing roughly 14 million migrant workers from farming villages — or about 10 percent of these workers — having lost jobs due to the crisis, Jin noted. It is also estimated that a quarter of the 6 million new university graduates this year may not find jobs, he said.
A longer-term challenge for China is to shift from its dependency on exports to a more sustainable pattern of growth, Jin told the audience.
Jin said 8 percent growth would be possible this year as long as domestic demand remains solid. Of China’s 9 percent growth last year, 8 percent came from domestic demand and the remaining 1 percent was attributed to overseas demand, he noted.
And while the 8 percent growth in domestic demand in 2008 was roughly divided into a 4 percent rise in investments and a 4 percent increase in consumption, Jin said the top priority should be to boost consumer spending.
Domestic consumption must be expanded to absorb the excess production capacity left redundant with the fall in overseas demand and domestic service sectors need to develop to replace labor-intensive industries as sources of employment, he added.
Jin said this would not be an easy task, given that transition to domestic demand-driven growth has been an elusive goal even though it has been advocated for years by the Communist Party leadership. Such a structural reform of the economy faces resistance from vested interests and requires tough political adjustments, he added.