It is becoming a fad among the Japanese media to praise China as a new economic giant. Some reports say the fast-growing neighbor poses a serious threat to Japan’s economy; others say China is emerging as “the factory of the world.”

In my first trip to China in late May, I witnessed firsthand China’s robust growth. I was impressed with the widespread exuberance in China, which far exceeded the atmosphere of enthusiasm I sensed in Vietnam when I traveled to that country in January.

I was overwhelmed by the cityscape in Shanghai’s Pudong area, where skyscrapers of Chinese and foreign banks and companies are concentrated. Asia’s tallest television tower stood among the structures, most of them less than 10 years old. At other Chinese cities such as Hangzhou, Guilin, Xian and Beijing, a construction boom is also under way.

My visit was for sightseeing, not for gathering economic information. However, from conversations I had with Japanese businessmen and bureaucrats before taking the trip, there is little doubt that the Chinese economy is staging an astounding expansion.

China’s gross domestic product in 2000 amounted to $1 trillion, the seventh-largest in the world. Chinese exports totaled $249.2 billion, also the seventh-largest. China exceeded Japan in the growth of some export items. It had the largest national share in crude-steel production and accounted for half of the air-conditioners produced worldwide, as well as 36 percent of the television sets and 58 percent of the telephones. China is fast developing information technology and has the largest number of cell-phone users in the world (130 million), and the second-largest number of Internet users (26 million) after the United States.

China’s top consumer electronics manufacturer, the Haier group, is making unique products, such as washing machines that can wash vegetables as well as clothes, and is running a round-the-clock mobile repair service to satisfy customer demand.

With a population of 1.3 billion, China has abundant labor resources despite rapid industrialization. Analysts expect that it will offer the corporate advantage of comparatively low wages for the coming decade. For Japan, China is a formidable economic rival.

The current exchange rate is about 15 yen to the Chinese yuan. However, prices are low in China and some experts say the currency would be equivalent to about 85 yen in purchasing power parity. On that assumption, China’s GDP would exceed Japan’s by about 100 trillion yen.

Some Chinese are dismayed, however, by the acclaim heaped upon China by Japanese media. Professor Ma Chengsan of Shizuoka University of Culture and Arts, for example, says Japanese reports, some of which he feels are exaggerated and may be intended to instill a sense of crisis in rival Japan, tend to overestimate the Chinese economy. Ma cites problems with the economy:

* Although coastal areas are developing fast, inland areas lag far behind.

* Forty-two percent of Chinese exports are low-tech products. The proportion of high-tech products is lower than the 25 percent average for developing nations.

* Chinese agriculture is saddled with 160 million surplus workers. China’s admission to the World Trade Organization is likely to lead to mass imports of low-cost U.S. produce, further increasing surplus labor.

Many experts say another destabilizing factor is social unrest that is likely to result from the collapse of national enterprises. In the 1960s, national enterprises accounted for 90 percent of industrial production. After 1996, however, the ratio fell to less than 30 percent. Previously, national enterprises performed de facto government functions, providing medical care, housing, pensions and education for the working public. In China, the social security system has yet to be established outside national enterprises; thus many discharged workers are having trouble making ends meet. The nation’s fiscal difficulties have worsened the problem. Workers retained by national enterprises are said to be angered by delayed salary payments and rent subsidies and are staging protest demonstrations nationwide.

Chinese labor unions are under the control of the Communist Party and run welfare facilities for members. There have been complaints that the unions do not represent worker grievances. Some unions are reportedly seeking independence from Communist control.

The family register system also hampers freedom of movement among the Chinese, and regionalism impedes the unification of local markets. These problems must be corrected to promote the nation’s economic development. Desertification, which threatens Beijing, and acid rain, which affects Chungking and other industrial cities, are other serious problems that must be addressed.

A Japanese businessman I know fears that the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, which in 1996 replaced the COCOM for regulating exports to the Communist bloc, could hinder China’s introduction of advanced technologies. He also says China outclasses Southeast Asian countries in human resources and the production of industrial components but is troubled by political instability.

In my view, China will never be able to catch up with the industrial West until its Communist government is replaced by a democracy.

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