I traveled to China July 11-16 to deliver a lecture at a congress of econometrics at Jilin University. It was my first visit to China in three years.

In the past three years there have been wild swings in the tone of Japanese media reports on China. Early reports found fault with China’s political and economic systems and raised doubts about the country’s future. Some were downright hostile to China. Recently, however, media have been sounding alarms over the alleged threat posed by China’s growing economic power.

It is not easy to assess China’s potential with its socialist market economy, an apparently contradictory system, but let me offer my opinion on the basis of my observations during the visit.

First, Chinese are far better than Japanese in adapting to a free and competitive market economy. Most Chinese take it for granted that salary is based on performance. For example, the university teaching staff is paid performance-based allowances on top of basic salaries. I was told that the uniform basic pay is based on seniority and raised at an interval of several years, while allowances are based on research performance and ratings by university directors, including student opinion.

Allowances vary from person to person. Some teachers are said to receive the same amount in allowances as they do in basic pay, often even more. Thus, a highly rated teacher could earn more than double that of a mediocre colleague.

Second, income gaps existing between China’s urban and rural areas are widening. In urban areas, the average starting monthly pay for college graduates is about 3,300 yuan (50,000 yen), a quarter of what their Japanese counterparts are making.

If China continues to expand at the current real-term growth rate of 7.2 percent for the next 20 years, its gross national product will quadruple. Assuming that Japan’s growth rate remains flat in the same period, China will catch up with Japan in economic power.

In my view, Chinese standards of living today are about the same as Japanese standards of about 1970. The Japanese economy stagnated throughout the 1990s, and I believe the Chinese will probably catch up with Japanese living standards in 20 more years.

Third, Chinese have much greater enthusiasm for education than do Japanese. Moreover, the zeal far exceeds the Japanese passion that prevailed during the nation’s high-growth era.

Chinese society in general rewards hard work, which makes parents and children eager for education. The reward is not necessarily monetary. It comes when one obtains a challenging, socially meaningful job that one can be enthusiastic about. Monetary reward is secondary.

When the economy is thriving, adults work hard and children study hard. They have goals to strive for, as did Japanese in the high-growth period.

In 1997, when Japan overtook the United States in per capita gross national product, Japanese accomplished their long-standing goal of catching up with the West. In the meantime, Japanese appear to have become complacent and abandoned the traditional virtues of diligence, perseverance and seriousness. My visit to China made me realize this is the root cause of Japan’s economic slump.

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