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Ding Gang: Is Japan’s economic dismay tragedy or lesson?


By Ding Gang    Source: Global Times    Published: 2016-5-4


In analyzing Japan`s economic trajectory, observers often take Japan` economic performance in the past 20 years as a lesson that reminds China not to have its bubble bust and fall into a long-term economic downturn as Japan did.

But we may need to dig deeper as to why the Japanese economy hasn`t collapsed in the two decades. Though it has stayed in stagnation and barely seen any growth, Japan remains an economic power.

Currently in Japan, the inflation is low and property prices remain stable after the roller-coaster ride of the past. Japanese citizens have their welfare and a normal life guaranteed. At least the country stays more composed and stable than some emerging economies.

Japan`s downsizing middle-class has seen their average annual income per household drop by over $10,000 compared with 10 years ago and face a widening income gap. However, while it is common in developed or even developing economies like China that the rich gets richer, which relates to the changed ways of global wealth accumulation, Japan maintains a small disparity between the rich and poor.  

To adapt to the economic downturn, Japanese companies have employed a large number of temporary workers to cut costs. These people have unstable incomes and little security, but at least they have jobs and don`t need to take to the streets.

Economic development has its own cycle and no economy can keep growing all the time. Yet it is still unusual that Japan`s economy has seen barely any growth in two decades.

But what`s critical is not to keep continued GDP growth, but to make the economy run normally and stabilize the society through macro-regulation when GDP isn`t growing. In the meantime, companies calmly reduce the surplus industrial capacity, seek for new markets and investment opportunities, and keep the momentum of innovation to deal with the lasting economic downturn.

Today`s Japan has a government debt that is nearly 2.4 times of its GDP. But only 10 percent of the debt is in the hands of foreigners, with the rest purchased by Japanese citizens. Japanese government issues bonds to bring together the savings of Japanese companies and people, and then spends the money to sustain the steady economic operation. This is seen by Chinese economist Li Yang as reasonable deficit and debt. These policies accord with Japan`s reality and have worked out well.

Despite the sizable debt of Japanese government, the Japanese people hold enormous financial assets. The country also has foreign exchange reserve of over $1 trillion, net foreign assets and profits from long-term trade and overseas investment.

The overseas investment and profits of Japanese companies have been growing. In 2015, Japanese firms` overseas mergers and acquisitions in total exceeded 10 trillion yen ($93 billion) for the first time, a record high. The Japanese model won`t break down in the foreseeable future.

China needs to pay attention to three aspects of Japan`s experiences. First of all, Japan has built a stable social security system based on long-term accumulation of wealth, which has been able to maintain a basic living for vulnerable populations in the event of crisis. Besides, Japanese government`s measures take into account the tradition of savings in East Asian culture and the Japanese public`s trust in the country. The gains from government-issued bonds are stringently monitored to ensure high transparency and form a virtuous cycle.

Japanese companies have adapted to economic slowdown swiftly and adjust themselves to reduce excessive capacity and secure sufficient input in research and development. Hence they continue to stand at the forefront of global manufacturing.

It`s true that the disproportionately high debt of government remains a potential problem for Japan`s future development. It`s tough for Japan to rely on the overseas profits by Japanese companies and meanwhile ensure enough income for the public to continue buying bonds.

Even so, Japan is likely to retain its position as an economic heavyweight in the world in the next two decades, as it has for the past 20 years. This deserves careful study, especially since China`s total debt load has reached 237 percent of its GDP, according to data from the Bank for International Settlements.

The author is a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China.

Key Words: Japan   China   economy  

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