• Analysis by Suvendrini Kakuchi (tokyo)
• Thursday, September 02, 2010
• Inter Press Service

China’s stepping up as the world’s second largest economy drives home to Japan the point that after decades of ruling the roost in Asia, it will have to share the leadership stage with new, powerful contender that is here to stay.

The affirmation of China’s power, a blow to Japan’s national pride, also comes at a particularly difficult time for a country that has been struggling to cope with internal political and economic woes. Analysts here thus see little reason to expect that Tokyo can reverse this ‘decline’ in the next several years. Japan has seen China’s economic engines go past its lacklustre economy, and will henceforth have to live with the fact that a country that used to be the biggest recipient of Japanese development assistance is now a global power in its own right.

As of the second quarter of 2010, when China officially surpassed Japan as the world’s second largest economy, its nominal Gross Domestic Product (GDP) was 1.33 trillion U.S. dollars, compared to Japan’s 1.28 trillion dollars. The gap is expected to widen in the future, given Japan’s low GDP growth of 0.4 percent during the same period, and this is not expected to show significant change in coming years.

In contrast, the World Bank has predicted that China’s economy will grow by more than 10 percent this year, and the Goldman Sachs Group expects it to overtake the world’s largest economy, the United States, by 2027. China has also taken over from Japan to become the top trading partner of Asian countries, including Japan itself and the United States, cementing its position as a growth engine for the world.

'Japan is resigned to the rise of China. The government is extending no leadership to change things,' said Takashi Ito, an economist and professor at Tokyo University. 'I do not see a light at the end of the tunnel.'

At the top of Japan’s list of woes is the strengthening yen — it appreciated by 20 percent in the past three months — a situation that has hurt the exports badly and is pushing more Japanese companies to move production overseas to stay competitive.

This trend is expected to feed into a higher unemployment rate, which now stands at 5.7 percent, and further dampen prospects for consumer spending. This is crucial because domestic consumer spending accounts for 60 percent of Japanese GDP.

Indeed, Ito explains that unless Japan takes drastic steps to put its economic house in order, it can slide into its 'third lost decade' after this year, referring to the economic malaise that set in when the country’s economic bubble burst in 1990.

Japan draws a lot of its political weight in the regional and in the international arena from its economic clout. Therefore, a less confident Japan — one that since the late eighties has been credited for being the locomotive of growth for Asian developing economies through the investment and technology it poured into them, including China, brings with it major implications for the region.

Already, the signs are that given its economic morass, Japan has been busy cultivating its economic ties with China, whose growing urbanised market of 1.6 billion people is becoming a key destination for Japanese products.

But China’s rise does not have to be totally at Japan’s expense, argues Masaru Takagi, a professor at Meiji University. China’s taking over Japan as the world’s second largest economy could pave the way for them to cooperate and together boost Asia’s economic clout and profile.

'Japan should take China’s rise as an opportunity rather than a threat. The two economic giants can work closely to expand their economies -- that is, (to be) the platform to build an Asian economic forum that could resemble the European Union,' he said.

But this is simpler said than done. Tokyo has in recent years been watching China’s growing footprint in Asia, including in countries like Sri Lanka, where Japanese influence has been dwindling, and Pakistan.

Japanese aid to Sri Lanka dropped to 44 million U.S dollars in 2008 from 179 million dollars in 2004, Organisation for Economic Cooperation and Development (OECD) figures show. In contrast, China’s activity has grown especially in infrastructure projects such as the construction of a port in Hambantota, southern Sri Lanka, with 300 million dollars in funding from China’s Export-Import Bank.

In Pakistan, Beijing has become an active player in its arms development and military systems, and helps in the development of its ports, media reports say.

Against this backdrop, there are few signs that Japan is undergoing structural changes to deal with China’s ascendance.

'Japan is still dragging its feet in taking measures to revitalise the economy. The system is locked under old bureaucratic ways that refuse to give in to the changes because that would mean they (bureaucrats) would lose out,' said Satoru Okuda of the Institute of Developing Economics, a quasi-governmental think tank.

Among these reforms would be the opening up Japan’s immigration policy, which many have said would help the country cope with its rapidly ageing society and provide economic stimulus. Calls have been made to increase the number of immigrants to 150,000 annually, but this stood at just 68,000 in 2007.

But perhaps the strongest signal about Japan’s weakening influence in Asia comes from its own public.

In June, a poll conducted by the leading Asahi newspaper showed that majority of respondents, or 55 percent, do not support Japan being a global power. Instead, 73 percent appeared to be looking inward, saying they would rather that their country became a stable and economically healthy society, one where people do not have to work too hard. (ENDS/IPS/AP/IP/DV/IF/WD/SK/JS/10)

© Inter Press Service (2010) — All Rights Reserved. Original source: Inter Press Service

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