Overcoming Japan’s China
Syndrome
ＲＩ
ＥＴＩ
C. H. Kwan
April 2002
1
RIETI http://www.rieti.go.jp/en/index.html
From Pessimism to Optimism
From devaluation to revaluation of
Chinese Yuan
From “who would feed China” to
“safeguard against Chinese agricultural
products
Impact of IT Revolution: From digital divide
to leapfrogging
Japan’s loss of confidence
2
An Objective Evaluation of
China’s Economic Power
GDP level instead of rate of change
High share of foreign companies and
import content
Disparities between coastal and inland
regions
3
Comparison between Major Development
Indicators of China and Japan
China
（Latest）
Life Expectancy (years)
Japan
（Around 1960）
Female
Male
Female
Male
72
68
72.92
67.74
（1998）
（1965）
Infant Mortality Rate
(per thousand)
31
（1999）
30.7
（1960）
Primary Sector as a Share of
GDP (%)
15.9
（2000）
16.7
（1959）
Engel ’s Coefficient
In Urban Areas (%)
39.2
（2000）
38.8
（1960）
Per Capita Electricity
Consumption (kwh )
1071
（2000）
1236
（1960）
Source: China Statistics Abstract, Japan’s 100 Years (Kokuseisha).
4
Competition between China and
Japan
Amount
Japan（Ｂ）
China（Ａ）
Ｃ
Product Sophistication Index ($)
Shoes
TV
Low-tech Products
Semiconductor
High-tech Products
5
Calculation of Product
Sophistication Indexes
Share
Low-tech
Products
（Shoes）
Mid-tech
Products
（TV）
$1,000
$5,000
Product
Sophistication
Index of Shoes
High-tech
Products
（Semiconductor）
$30,000
＜ Product
＜ Product
Sophistication
Sophistication
Index of
Index of TV
Semiconductor
Per capita GDP of
exporters
6
Competition between China and
Japan in the U.S. Market
(Billion dollars)
1990
40
30
20
China
10
0
100
1,000
(Billion dollars)
10,000
1995
40
Japan
100,000
Product Sophistication Index ($)
30
20
China
10
0
100
Japan
1,000
10,000
100,000
Product Sophistication Index ($)
(Billion dollars)
2000
40
30
China
20
Japan
10
0
100
1,000
10,000
100,000
Product Sophistication Index ($)
Low-tech Products
High-tech Products
7
Asian Countries’ Competition
with China
Japan
South Korea
Taiwan
Hong Kong
Singapore
Indonesia
Malaysia
Philippines
Thailand
1990
3.0%
24.0%
26.7%
42.5%
14.8%
85.3%
37.1%
46.3%
42.2%
1995
8.3%
27.1%
38.7%
50.5%
19.2%
85.5%
38.9%
47.8%
56.3%
2000
16.3%
37.5%
48.5%
55.9%
35.8%
82.8%
48.7%
46.1%
65.4%
8
Japan Competes only about 10%
with China
Division of labor within each product
category
-- Lower-end versus higher-end products
High import contents of Chinese products
Actual degree of competition with China
about 10% for Japan
9
The Rise of China: Implications
for Relative Prices
Terms of trade = Export prices / Import prices
China’s TOT =
Prices of labor-intensive goods
Prices of technology-intensive goods
China’s TOT falls – immiserizing growth
ASEAN – Terms of trade fall with China
Japan and NIEs – Terms of trade improve
10
The China Factor in Japan’s Deflation
Good deflation: Lower import
prices
Price level
S
S'
D
Output
Bad deflation: Demand shift to Chinese products
Price level
S
D
D'
Output
11
Overcoming Japan’s China
Syndrome
Protectionism incompatible with structural
reform
Industrial Upgrading without hollowing out
Focus on productivity, not competitiveness
Rise of China and other Asian countries
means a shrinking North-South gap
It is in Japan’s interest to be surrounded
by prosperous and peaceful nations rather
than by poor and unstable ones
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