Page 2 of
2 Is China
trying to implode Japan's
economy? By Peter
Lee
At the opposite end of the expert
opinion spectrum, ex-Morgan Stanley banker Andy
Xie, in his column for the liberal and
independently minded Caixin financial news outlet,
took his own thoughtful look at the
vulnerabilities of the Japanese economy,
especially as they related to China.
Xie
sees Japan-apocalypse, as an aging Japan can no
longer provide the savings needed to cover the
government's immense fiscal deficits and cope with
the dismaying slide into trade deficits created by
the overvalued yen. That means Japan will have to
peddle debt instruments to those patient, kind,
and competent
Good Samaritans of the
international investment community:
What foreign investors think of
Japan will begin to matter to its bond market.
Foreign investors are unlikely to buy into
Japan's crazy policy
combination
Finally! This could be the
time to successfully short the Japanese yen!
(Actually, as Xie points out, the most obvious
economic solution to Japan's problems - a major
devaluation of the yen - would impoverish Japan's
huge elder class and is probably politically out
of reach.) As for the China factor, Xie wrote:
The dispute with China may be the
last straw in punching a hole in Japan's
unstable equilibrium. As China is the largest
market for Japanese companies and the only major
growing market, its [Japan's] trade deficit
could mushroom into 2013. The market's view of
the yen may flip from a safe haven to a
structurally weak one. It could trigger a huge
reversal in the capital flow, causing the yen to
switch down to a new equilibrium level of 30 to
40% below where it is now.
... the
territorial dispute with China kills Japan's
dream of growing out of its problems. The
dispute is unlikely to be resolved soon. Also,
once Chinese consumers switch to other car
manufacturers, coming back may become quite
difficult. In the short term, weak Chinese
demand will accelerate Japan's contraction.
There isn't another force to offset it.
Regardless of whether the CCP
leadership in Zhongnanhai reads China Daily and/or
Caixin, there appears to be a recognition that
prolonging the Senkaku dispute has the potential
to inflict some significant damage on the Japanese
economy.
The Chinese media provides
further food for thought for Japanese analysts
wondering whether the PRC is piling on the
pressure simply to force concessions from the
incoming LDP government, or is perhaps gunning for
bigger game.
As Xie's piece indicates,
auto sales are a pillar of Japan's economic
relationship with China. Right now, Japanese auto
sales in China are in free fall due to some
combination of official discouragement, popular
distaste, and personal risk-averse behavior.
According to Chinese media, Toyota's local Chinese
partner announced it would pay repair fees for
Toyotas damaged in anti-Japanese protests. This is
unlikely to lead to a sales turnaround, as it
advertises to potential Chinese customers that
there is an immediate risk to their persons and
property in driving a Japanese-marque wagon. [7]
China Daily ran a gloating article on the
collapse in Japanese auto sales in China. In a
chart it compared the Japanese drop-off in October
year-to-year to a rise in sales for some other
suppliers:
Mazda: down 45%
Honda: down 54%
Nissan: down 41%
Toyota: down 44%
Contrasted with:
GM: up 14%
Ford: up 48% [8]
The interesting
element of this graphic is that the only
non-Japanese suppliers listed are both Americans.
The largest foreign player in China auto sales -
Germany's Volkswagen, whose share is equal to the
four Japanese makers combined and experienced a
huge jump in sales at Japanese expense in October
- was ignored. Also ignored was South Korea's
Hyundai, the third-largest in the market, and
which also posted a healthy boost in sales. [9]
The implied message here is that Japan's
loss can be America's gain, an interesting
exercise in wedging that invites the United States
to deepen its economic engagement with the rising
regional power, while decoupling from the fading
regional power that is locked in a zero-sum
strategic battle with its local adversary.
Even if the PRC government isn't serious
about trying to crater the Japanese economy, and
instead will make nice with LDP leader Shinzo Abe
in a few months, tension - and the urge to
escalate tensions in what is perhaps mistakenly
perceived as a virtuous cycle by each practitioner
- is increasingly baked into the East Asian
geostrategic cake.
The US pivot to Asia is
predicated on the beneficial role of tensions with
China in creating a strong alliance of
democracies, near democracies, and Communist
dictatorships like Vietnam - which are so darn
useful they have to be included somehow.
The Chinese insistence on punishing Japan
for its central role in the pivot is based on the
idea that, when push comes to shove, the decisive
realities in East Asian are economic and Chinese,
rather than military, democratic, and American.
Both sides believe they have the winning
strategy, with the result that East Asian
geopolitical dealings are drifting away from
creating an environment of peace, stability and
shared prosperity to fostering the emergence of a
contested zone in which the major powers
continually and maliciously stress-test their
counterparts for economic and political weakness.
That's a recipe for increased
polarization, escalation, and the widespread
adoption of zero-sum strategies that assume that
one country's gains must come at another country's
expense - and threaten to become exercises in
wishful thinking (or wishful
schadenfreude).
Michael Cucek, an
incisive and informed commentator on the Japanese
political scene, is a concerned witness to the
United States' slow economic and strategic drift
away from Japan - and a proponent of the
accentuation of the adversarial relationship
between the PRC and Japan that underpins the
"pivot to Asia".
On his blog, he turns the
spotlight away from Japan's economic and
geopolitical predicament to China's own structural
problems, and predicts that Japan will merrily
make lemonade from the lemons of Sino-Japanese
estrangement:
... [R]uminations on how to
accommodate China's continued rise are
predicated on just that: China's continued rise.
Despite the glaring examples of the collapse of
the Bubble in 1989 and the Great Recession (2008
- continuing), policy wonks are failing to check
to see if indeed there is a floor beneath them,
relying on an axiomatic faith in China's not
hitting a wall.
China's
investment-as-a-percentage-of-GDP ratio of 50%
is unsustainable, however. In order to preserve
the illusion of prosperity in the face a global
recession and a once-in-a-decade leadership
handover, the government of China has
greenlighted an immense extension in credit. The
bills will come due, sooner than most big
thinkers are willing to admit.
When the
Great Reckoning comes for the People's Republic,
the governments and economies with the fewest
strong ties to China will be the lucky ones.
[10]
In other words, the hope is that
China will fall on its behind before Japan does.
However, as they say, hope is not a plan.
Japan has hope. But, it seems, China has a
plan. And it looks like it's working.
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