[PEN-L:27414] Japan/China

["Ian Murray" <seamus2001@xxxxxxxxx>]

http://www.japantimes.co.jp/cgi-bin/geted.pl5?eo20020701jl.htm
JAPAN IN THE GLOBAL ERA

Scapegoat seekers fuel nation's decline

By JEAN-PIERRE LEHMANN

LAUSANNE, Switzerland -- It is natural when one has domestic
problems to look for foreign scapegoats. The United States'
paranoia over Japan's trade surplus and foreign-investment binge
in the 1980s is a good example. While most nations reflect this
general syndrome up to a point, the Japanese seem to be pretty
much in a league of their own. What dispirits a lot of foreign
observers of Japan as well as many disaffected Japanese is the
absence of vigorous internal debate within establishment circles
about the country's homegrown problems. Talk to officials and they
are almost invariably on the defensive. Talk to lots of other
people and they are almost invariably resigned and often
defeatist.

A recent example of this pattern of looking for external
scapegoats arises from the decision by the credit-rating agencies
to downgrade Japan. The hysteria it provoked in Japanese official
circles, the expressions of great grievance and outrage, were, I
believe, a welcome opportunity for policymakers to once again
indulge in external witch-hunting as an excuse for domestic
paralysis.

The director of public relations for the Ministry of Finance,
Yosuke Kawakami, wrote a very long letter of spiteful
self-righteous indignation to the Financial Times berating the
credit agencies for "undermining their credibility" ("Rating
agencies may be undermining their own credibility," June 12).

Wow! The only justification I can think of for a MOF official --
or indeed any Japanese official -- to criticize anyone for
"undermining credibility" is that it takes one to know one! As the
Financial Times rightly pointed out in a leading article the
following day ("Rating Japan"): "Instead of rubbishing the
messenger, the Japanese government should heed the message."

Another example has been Economy, Trade and Industry Minister
Takeo Hiranuma and his ministry's pressure to have China revalue
the yuan. China's emergence as an increasingly major global
manufacturing and trading nation undoubtedly poses a major
challenge to Japan, as it does to virtually every nation. The
massive foreign investment (including from Japan) pouring into
China, with more likely to flow in the coming years, is likely to
transform the country more and more into the workshop of the
world.

What distinguishes China from any precedent among developing and
newly industrialized countries is that it is assuming
simultaneously a formidable competitiveness right across the
industrial spectrum -- from the very bottom (toys, Christmas
decorations, flip-flops, etc) all the way up to high technology
(semiconductors, sophisticated automotive parts and components,
etc). The Beijing and Shanghai regions are increasingly attracting
investment in advanced research.

With the rather demeaning battle over shiitake mushrooms, leeks
and tatami rushes late last year, we got a foretaste of a Japanese
trading policy defined by myopia and pandering to narrow vested
interests. In fact, China could present to Japan the major cause
and trigger for thorough domestic economic restructuring.

As China is increasingly likely to be a "shock" to the Japanese
system, adopting shock therapy now could act as a powerful
preventive medicine, rather than waiting until the patient is
really debilitated. Massive deregulation, liberalization and
opening up Japan's borders wide to Chinese imports would prove a
really dynamic compound. It would also make Japan appear to be
assuming its regional leadership responsibilities.

Of course, nothing of the sort is taking place. Hiranuma is an
unknown entity, having provided very little indication of what his
own views are. This once again is in contrast with his
counterparts in most major trading nations, whether industrialized
or developing.

Robert Zoellick, U.S. trade representative, or Pascal Lamy, EU
trade commissioner, often must implement policies that they are
not necessarily comfortable with, but the world and their
counterparts know by and large what they stand for. This also
applies to ministers responsible for trade in developing
countries; for example, Alec Erwin in South Africa, Sergio Amaral
in Brazil, Luis Ernesto Derbez in Mexico and Murasoli Maran in
India.

As for Hiranuma, one has absolutely no idea what his views are;
nor does one know whether this is because he wishes to keep them
secret or because he does not have any. I suspect it may be the
latter: The trade minister of the world's third-largest trading
power has no views!

At a time when the multilateral trading system is possibly heading
for an irreversible crisis, this is not a very comforting thought.
With the absence of leadership and vision, Japanese trade policy
falls inevitably into the hands of petty-minded officials who
cannot ride above knee-jerk protectionism dictated by narrow
vested interests. Hence, the argument for revaluating the yuan.

I have tried to tease out Hiranuma's ideas by writing to him
twice. As director of the Evian Group, a global trade and
investment forum and advocacy, I write quite regularly to trade
ministers in many countries. Almost invariably I get a reply,
sometimes signed by the minister himself, sometimes from a senior
official. In contrast, my correspondence to Hiranuma remains
unanswered.

In my latest letter, suggesting that the need to revalue the yuan
was a red herring, I went on to write: "I have been in recent
years very critical of Japanese foreign economic policy and
especially what I see as its defensive and reclusive response to
globalization. In particular, Japan appears to have no China trade
strategy, or if there is one, it is a well-kept secret! This is
not only unfortunate, but also dangerous. As China's accession to
the WTO (World Trade Organization) is bound to cause some
turbulence and tensions, Japan's experience and proximity to China
should make it especially suited to having a clear strategy well
positioned in a global context."

I went on to say that in that context, "It is all the more
disappointing that Japan's policy now is focusing on seeking to
revalue the yuan. This smacks of looking for external causes for
internal problems. More specifically, however, given the lengthy
and profound experience of Japan in the '80s when it was being
unjustifiably and ultimately counterproductively pounded by the
U.S. on the value of the yen, on this issue Japan should be
bringing wisdom, not knee-jerk defensiveness."

I concluded by informing him that in the World Competitiveness
Yearbook produced annually by IMD (International Institute for
Management Development), many factors are cited for Japan's
continued decline in the competitiveness league. The alleged
weakness of the yuan in relation to the yen is not one of them.

It is revealing that when the IMD annual report showed South
Korea, Taiwan and Hong Kong slipping in competitiveness, they sent
delegations to discuss the findings and means of how they could
improve. No such delegation has come from Japan. Whenever the
report has been discussed with Japanese officials and even
businessmen, their invariable response is to criticize the
methodology behind the report. When I ask them if they were also
criticizing the methodology when they were on top, I get silence
as a response.

It is the Yosuke Kawakamis and Takeo Hiranumas of Japan who are
causing the country's downfall.

Jean-Pierre Lehmann is professor of international political
economy at IMD (International Institute for Management
Development) and a founding director of the Evian Group, Lausanne,
Switzerland.