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Monday, September 09, 2002


Long live who? Andy Xie. Who's he? The China/SE Asia commentator on Stephen Roach's global forum. And why this accolade. Because the little known Andy Xie has to be the consistently best observers on what actually is happening in China. Put another way he is one of the few people really on target about the global economy these days. Last week I blogged the fact that China was overtaking the US as the leading import source for Japan. Well today - under the heading 'Japan's Business Is Marching to China' - Andy Xie picks up the same point:

China has just replaced the United States as the largest source of imports for Japan. While the United States remains the most important market for both, China and Japan are truly joined at the hip. Cheap Chinese products have become essential for pensioners to survive Japan's high cost of living, while Japanese investments are providing jobs for tens of thousands of Chinese.

When China and Japan established diplomatic ties 30 years ago, Japan had just emerged from a decade of double-digit growth in its economy, while China was at the tail end of its self-destructing Cultural Revolution. Japan's economy was nearly twice as big as China's. In the mid-1950s, the Chinese economy was twice as big as that of Japan's. The gap between the two countries continued to rise and peaked in 1994, when Japan's economy was nearly nine times as big as China's but with one-tenth as many people. But the tables have begun to turn. Last year, Japan's economy was merely 3.4 times as big as China's. If the current trend continues, the Chinese economy could become bigger than Japan's sometime in this decade. Even so, China's living standards will remain far lower than Japan's due to its much larger population.

Japan has built up its wealth through exports. This wealth is no longer growing. Its ageing population will run down its savings over the coming decades. Unless Japan finds a way to increase wealth, its living standards will decline. To slow the decline in its wealth, Japan needs to cut its living costs. This is what Chinese imports in Japan are for. Japan's imports from China have risen 12 times as fast as its economy in the past decade. Inexpensive Chinese shitake mushrooms and 300-yen (HK$20) Chinese umbrellas will allow Japanese pensioners to maintain their living standards for many years.

The continuation of the status quo is the most likely scenario for the foreseeable future. The global economy could remain sluggish for years to come, accelerating the loss of pricing power for Japanese exporters. Japan's population is becoming older by the day. Its need for cheap Chinese goods can only grow. China's need for jobs is becoming more intense with state enterprise retrenchment. Its annual college enrolment is rising and could hit four million in this decade. China will only become friendlier to foreign investment, no matter where it comes from.
Source: Morgan Stanley Global Economic Forum