China ponders the lessons of the Japanese 'miracle'

(Agencies)
Updated: 2008-09-02 15:35

Now that the Olympics are over, a new game is under way: predicting China's economic future by studying Japan's past.

Teasing out economic parallels is a favorite academic pastime, but it can be just as treacherous as extrapolating prevailing trends into the indefinite future. In the 1960s, the Philippine economy was the second-richest in Asia after the Japanese. Now it is bringing up the rear.

Still, looking at Japan provides some useful pointers as the world ponders how long China can keep up the growth of nearly 10 percent a year it has enjoyed since it embarked on market revamping 30 years ago.

Albert Keidel at the Carnegie Endowment for International Peace in Washington says that when Japan was at China's current level of gross domestic product of just over $2,000 per capita, and headed for $10,000, it had growth rates of 8 to 10 percent. So did South Korea.

Economists have observed that the later a country begins its catching-up, the more rapidly it modernizes. So Keidel expects China to grow more swiftly than its three neighbors did at the same stage of development.

The result, he says, is that China will match the United States for economic size by 2035 and be twice as big by midcentury.

"Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitations," Keidel wrote in a recent paper. "Nor do other problems China faces jeopardize long-term growth prospects."

One such problem is that rapid industrialization of a country of 1.3 billion people is generating so much pollution that it risks choking off growth.

But we have been here before. The Organization for Economic Cooperation and Development, Keidel notes, called Japan in the late 1960s "one of the most polluted countries in the world."

Japan, however, started to tackle its pollution, giving its environmental agency de facto cabinet status in 1971. China, now following suit, did the same earlier this year.

Another American scholar, Derek Scissors of the Heritage Foundation, draws a much gloomier lesson from Japan's experience. The population boom that has powered Chinese growth will give way over the next decade to a rapid aging of the society, which will usher in weaker economic growth, as it did in Japan, he says.

The number of Chinese in the industrious 15-24 age cohort grew by 20 million from 2000 to 2005, but the increase in 2010 will be just 1 million, according to UN projections. It will then drop sharply, as a consequence of China's one-child policy, and the country's overall working population will shrink after 2015.

After four decades of a young population and rapid export-led growth, Japan was also projected by many to challenge the United States for global economic pre-eminence, Scissors noted.

"Instead, Japan is now approaching 20 years of starkly inferior performance, coincident with an aging population and much lower birth rates than those seen at the outset of that earlier 'miracle,"' he said.

Arthur Kroeber, head of the Dragonomics consultancy in Beijing, is convinced that urbanization, productivity gains and fast-rising incomes bode well for China to keep growing by 8 percent to 9 percent for the next few years. But one risk he sees, drawn from Japan's outbound investment record, is how China spends its wealth overseas.

In the late 1980s and early 1990s, Japan bought trophy assets like Rockefeller Center in New York and Pebble Beach golf course in California. Yet the investments were all by private companies. Americans fretted about rising Japanese power, but there was no legislative backlash.

In China's case, by contrast, banks and firms ultimately are buying into Western rivals.

"Are they pursuing commercial motives or some political motive?" Kroeber asked. "No one can tell, and that makes people nervous."

The risk of a protectionist reaction is all too real, especially in a global economic downturn.

"If people are looking for scapegoats for things that have gone wrong, China is an obvious target," he said.