Japan riddle haunts Asia-Pacific

Japan riddle haunts Asia-Pacific

By S. P. SETH

SYDNEY (JP): According to reports, Japan's economy has turned
the corner. For the year ending March 1996, its Gross Domestic
Product (GDP) is estimated to have risen by about 2.5 percent:
the best results since 1991. Indeed, its 3 percent economic
growth in the last quarter (January-March) of the financial year
would point to a much higher annual economic growth, if
sustained. But financial analysts are not betting on it. Even a
sustained annualized growth rate of 2.5 or 3 percent is being
treated with some caution. That is because much of Japan's
economic growth is due to heavy government spending (totaling
$US130 billion) on public works projects, which is unlikely to
continue.

The contrast in public spending between 1991 and recent times
illustrates this point. In 1991, Japan had a budget surplus
equivalent to 3 percent of its GDP. Today, it has a budget
deficit approaching 6 percent of its GDP, which would suggest
that the government might have to rein in public spending.
Besides, it looks as if interest rates will be rising soon.
Although the country's central bank has helped jump-start the
economy through record-low interest rates, this cannot continue
for fear of fueling inflation.

Yet lately, profits are up, consumer spending is on the rise,
private capital outlays are healthy and the yen appears stable
with U.S. dollar, at about 105-110 yen to a dollar.

The celebrations, however, are muted because of doubts about
the sustainability of Japan's economic growth, from a likely fall
in public spending and a rise in interest rates, lack of
political will to continue with economic deregulation and general
political uncertainty in the country, with its changing coalition
governments. It remains to be seen if next year's elections will
resolve this problem. The country's political culture of fixing
up deals remains unchanged.

However, to the extent that Japan is emerging from its
economic wilderness, it is beneficial for the world economy. The
Japanese economy is an important engine of world economic growth.
In order to stage a comeback, Japan has been undergoing
significant economic restructuring. This, among other things, has
involved a shift of its low and medium level manufacturing to
countries in Southeast and East Asia.

Japan is estimated to have already invested about $85 billion
in Asia, and is adding to it by over $10 billion every year. Its
trade with Asia has overtaken its combined trade with the
European Union and the United States. Japan's trade surplus with
Asia is burgeoning, accounted for by exports of machinery and
parts to Japanese manufacturing units in these countries. (Some
analysts, though, believe that eventually, growing Japanese
imports of manufactures from Asia will wipe out this surplus. But
that is in the indeterminate future)

These developments have a negative side as well. For
instance, Southeast and East Asia, in effect, have become part of
Japan's Greater East Asia Co-Prosperity Sphere, which Tokyo did
much to foster before and during World War II. Even though it is
happening now in peacetime and with the willing participation of
the concerned Asian countries, it is still causing considerable
strain and tensions. As Sumie Kawakami, an analyst on Japan, has
pointed out: "The use of Asia as an assembly base for Japanese
products is beginning to result in friction, as it becomes
obvious that Japanese companies are reluctant to shift management
responsibilities to non-Japanese."

The tensions are also inherent in a relationship where Japan
is unwilling to establish high-technology operations in Asia,
thereby seeking to perpetuate an unequal economic relationship.
Even though Japanese investments in Asia are creating economic
opportunities and prosperity, the resultant status of an economic
appendage or satellite of Japan is not a very pleasing prospect
for regional countries.

Therefore, while Japan is seeking to create an inter-
dependent economic relationship with its Asian neighbors, there
is no corresponding attitudinal change in terms of regarding
these countries as its equal partners. Japan's old wartime
attitude of regarding them as its economic subsidiaries/colonies
is still very much alive. Japan's growing trade surplus with Asia
year by year is a constant reminder of it. Unless corrected soon,
this might become a serious issue between Japan and its Asian
trading partners.

At another level, Japan's economic expansion in the region
is likely to create new tensions in U.S.-Japan relations. Japan
is increasingly replacing the United States as Asia's preeminent
economic power. At the present time, however, the U.S. and Japan
are enjoying a honeymoon in their security partnership against a
perceived Chinese threat to regional security. There are too many
imponderables to warrant any long-term predictions in this
regard. For instance, trade tensions between the two countries
are still largely unresolved.

Even within Japan, its economic recovery is a mixed
blessing. Economic restructuring is causing considerable pain.
The shift of manufacturing abroad, mostly to Asia, is adding to
unemployment at home. Job security and seniority are no longer
assured. Many businesses have trimmed their operations by sacking
workers to remain competitive. Japan is in the midst of record
unemployment, reaching around 3.5 percent. The real unemployment
figure (including "discouraged workers" who have stopped looking
for work) is much higher -- at about 9 percent -- according to
Kishi Nohubito, a Japanese scholar. Such changes are bound to
affect Japan's social harmony and stability.

How Japan will cope with pressures at home resulting from
growing unemployment and criticism abroad of Japanese insularity
and arrogance will significantly affect the strategic environment
in the Asia-Pacific. For instance, if Japan were to once again
feel besieged, as it did in the 1930s, one can only predict
disaster in the Pacific during the next century.