Part 2 of 2: The real economic strengths of Japan-China and ASEAN members

Lim Hua Sing, Professor, Institute of Asia Pacific Studies, Waseda University, Tokyo

At current levels, the rate of economic development in China is said to be about that of Japan in the 1960s. In other words, if we assume that Japan's economy is standing still, China will have to develop for another forty years to reach Japan's present standard. China's per capita GNP is US$854 (year 2000) compared to $32,585 (year 2001) for Japan. The former is a mere 2.6 percent of the latter.

China has become a "factory of the world". Chinese manufacturing goods have penetrated into international markets and Japan, together with Western nations, have begun to consider China an economic threat. However, China's economic strengths should not be overexaggerated.

Over the last two-and-a-half decades, how much technology has been accumulated by Chinese enterprises in China? How many local enterprises have been nurtured to become big enterprises or multinational corporations? How many local enterprises in China are run based on world-class managerial practices? In other words, China's economic development has been relying heavily on foreign direct investment, technology and managerial know-how.

Also some critics claim that China's legal system has not been developed to match domestic economic development, nor to serve a fast developing nation such as China.

China still has a long way to go. The GDPs of China, Japan and the U.S. are $1.08 trillion (year 2000), $4.14 trillion (year 2001) and $8.35 trillion (year 1999), respectively. The ratios are 1: 3.8: 7.7.

China has pledged to increase her GDP to about $5 trillion within 20 years, as is the Japanese standard today. Obviously, this will be a very difficult task for China, but the Chinese people seem to have the confidence to fulfill it.

Some China watchers have even warned that the present bubble economy will burst sooner or later. They also claim that the "socialist market economy" (politically, it is a centrally controlled socialist system, but economically it is a Western- style free competition capitalist economy) will not last very long.

However, as the Chinese like to say, China has pledged to develop her economy with Chinese socialist characteristics.

Frankly, I am also rather optimistic about China's economic development. Despite various economic distortions and contradictory economic development strategies, by the year 2008 when China hosts the Olympic Games, and by the year 2010 when China holds the World Exhibitions, China will by all means be able to develop without drastic setbacks. Even after the year 2010, say for another further 10 to 15 years, it is unlikely that economic development in China will have major retrogressions caused by serious macroeconomic mismanagement.

In China, the following factors are contributory reasons for economic development: Approximately 900 million peasants are potential industrial laborers; there is a large supply of cheap agricultural and industrial raw materials; the country has a massive domestic market with a 1.3 billion population, of which the middle class has been increasing rapidly; political and social stability; and mechanisms are in place to proceed with economic reforms and an open-door policy.

Japan and China are two important players in Asia; a declining player and an emerging player (although Korea can be considered as a recovering player with economic potential). Other than the U.S. and the EU, Japan and China have had the most profound influence in Asia.

ASEAN 10 is a well-organized entity with which Japan and China have established increasingly important cooperation links. In November 2001, China proposed the concept of a Free Trade Area (FTA) with ASEAN to be set up within 10 years. This concept, termed the China-ASEAN Free Trade Area (CAFTA), is being materialized faster than expected. Meetings and feasibility negotiations at governmental levels have been carried out frequently to expedite the process of regional economic cooperation and integration.

On the other hand, stimulated by China's initiative, Japan proposed "comprehensive economic cooperation" with ASEAN in January 2002. This proposal was later termed the Japan-ASEAN Free Trade Agreement (JAFTA). At the beginning, it was criticized as being without a definitive time frame. How long was it going to take to set up? But recent sources indicate that Japan intends to realize the JAFTA within a period that is even shorter than that of China.

Obviously, economic cooperation and integration endeavors in Asia are basically prompted by two factors. First, the formation of the EU and NAFTA, with strong exclusive undertones, has restricted the economic growth and cooperation of Asian countries with these two blocs. Hence, the need exists for Asian countries to set up their own trading entities.

Second, economic development within Asia has necessitated intra-Asia regional economic cooperation and integration, with an eye toward expansion into each other's trading markets.

With the initiatives of China and Japan and, most probably, South Korea in the future, economic cooperation and integration among Asian countries will be strengthened. Although China and Japan are rivals, they need to work closely for the benefit of Asia's economic development and intraregional integration. Both CAFTA and JAFTA should be promoted accordingly, and eventually ASEAN 10+1 (China, Japan and South Korea) should be materialized under the concept of pan-Asia regional economic integration.

As an important economic power, it is hoped that Japan will move to implement economic policies more resolutely and consistently, in order to recover from her current economic downturn as quickly as possible, before its leading role in Asia is overtaken by China.

The writer is also director of the Institute of Chinese Economies, Waseda University.