Japan in Their Own Words (JITOW)/日本からの意見

Japan's Position as China and Russia Lean Toward a Socialist Path
KAWATO Akio / former Ambassador to Uzbekistan and Tajikistan and a Newsweek Japan columnist

November 29, 2022
The global financial situation is becoming increasingly unstable. Some say that a crisis that surpasses the 2008 financial crisis is coming. And for some time now, the masses in developed countries have been raising their expectations for a "socialist economy" amid the loss of manufacturing industries and increasing inequality.

Let us remember history. The Soviet Union's system of planned economy literally collapsed in 1991 due to stagnant technological innovation and accumulated budget deficits. At the time, it appeared that the market economy had won a permanent victory, and Francis Fukuyama and others in the U.S. proudly called it "the end of history" and the triumph of the democratic system.

But now, with the end of the Cold War, China's entry into the Western economy has ironically resulted in the collapse of both the Western market economy and democracy. The exodus of the manufacturing industry to China has resulted in the disappearance of many high-wage jobs in developed countries and the division of society into a handful of wealthy people and vast groups of impoverished people. The impoverished have come to expect populist politicians to effect immediate redistribution.

Meanwhile, Russia and China, having rebuilt their national power, are taking steps toward strengthening their command economies under state control in order to rekindle their competition with the West and consolidate their own power.

The Case of Russia
Russia has achieved a market economy on the commercial side but has yet to build an industry that can compete with the West. Yet, due to the war in Ukraine, valuable foreign companies, few in number, have left the country one after another. Exxon, Shell, and others from the oil sector, GM, Toyota, and others from the manufacturing industry, furniture giant IKEA and others from the distribution industry, and McDonald's and others from the restaurant industry have withdrawn.

Russia's economy has so far been supported by surging energy prices and has not suffered a major collapse. However, the withdrawal of Western companies has resulted in the loss of crude oil extraction technology, and production in some oil fields has plummeted. In the passenger car sector, which has been heavily dependent on foreign companies, production from January to September was down 65.9% from the same period last year and is in a state of collapse.

In addition, on October 19, President Putin established a "special coordinating commission" to increase military production. He gave it extrajudicial resource allocation powers. Russia, which is said to have lost about one-third of its current tanks in the war in Ukraine, must urgently strengthen its munitions industry. This will return Russia to the military-oriented command economy of the Soviet era (over 60% of industrial production was considered munitions-related).

Much of the money will be squandered and embezzled, and there will be fighting for funds among various ministries as well as central and local governments. With the war, defense spending has skyrocketed, which has caused the budget to turn from a surplus to a deficit. If energy prices collapse, Russia's economy will collapse, and its people, accustomed to Western products and Western-style consumerism, will begin to protest.

The Case of China

In China, the standard of living has improved, but the Xi Jinping administration is rushing in the opposite direction to freedom and democracy. He is trying to remove the language of "reform and opening-up," which brought about China’s current prosperity and enhanced its national power, from the "Legislative Law" that lays down the basic principles of legislation.
When young elites were sent down to rural areas and deprived of formal educational opportunities during Mao's Cultural Revolution in the late 1960s, it was much feared what would happen when this generation of elites found themselves in leadership positions. Now the fear comes true.

Xi Jinping is poised to elevate Li Qiang, who has no experience in central government administration, to the prime minister at the People's Congress next March and entrust him with future economic administration. His government and the party apparatus will ignore the market economy and develop a command economy, telling people what to make, how many, by when, for whom, at what price, and how many to sell. The same is true for foreign companies.

In 1898, at the end of the Qing Dynasty, Empress Dowager Xi overturned her son Emperor Guangxu's reform policy, the Hengfa Jiqiang Movement (戊戌政変); two years later, when the Uihe Dan movement to exclude foreigners broke out, she took advantage of it to declare war on the Western powers and lost badly. I don't think the Xi Jinping administration will go this far, but something like the 2012 anti-Japanese movement, in which several Japanese business establishments were attacked, could well happen.

Will the world and Japanese economies properly work with China and Russia dropping out of the picture?

Economic relations with Russia are of marginal significance for any developed country, except for energy resources. Russia's exit will temporarily raise the price of energy resources, but it will not cause a total collapse of companies in developed countries. They just need to raise product prices and raise wages.
In the case of China, the response is much more difficult because it has become the "world's factory”. Rather than an all-or-nothing judgment, a detailed, realistic response is required. The following points should be taken into account in making decisions.

Firstly, economic relations with China seem indispensable to developed countries. This is because they use China as a base for assembling their products, concentrate their exports of parts and machinery there, and import their products therefrom. Therefore, if product assembly is done outside of China, trade relations with China will be reduced to less than half.

In that case, assembly locations and the supply chain would need to be restructured. China is the exclusive supplier of some raw materials, such as lithium. However, most of these items can be produced in other countries at a cost.

Assembly of products such as Apple's iPhone would be moved from China to other countries. This is inevitable anyway since the U.S. is about to impose strict controls on semiconductor exports to China. Besides, if they keep their base in China, they will be nationalized at some point.

However, whether it is product assembly or parts production, it is not easy to find an alternative location to China. It would seem that if you want to export to the US, you should manufacture in the US, but if you build a factory in a state with strong labor unions, the factory will be preyed upon by labor union leaders.

Southeast Asian countries such as Vietnam, Bangladesh, India, Turkey, and parts of Africa such as Kenya come up as potential assembly sites, but they all have their own problems - difficulty in securing land, lack of infrastructure, corruption of local authorities, etc. These problems require careful investigation, decision-making, and the securing of local management personnel.

Japan's position is clear.

The time has come for Japan to play a role in the world as a major economic power in contrast to Chinese-style centralization and authoritarianism. Infrastructure lacking in developing countries can be built using Japan’s low-interest loans and other forms of ODA, as was done in Southeast Asian countries and China in the past. Japan should avoid unnecessary confrontations with China and be willing to cooperate with China when possible. Let us not force democracy on our partners, nor trap them in debt, and let us do so with the attitude of pursuing "the greatest happiness for the greatest number," as Jeremy Bentham put it.

Kawato Akio is a former Ambassador to Uzbekistan and Tajikistan and a Newsweek Japan columnist
The English-Speaking Union of Japan

河東 哲夫 / 元駐ウズベキスタン・タジキスタン大使、ニューズウィーク日本版コラムニスト

2022年 11月 29日





















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English Speaking Union of Japan > Japan in Their Own Words (JITOW) > Japan's Position as China and Russia Lean Toward a Socialist Path