This past Tuesday September 27, the Bryn Mawr College Political Science department invited Kiyoyuki Seguchi, Research Director of the Canon Institute for the Global Studies, to lecture on the Chinese economy and Japan-China relations. Citing China’s recent transition into domestic-demand from export-investment and the rapid growth of the middle class, Seguchi hypothesized the future of China’s regional and global influences. The event was organized by my former political science professor, Professor Seung-Youn Oh, and she encouraged Seguchi to also include South Korea in his presentation.
From Export-Investment Economy to Domestic-Demand Economy:
Seguchi first introduced economic trends through graphical data on growth rates from the 1980s into the present. China’s growth rates have peaked at over 10% per year during the early 2000s, but according to growth rate trends from 2012 to the present, there appears to be a “new normal” GDP growth rate at a little below 8%. Export rates have declined to the negatives since 2010. Part of the reason for this lower export rate may be due to the Chinese government encouraging Chinese companies to produce in other countries. Other factors include the Renminbi appreciation in value and the fixed asset in investment being in gradual decline.
New Normal Stabilized Despite Growth Rate Decline – A Demographic Shift:
Despite the decline in other growth rates, the “new normal” GDP growth rate remains stabilized. Consumption rates also remain solid with consumer prices remaining stable for more than four years for the first time since the 1990s. While manufactoring, agriculture, forestry, and fishing industry growth rates are declining, the service sector is rapidly increasing. Why the rise in service sector? Seguchi pointed to the increase in the number of employees in cities and the rise in middle class. He gave the example of a steel factory compared to a McDonalds. Opening a steel factory requires low employment, but high investment. Opening a McDonalds requires high employment, but low investment, so it is easier and faster to start franchises like these which also cater to the everyday needs of the city people. More and more Chinese people living in big cities can afford these service because more and more cities in China are reaching the $10,000 USD per year GDP income bracket. It is projected that by 2020, between 800 – 900 million Chinese citizens will reach a GDP over $10,000 USD. The new middle class provide a huge potential market for other countries — the top countries with foreign direct investment in China are Japan (~$94 billion USD), the USA, and South Korea.
A Surge in Chinese Tourism:
Chinese tourism domestically and internationally continue to rise as more people can afford to travel, especially to neighboring places like Japan. From rice cookers, to electronic toilets, to medicine and beyond, the demand for Japanese products and services is rising quickly in China. Chinese tourists often come to Japan in large groups to enjoy the blue sky, green hills, clean water, and environment. Some towns they like to visit are not even popular or special to the local Japanese people, but Chinese people who share their positive experiences on social media such as WeChat tend to spread the word about those particular towns. The Japanese realized that Chinese tourists were not only polite, but a major boost to their tourist economy. In this symbiotic relationship, both sides can benefit.
On Japan-China Relations: Polarization of Japanese investment in China
Although Japan holds the most FDI in China, only the top 10-20% companies are positive about investment in China. The majority remain wary and cautious, therefore there have been very few new investments. Seguchi provided four explanations for the polarization:
- Lack of understanding of the Chinese economy resulting in unwarranted pessimism (fueled by negative reporting by the Japanese media)
- Lack of talented Chinese workers in Japanese companies
- Financial market volatility rooted in Chinese intensifying anxiety
- Chinese domestic market is too competitive, market entry may be possible, but not market success
Seguchi’s personal opinions are more optimistic. He believes changes in attitude are possible and that decline in China growth rates are deceiving the fact that China’s economy is stable and worthy of investment. Seguchi’s proposal for long-term foreign policy in Japan include:
- Enhancing Japan’s contribution to the US-Japan Alliance in the economic field <Join One Belt One Road in Korea>
- Improving the economic development of Middle East with China and Korea in order to restrict the base of terrorism
- Promoting and sharing the philosophy or culture of the Japanese corporate company to resolve the social problems caused by capitalism in developed countries
*Side note 1: We recognize that China has their own domestic terrorism and corruption problems as any other country does, so acting on two fronts (domestic & Middle East) of terrorism is a difficult challenge. Perhaps a Chinese-Japanese-Korean joint effort could offer an alternative to counterterrorism methods.
*Side note 2: We recognize that there are still flaws in Japanese corporate culture, namely sexism, low diversity, and low transparency.
Tri-Lateral Relations: Japan, China, the USA & South Korea:
There seems to be some tension between China and Japan over whose side the USA is on. In a hypothetical nuclear attack from North Korea on Japan, will the USA counter attack on North Korea, showing the success of the US-Japan Alliance, or talk to China and hold off attacks and protection for Japan? Japan would have to realize that a counterattack could also start war. Should Japan prepare for the worst in the midst of North Korean missile preparations? Should South Korea collaborate with China so that China could talk to North Korea in favor of South Korea? The future of these international relationships are increasingly pressing in today’s world.
Prior to joining the Canon Institute as research director, Kiyouki Seguchi worked for the Bank of Japan from 1982 to 2009. He was the Chief Representative of the Representative Office of Bank of Japan in Beijing from 2006 to 2008 and the international visiting fellow at RAND Corporation (Los Angeles, CA) from 2004 to 2005. He received a bachelor’s degree in economics from the University of Tokyo.