Thursday, August 7, 2014

Japan must prepare for bursting of China's bubble


When I observed the recent discussions over approving the exercise of the right to collective self-defense, I felt that Prime Minister Shinzo Abe's view of "national power" based on military strength was outdated.

They say the premise of the discussions is "changes in the security environment." Certainly the international community is changing dramatically. One example is China's rise. Another is the relative decline of American power. Exhausted by the Iraq War, the United States was unable to do anything about the problems in Syria and Crimea.

Japan has been able to rely on the U.S. military strength, but in the future, the country will have to shoulder some of the role the United States has borne. I believe that is how the Abe administration understands the situation.

Yet what we must consider is that economically Japan is very much dependent on China. Japan imports more goods from China than from any other country, and China accounts for the second-largest export volume from Japan. Paradoxically, Japan is reliant on the United States militarily and on China economically.

How can Japan deftly navigate these circumstances? That is the biggest Japanese security issue. But Abe's ideas are still from the Cold War era. He thinks there is a clear divide between the United States and China.

I do not think, however, that Beijing actually has the intention of confronting Washington directly. The mutual economic dependence between the two is deeper than that between Japan and China.

The "new model of great power relations" China proposed to the United States is the idea that each side will not interfere with what the other does and each will maintain their power within their respective spheres of influence. The Obama administration, too, accepts this.

So long as the United States and China maintain a "new model of great power relations," deterrence will not become stronger or weaker in terms of protecting Japan from armed attack even with the Cabinet's approval of the exercise of the right to collective self-defense. On the contrary, I fear this will become a provocation.

While China has tried to change the status quo through force in the South China Sea, it has always been cautious about its actions in the East China Sea. We should be careful that Japan does not rock the boat.

Of course it is not inconceivable that China could become a threat to Japan. But the economic risks are rather more serious than the military risks.

They say that China's gross domestic product (GDP) will surpass the United States' in the 2020s to become the world's greatest economic power. On the other hand, China's working population has already peaked and will rapidly shrink in the future.

A bubble is likely if a country tries to sustain growth through excessive investment when the labor pool shrinks and real economic growth weakens. There is an extraordinarily high chance that before long, there will be an economic crisis emanating from China.

Is the Abe administration preparing for this? No, it is not. Abenomics seeks to increase exports through monetary easing and encouraging a weaker yen. If Japan relies on foreign demand spurred by a weak yen, then an economic crisis overseas will have a greater effect on the country.

Even with a weaker yen, the production centers of Japanese manufacturing have not returned. Meanwhile, pump-priming measures have pushed the country's outstanding debt to more than 1,000 trillion yen.

If the national debt cannot be digested domestically and has to be picked up overseas, the risk increases even more that economic anomalies in other countries will have a ripple effect on the lives of the Japanese people. The Abe administration is, in fact, making Japan into an easy target for economic risks out of China.

The premise that we should increase national power for the sake of security is not without merit. Yet the Abe administration is still taking a stand with an outdated view of national power.

What we need is flexibility in forming a new concept of national power and deterrence in a radically changing world. We should think about a deterrent to adeptly guide the tensions and chaos out of Chinese society--that may be born of an economic crisis--toward a soft landing in the international community.

At the same time we should create a strong structure so that the Japanese economy can withstand it if the Chinese bubble bursts. The bedrock of national power is a financial base. We need to control expenditures, improve the fiscal situation and rethink a weak yen.

Attempting to hold down personnel costs and raise competitiveness with a weak yen is, in a manner of speaking, selling out Japan's labor force. Boosting Japan's purchasing power relative to other countries and increasing overseas investment through a stronger yen might better lead to greater national power.

Starting now, Japan must consider strategies other than just growing exports. That is what I believe will increase national power and strengthen a true deterrence that will protect the lives of the people.

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Kayano is a professor at Tsuda College and expert on philosophy and social theory.

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