The economic lesson China must learn from 1980s Japan
Walk into pretty much any bookshop in the English-speaking world and in the prime spot just inside the entrance, you will be confronted by a shelf of books bearing titles like China Shakes The World: The Rise of a Hungry Nation, or China Inc: The Relentless Rise of the Next Great Superpower, or even When China Rules the World: The Rise of the Middle Kingdom and the End of the Western World.
The details inside may vary, but all these publications share a common theme: that the economic and political rise of China is inexorable and that readers in the Western world, and in the United States in particular, had better get used to playing second fiddle on the global stage to the ascendant power in the East. Believe what you read and it seems that in just a few years, people everywhere from Perth to Peoria will be working for Chinese-owned companies, struggling to master Putonghua and ditching their US dollars for yuan if they want to carry an acceptable hard currency when they travel abroad.
To those of us getting long in the tooth, it is hard not to draw parallels between the best-seller lists of today and those of the late 1980s. Back then, the same booksellers' shelves groaned under the weight of works with titles like Japan as Number One, and Yen! Japan's New Financial Empire and Its Threat to America, and even Blindside: Why Japan is Still on Track to Overtake the US by the Year 2000.
Book titles are not the only similarity between the situation now and 20 years ago. Today, the world's largest banks by market capitalisation are Industrial and Commercial Bank of China, China Construction Bank Corp and Bank of China. In 1989, they were Dai-ichi Kangyo Bank and Sumitomo Bank, with Fuji Bank and Industrial Bank of Japan close behind. Today, trade frictions are mounting as politicians in the West complain about unfair competition from China. Back then, their target was Japan. Today, it seems to many that the US is in terminal economic decline and that its eclipse by China is only a matter of time. Then, the next global economic superpower was clearly going to be Japan.
Except, of course, that Japan's rise to economic pre-eminence never happened. It was postponed indefinitely when the bubble economy burst in 1990 and Japan lapsed back into a lost decade that is fast becoming two lost decades.
Now, warns Tomo Kinoshita, a deputy chief economist at Japanese brokerage house Nomura International, China risks following the same economic trajectory.
The danger will arise if Beijing keeps interest rates low and credit conditions loose to compensate for future yuan appreciation while simultaneously pursuing financial-sector liberalisation.