Abe, China and fences

 

Japan and China both claim a group of islands in the East China Sea

Japanese Prime Minister Shinzo Abe said don't waste Asia's prosperity on military expenditure and that Asia and the world need a mechanism for crisis management in his keynote speech at the World Economic Forum in Davos.

Yet, since he came to power a year ago, tensions have increased with China, namely over ownership of the Senkaku (to the Japanese) and Diaoyu (to the Chinese) and his visit to a controversial war shrine.

So much so that Carlos Ghosn, the CEO of one of Japan's largest companies, Renault-Nissan, told me that the business community is pressuring the Abe government to resolve the issue with China.

And leading economist Nouriel Roubini identifies it to me as one of the risks of 2014 - a potential military clash.

Ease

For Japan, a country with weak demand due to a shrinking population, risking one of its main external markets is perhaps foolhardy. When I asked Ghosn about how much demand can grow in an ageing society, he pointed to the importance of export markets.

Thus, the desire of business to see tensions eased.

That should be the desire of the Abe government too.

After all, for Abenomics to work, it requires firms to raise wages, key to defeating deflation that has just begun to ease after 20 years.

The government can pressure firms, which it is doing. But, ultimately, firms would only permanently raise wages if demand grew.

For a shrinking population with weak internal demand, external demand is important. Indeed, exports to China were a driver of Japan's recovery via exports in the past decade.

Fence

As Abe said in his speech, Asia has become the growth engine of the world.

He says it's due to a renewed Japan and its neighbours, including China. He is encouraging the creation of a free trade area known as the Trans-Pacific Partnership (TPP) - but bear in mind that it excludes China.

These somewhat contradictory tendencies seems to pervade Abe's speech and the stance between the second and third largest economies in the world. But, as Ghosn told me, it is more to Japan's benefit that this fence between neighbours is mended.

 
Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

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  • rate this
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    Comment number 29.

    China's government has probably blocked access to this site.They don't want their citizens hearing any negative views of China.They want to control everything everyone in China hears, sees, thinks.That's the only way a brutal dictatorship can maintain power.It's hard during the information age.The truth has a way of getting through.You can't block it forever China.They'll hear us eventually.

  • rate this
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    Comment number 28.

    The process of leveling off China's GDP growth already begun. Will it continue, even accelerate? During the recent slowdown much GDP growth was stimulated by government spending on infrastructure way out of proportion to what China's GNI suggests is prudent. Some exports have picked up but many factors including declining US energy costs, higher wage demands in China are driving production away.

  • rate this
    0

    Comment number 27.

    Difference between GDP and GNI is difference between how much wealth is created on your territory and how much of it you get to keep. GNI/GDP ratios recent: US 86%, Japan 120%, China 15%. Source, Nationmaster.com. GDP and per capita GDP usually listed in PPP (purchasing power parity) skews data in favor of nations where government subsidies are strong. Real GDP and GNI should be on absolute basis

  • rate this
    0

    Comment number 26.

    Just notice

    Japan GDP/head

    2012 : $46,707
    2014 estimate: $41,150

    I think this was largly affected by the decline of export to China, no good for both sides

  • rate this
    -1

    Comment number 25.

    No one can stop Japanese from visiting their shrine no matter how offensive it is.The disputed islands are worthless for oil exploration until the dispute is settled because investors won't take the risk. China's military buildup is a foolish waste of money.It can never challenge the US militarily and the money is badly needed elsewhere. 500 million Chinese live on $2 a day or less.

 

Comments 5 of 29

 

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