Not just for China but...

(From Journal of Japanese Trade & Industry (JJTI))

Byline: Hatakeyama Noboru

China is the country that has the biggest trade surplus with the United States. For a 24-year period ending in 1999, Japan was the nation that had the biggest trade surplus with the United States. However, China deprived Japan of this "honorable" position in 2000 and has kept it until now. Last year, China's trade surplus with the United States was more than $100 billion. China is also the country that has the biggest trade surplus with Japan. In light of this situation, there are some opinions both in Japan and the United States to the effect that the Chinese economy is or will become a threat to the Japanese or American economy. However, there are some benefits to be gained if the Chinese economy prospers. Thanks to the inexpensive products imported from China, the cost of living and production in Japan has declined. Had it not been for the cheap goods exported to the United States from China, the U.S. economy could not have enjoyed a high growth rate without inflation during the 1990s. In addition, China provides our industries with a vast market potential - as long as the Chinese economy keeps growing at high speed. It is clear, however, that it cannot do so forever. The Japanese economy continued to expand more than 9% annually in real terms for more than a decade after World War II. But the oil crisis in 1973 broke the spine of Japan's high economic growth. Asian Newly Industrializing Economies (NIEs) and the Association of South-East Asian Nations (ASEAN) economies were expected to continue to grow miraculously, but the Asian financial crisis dashed such expectations. The Chinese economy will not be an exception. In addition, China faces many difficult economic, social and political problems. Let me explain them in alphabetical order.

A is the Appreciation of the Chinese currency, the yuan (renminbi). The pressure for China to float the renminbi has been increasingly strengthened as was demonstrated by the statements of former Finance Minister Shiokawa Masajuro of Japan and Treasury Secretary John W. Snow of the United States. B stands for Bad loans. It is said that 25% of the outstanding loans supplied by four major Chinese banks are bad loans. C is the Corruption of some officials and party executives. There are two D's, Deflation and Democratization. The Chinese retail price index started declining in the fourth quarter of 1997 compared to that of the same quarter of the previous year and has continued to drop until now with the exception of the second quarter of 2001. This suggests that China might have entered a period of deflation. Of course China has to democratize the communist party structure at least to an extent that is commensurate with the progress of market mechanisms. E stands for Environmental protection, including securing water supplies and reducing desertification. There are two F's, Fiscal deficit and Friction of trade with other countries.

Although China's fiscal deficit is only 3% of its GDP according to its ...