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Monday, Feb. 3, 2003

ECONOMIC GROWTH

Pendulum swings on China vs. Japan


DAVOS, Switzerland -- How wildly the pendulum swings whenever "the experts" start talking about Japan vs. China. One can do no wrong, and the other can do no right.

Ten years ago the general idea was that Japan's economy was so awesome, it would wind up owning the Grand Canyon, the Lincoln Memorial and the New York Stock Exchange -- and still have enough left over to buy Latin America. Not only could Japan do no wrong, it could walk on water.

Now, it seems, the Japanese can't even float. That, at least, was a theme at the World Economic Forum's annual retreat here in the Swiss Alps that ended last Tuesday. Recession-bound, reform-resistant Japan is being all but written off as a major economic player, at least for the next few years.

By contrast, the buzz is all about China. It's economic engine is soon to overtake Europe's. Geniuses run it. They may even bury us economically someday. Well, maybe -- or maybe it is just time for the pendulum to swing again.

To be sure, China's economic growth the last two decades has been awesome, primarily because it repudiated strict Marxist-Leninism, whose road leads nowhere. The Chinese deserve much of the praise being heaped on them here.

If you can put aside their rough-house methods of managing people, you have to admit that they have been single-mindedly adding to their national wealth more quickly than any country in recent memory. They're reforming and exporting like there's no tomorrow. Good for them -- and for us, at least for the foreseeable future. As international economist Kenneth Courtis put it, "It is always better to have a neighbor who's healthy and has money than one who's sick and broke."

On the other hand, maybe the China success story is too good to be true. How many of its 1.3 billion people are fed and housed competently? Is its growth rate really 7 to 8 percent, as advertised, or something less? And once there is an automobile or two in every Chinese garage, how will anyone there, or anywhere else in Asia, be able to breathe?

China has tens of millions chafing about their future in the countryside, it's still weighed down by corruption, and it can't quite rid itself of the Asian notion that father (i.e., the central government) always knows best. Worse yet, China's post-1949 track record is too often a case study in destructive convulsion: Places like the Wharton School don't exactly celebrate the management secrets of the Cultural Revolution, the Great Leap Forward and Tiananmen Square crowd-control methods. Nor are the world's leading business schools enamored with China's lack of transparency and financial sophistication, as the brilliant Zhu Min of the Bank of China candidly admitted here.

To be fair, maybe Japan's so-called allies in America are right, and Japan is doomed. But one simple fact is being forgotten: For all their difficulties, Japan remains the world's No. 2 economy -- far ahead of the Germans. It could still suffer another deep recession or two and easily remain No. 2. Worst-case scenario: Japan becomes the No. 3 economy -- not exactly the end of the world, is it?

Human nature is partly to blame for the promiscuous pendulum: We get bored with nuances so we look for extremes; we get stuck on flavors of the month. A decade ago, best-selling books on Japan's management style were being cranked out faster than Toyota trucks. The Japanese are famously talented, but like the rest of us, they can slip up, have a bad decade, become mired in tradition and corruption.

Even so, it makes little sense to devalue the other neighbor when the property is otherwise fundamentally upscale. Sure, Japan's in trouble -- but is it a total washout?

Worse yet is the tendency to position China and Japan as fatally destined to bangs heads. In fact, for both to prosper, they need each other as model neighbors and economic allies. Last year's Japanese export figures, just released, showed its sales to China up a whopping 32.2 percent.

Gleefully agrees Minoru Murofushi, chairman of gigantic Tokyo-based Itochu Corp.: "We think that China is a huge stomach that can absorb tremendous amounts of products."

If you had your last million dollars to invest in China or Japan over 10 years, which would you choose? Think carefully. The answer isn't as obvious as many people seem to think. As Berkeley Graduate School of Journalism Dean Orville H. Schell, one of the world's sharpest China-watchers, puts it: "China has an amazing way of defying prediction."

So why fall for the either-or pendulum game?

Tom Plate, a UCLA professor, is a columnist with The South China Morning Post, The Straits Times and the Honolulu Advertiser. Copyright 2003 Tom Plate


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