June 1, 2005｜China
Professor, Graduate School of Asian Pacific Studies, Waseda University
Recently, when one visits the Asia issues section in a bookshop, it always seems to be full of books with an emotional anti-Chinese message. Certainly, the barrage of anti-Japanese demonstrations in April came as a shock to many Japanese. Of course, China’s “Chinese logic” has led to the unleashing of its irritation with Japan, but Japanese people, although they accepted it with their “Japanese logic”, cannot understand this, and this is exacerbating the sense of mutual distrust. On the other hand, there is great disquiet about the “enlargement of China”. A quarter of century has passed since China began promoting a shift to the route of reform and liberalization, and the country’s overall power has grown considerably. However, this has also been shocking. Amidst this mentality that is half anxiety and half hope vis-à-vis China, on 23rd May, during her visit to Japan, Vice Premier Wu Yi cancelled her meeting with Prime Minister Koizumi at the last minute, over the issue of his visits to Yasukuni Shrine. People have been becoming more vociferous in expressing their disgust at China’s arrogance. However, we cannot move away from our immense neighbor. Our relationship with China can only become more profound. It is necessary for us to calm down and understand the actual situation in China.
How should we think about China? Certainly, we often hear tales of how China is booming at present. First of all, with regard to its macroeconomic strength, GDP was only about $300 billion in 1980, but this had risen to $1.409 trillion by 2003 and $1.64 trillion by 2004, and it is on course to sustain this high growth in 2005 as well. On an executed basis, foreign direct investment in China grew steadily to $53.5 billion in 2003 and $60.6 billion in 2004, and China has overtaken the US to become the world’s top recipient of investment. With regard to trade between Japan and China, the total value of trade in 2004 was $168 billion (up 27% on the previous year), achieving an all-time high for the sixth year in succession. Japan’s reliance on trade with China also increased, with trade with China and Hong Kong accounting for 20.1% of Japan’s overall trade; this figure even exceeded that for trade with the US (18.6%). Furthermore, with regard to military might, China has continued to achieve two-digit growth compared with the previous year every year since 1991 ($6.2 billion); in the ordinary budget for 2004, the figure was $25.5 billion, but apparently, analyses by Western experts put the actual figure at $50-70 billion, which would place China in second position in the world, behind the US.
This trend towards growth and expansion is likely to continue until the Beijing Olympics in 2008 and the Shanghai Expo in 2010. However, fears about the future of the Chinese economy are now growing steadily. For example, Jim Walker, Senior Economist at CLSA, has pointed out that such issues as the lack of professional engineers and middle managers, the rising cost of labor, and the deterioration of the banking system herald an economic slowdown, giving the harsh assessment that, “the Chinese economy is likely to plunge into the doldrums in 2007.” The eminent Chinese economist Fan Gang has also sounded a warning about the optimistic perspective, stating that, “We are entering a crucial phase that will determine whether or not the Chinese economy will be able to maintain its cruising speed and achieve growth.”
In addition to this theory of caution about economic growth, wealth disparities, corruption and unemployment are deteriorating markedly. The number of civil servants arrested for corruption in 2004 was 43,757 (about 120 people per day), according to figures announced by the authorities, with the number of cases in which the value of bribes and money embezzled exceeded RMB 1 million (13 million yen) was 1,275, up 4.9% on the previous year; thus, corruption is escalating and becoming larger in scale. Moreover, an immense number of cases emerged of the fraudulent outflow of state-owned assets resulting from the adoption of a system of stocks, with such fraud amounting to RMB 410 billion (about 5.33 trillion yen) at 181 large state-owned companies under the direct control of the government. Perhaps reflecting this sharp social paradox, according to recent reports, dissatisfaction is building up amongst many of the populace and one hears news of frequent demonstrations, strikes and riots breaking out. For some time, I have been saying that, “China’s development is astounding, but it is resulting in pain and blood is being spilled as development progresses. ” We can now see that we are approaching a situation in which that pain and bloodshed will become considerable and China will be unable to progress further unless the pain and bloodshed are treated properly.
Naturally, China’s own efforts to help itself will be the biggest key. The positioning of “a harmoniously balanced society” as the keyword in Wen Jiabao’s Government Report at this year’s National People’s Congress (equivalent to the Japanese Diet) makes the government’s future direction clear. However, in order to do this, it will be necessary to wield the knife with regard to the structure of the wealth gap and build a reallocation mechanism that will ensure that resources flow from growth to welfare. It is anticipated that there will be considerable resistance to this. What is required, above all, is the reform of a structure in which top officials in the Communist Party themselves take the lion’s share; in other words, democratization is needed. Furthermore, reinvestment should be reformed, shifting from a structure in which production is prioritized, to one in which the improvement of society is the top priority; accordingly, a slowdown in growth is inevitable and will increase the number of unemployed. What should be done about energy and environmental issues? Social dissatisfaction and unrest are likely to increase further. However, even though it may bring about temporary stability, merely intensifying one-party rule will push the country into a vicious circle in the long run.
In contemplating these many challenges, China will structurally no longer be able to refuse to cooperate and collaborate with the international community. The country’s degree of dependence on external trade is in excess of 60% and foreign capital is driving economic growth. It will be unable to resolve environmental and energy issues without cooperating and working in partnership with other countries. It will not be possible to achieve a soft landing in democratization, let alone in reforming the tax and banking systems, without overseas cooperation. What is needed is to shift away from Deng Xiaoping’s plan for a rich and powerful China, and to build “a China with a harmoniously balanced society”. In fact, China is floundering badly. What is necessary between Japan and China is to foster an atmosphere in which problems can be dealt with calmly, to reduce mutual misperceptions, to break the chain of mutual distrust, and to build mechanisms for dealing with problems. The question of how to develop a good relationship with our vast neighbor is the biggest issue that will influence Japan’s future.