China / Japan? History repeating itself?

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Too far fetched?

Let’s consider briefly the facts and also some important caveats.

Population demographics

The results of a census taken in 2015 has placed Japan’s population at just over 127 million – a decline of about 1 million in about 5 years. Japan’s birth rate has been long below the total fertility ratio of 2.1 (currently 1.4) and nearly a third of all Japanese citizens are now over 65. This is already a source of policy and economic challenges for Japan and one that is likely to keep growing.

China’s one-child policy starting in the 70s has had a major impact. Whilst the policy has now been relaxed, the population control genie, once out of the bottle can rarely be controlled. Changing economic trends, mindset shifts, and a movement towards an urban citizenry means less people are keen on having children. The United Nations estimates that that the number of Chinese over 65 will increase by 85% to 243 million in 2030 (from the current 131 million). The Chinese working population saw its biggest decline in 2015 – a fall by a record 4.87 million.

Both Japan and China have very restrictive and insular immigration policies which will only serve to further exacerbate the population and demographic challenges. These demographic issues will also impact economic growth and development as in time both economies will have inverted population pyramids, where one active working individual will be supporting two parents and four grandparents – and better medical facilities and healthcare will lead to a greater demand on the working population.

Perhaps the spur in investment in robotics will help alleviate these challenges?

Economic growth history

Japan’s economic growth started with the development of its manufacturing base following World War Two with support from the USA and other Allied nations. Japan’s growth was an average of 9% between 1955 and 1973 (when the first ‘oil shock’ impeded growth).

In the case of China, following a debilitating post-war economic situation and the challenges of the Cultural Revolution, the opening up and reformation of the economic system from 1978 was instrumental in China’s economic story. China’s growth has averaged between 7% and 10% since.

The main engine of growth both in the case of Japan and subsequently China was manufacturing. It will surprise users of top-notch Japanese products today to learn that from the 1950s to around the 80s, ‘Made in Japan’ meant low-quality and cheap and people preferred to use American or European produced goods. However, the Japanese investment into their manufacturing processes, research and development over time meant that they started developing high-value and high-quality goods and products. It’s a process that took decades and systemic investment into innovation.

In the case of China-made products, there are still some challenges around quality and value, but this is something that is being addressed as we now increasingly see greater investment into research and innovation.

Funding world’s developing needs

Japan became development donor from as early as the mid-50s and by the early 90s, Japan became one of the largest officual development assistance (ODA) providers in the world. Grants, aids and soft loans were provided through agencies such as the Japan International Cooperation Agency (JICA) to countries across Asia, Latin America and Africa.

Japan then became instrumental in the establishment of the Asian Development Bank (an institution for which it has maintained presidency since inception in the 60s).

This allowed Japan to project its soft-power and help foster policies favourable to Japan across recipient nations.

If we examine China’s development assistance, aid and grants – it has grown from less than US$1 billion in 2002 to over $25 billion in 2007 to currently over US$100 billion. Due to differences in the way ODAs are valued, it is possible that China’s current aid and grants may be undervalued.

China also was instrumental in the set-up of the Asian Infrastructure Investment Bank (AIIB) with an express aim of building infrastructure across Asia-Pacific. Whilst both ADB and AIIB officials have been at pains to stress that they do not see each other as competitors (indeed they have already co-financed a number of projects), a primary reason why the AIIB was set up so as to have greater autonomy by China and other partners in multilateral banking institutions.

Slowing growth and liquidity trap

In the late 80s, Japan was running a very large trade surplus and the stock market and property prices were booming (there were properties which were valued at US$1.5 million per square meter – or ten square feet in Ginza!) which collapsed in the 90s. There was an asset bubble across both the stock and property markets and when the bubbles burst, it led to the loss of trillions of dollars of value.

Deflation set in and whilst the Japanese government tried its best to promote spending (including setting interest rates at near zero levels), there was little effect. Growth has been anaemic and in 2009 the GDP fell by 5.2%.

Japan found itself stuck in a classic liquidity trap where where its monetary policy had little or no impact on economic output and production levels. This led to the ‘tragedy of Japan’s lost decades.’

Let us now consider China. Relatively easy loans made by banks? Check. Booming property prices? Check. Booming stock market? Check. Corrections across all three areas? Check.

China’s economy has been slowly significantly and it’s GDP growth rate has fallen to a level not seen since 1990. A report from the Wall Street Journal indicated that investors are hoarding cash rather than investing – a classic sign of a liquidity trap. The stock market debacle in Shanghai in 2015/2016 has also dampened investor enthusiasm.

The Chinese Communist Party Politburo has also cautioned against debt-fuelled growth and rising asset bubbles. There is also evidence to suggest that the stimulus packages initiated by the government are having little impact.

Some key differences.

Whilst there are some similarities, it is important to note a number of major differences and caveats before any quick conclusions are made. Firstly, China starts off with a much bigger population base and the reverberations from the impacts will take a much longer time before they are felt.

Secondly, China’s political system lends itself to a greater continuity in policies which may be effective in warding off economic downturns and avoid ‘lost decades’ the likes which Japan went through. Japan on the other hand went through nine prime ministers in the 11 years between 1989 and 2000 which hardly allows for lasting measures and policies.

In order to avoid the liquidity trap challenges, the Chinese government will need to focus on its war against graft and corruption and instil trust in the public institutions. Long-term and difficult policy decisions in the areas of state-owned enterprises reform need to be made in order to boost productivity. There needs to be continued efforts to keep narrowing the inequality gap and create greater employment opportunities which will in turn boost spending and help deter deflation.

The road ahead is a difficult one but there is no reason for history to repeat itself as long as the mistakes of the past are not repeated.

 

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The Amazing Story of the Magnificent Nine!

I had the pleasure of watching a fantastic Japanese film, The Magnificent Nine (殿、利息でござる! (Tono, Risoku de Gozaru!). The trailer can be viewed here.

The Seven Samurais have always captured the imagination of people with their valour and bravery. However, this riveting film based on a true story of the magnificent nine heroes – and theirs is a story that must be told and spread widely – is an important one.

This is a movie about sacrifice, about going beyond one’s own sense of privilege and thinking of the wider community and striving to support one’s people and community regardless of the hardships this may bring about. This remarkable tale was recorded by the priest Zuishi Eishu in his book, “Koko-on-ki.”

The story is set in the middle of the 18th century (1766 to be precise) during the Samurai era. The place is Yoshioka, a poor town, within the Kurokawa district in northern Japan. The people of Yoshioka were ruled at the time by a young feudal lord by the name of Shigemura Date.

When I first started watching the film, I’d assumed that it was a comedy; and whilst there were some laughs and warm-hearted moments, it could not make the deeply philosophical messages about the themes of sacrifice and noblesse oblige.

Yoshioka was a small ‘post town’ – so called because it was under the obligations of an old tradition (established 150 years earlier) called the “post horse duty” – where it was the duty of the folk of the ‘post town’ to transport all of their feudal lord’s goods at their own cost (including that of horses and labour) to the next unfortunate ‘post town’ which had to do the same until it got to its desired destination.

Due to the severe burden placed upon it, the little town of Yoshioka faced a growing exodus.  The people of the town, already in dire straits, went bankrupt and fled. The remaining town folk faced an increasingly greater burden as more people left and had to deal with growing costs of the post-horse duties.

It was at this point, one of the remaining residents, a tea grower by the name of Sugawaraya, hit upon an idea of a collective solution that will reduce the burdens of the townsfolk.

The idea rested on a simple premise. A select group of investors will band together and raise 1000 ryos (an old Japanese denomination) or US$3 million in current day terms and loan that full amount to Lord Shigemura Date, who was in straightened financial circumstances.

Subsequently when their Lord pays the interest on the loan, the yearly interest income will cover the full costs of their ‘post town’ duties for each and every person in the town. This meant that all of the people of Yoshioka will be able to escape the debilitating effects of the post-down duties and be able to build better live for themselves.

These few men had a belief that since they have the means, the can band together and create a solution for all of the people in their society. This small group of men will receive no returns nor profit as a result of doing this and their only benefit is the collective well-being of their town.

The efforts of this small band of heroes meant that the town of Yoshioka flourished and grew for a hundred years as they were paid an interest by the Lord and his successors till the end of the Edo era. Yoshioka entered the Meiji era as a vibrant town with a healthy and prosperous community.

It was profoundly moving to watch the story of the sacrifices of these unassuming few. One of them, Kokudaya, stated in his will simply, “Do not tell others what I have done.”

However the legacy of these men has somehow endured the test of time due to the efforts of the aforementioned priest, Zuishi Eishu.

Kokuday (who came from the Asanoya clan who were famous for their sake brewery) has his name living on as a beer and sake brewery in Yoshioka to this day. Please see photo below.

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The thoughts and words of Kokudaya’s brother, Jinnai Asanoya, also were very profound. When they were in the presence of a very powerful official of Lord Shigemura Date’s court and enquired why Jinnai had not used the horses or palanquin sent to fetch him, Jinnai demonstrated his Confucian belief system which guided him and  formed the cornerstone of his values and attitudes towards life.

Jinnai explained to the powerful court official that he was taught that as Man is the lord of all creation, it was not right for one to ride on the back of an ox or a horse and cause it grief. He further explained that riding a palanquin was even worse as one man being carried by another man showed nothing but contempt. He also felt that one should not make use of men or cause suffering.

Jinnai spoke the truth, risking potential death, knowing fully well that Lord Shigemura Date himself often used the palanquin and horses! This virtuous quality of speaking the truth, even in the most dangerous of circumstances is one that one should seek to emulate.

Jinnai, who lost his sight from his middle age, also spent the rest of his life spending the profits of his business in building and repairing the roads and bridges of Yoshioka. His sake business grew from strength to strength despite at one point being almost bankrupt because he contributed the most money to fund the loan at the expense of his business.

However Lord Date, who heard of the selfless sacrifice made by these men, ensured that Jinnai remained in business and ensured that Jinnai followed his commandment that: “Your business must not be ruined. If you fail because of your lord, then my honour will be stained.”

Kokudaya, his brother Jinnai Asanoya, Kokudaya’s son Oteomon also embody the values of filial piety and honouring of parents. Kokudaya and Jinnai’s father, unknown to them, had previously already started collecting money to do precisely what they did – to loan money to their feudal lord and use the interest collected to offset the post-town burden. His sons, when they found out, were determined to complete the task their father started, to the point where Jinnai sacrificed his entire business to fulfil his father’s dreams and desires.

This fascinating tale (and beautifully captured movie) encapsulates the ingenuity of men in times of need. It also extols the timeless values of service, duty and sacrifice above one’s own needs. Values which transcend culture, language and faith.

The notion that ordinary men can indeed make a profound difference if they had the right set of values and the company of like-minded men is one that is made powerfully through this movie and story. Get the DVD!!

If you are keen to read a more detailed plot and summary of the film, the links below will be a good place to start:

 http://jbspins.blogspot.co.uk/2016/07/japan-cuts-16-magnificent-nine.html

http://nanaironohouseki.tumblr.com/post/146487223111/summary-of-the-magnificent-nine

For those with Japanese proficiency:

http://blog.kahoku.co.jp/shokuweb/vam/2016/07/post_251.html

For anyone keen on visiting Yoshioka today and learning more, please visit:

http://www.town.taiwa.miyagi.jp/site/kanko/3571.html

 

The curious (and self-imposed) obstacles in the world of Japanese healthcare

I came across an interesting article in the Wall Street Journal, ‘High Bar for Foreign Nurses in Japan’ (link here)

However, I also wanted to set the context around why this article illustrated some of the really painful self-inflicted punishments the Japanese are currently going through. 

First is the very sad case of a Japanese senior citizen turned away by 25 hospitals in a matter of two hours due to a lack of available doctors, rooms or nurses (story link here) and who subsequently passed away in March this year. 

Next is another very tragic story of a Japanese lady who passed away after 8 hospitals turned her away as she was due to give birth, again citing a lack of doctors or paramedic services. The baby was finally delivered via a caesarean procedure but the mother passed away. This happened a few years back (story link here). There are much more similar and all tragic cases. 

 

This is becoming a common theme in Japan these days. The medical system is strained, there are not enough doctors, there are not enough nurses, there are not enough manned beds, and the ageing population is straining the emergency services, and the situation looks very bleak.

The article I posted at the top of this post however also explains everything that is potentially wrong with Japan’s underlying policies.

Currently there are plenty of foreign nurses (particularly from Indonesia and the Philippines) who are keen to work in Japan and support the creaking medical infrastructure. However, these nurses are put through a very stringent test (7 hours AND in Japanese!) which they have to pass in three attempts or they are sent back home. However, only less than 15% of the foreign nurses who have come into Japan in the last five years have passed the test. 

The article highlights how Japan has around 30 million people over the age of 65 (or just under a quarter of her total population of 127 million). According to the Japanese Health and Welfare Ministry, they estimate that Japan’s population will keep declining by one million every year until Japan has only a population of 87 million in 2060. By this time, over  40% of Japan’s population will be over the age of 65. 

The above demographic trends will place a huge burden on the social welfare system, as well as cause immense strains on the medical infrastructure and severely disrupt Japan’s economic developments. 

There is also a shortage of nurses (estimated to be around 43,000 by the Health Ministry). 

Some of the reasons for this shortage is due to:

  • poor pay (salary is around US$2,500 per month);
  • very bad working conditions and long working hours leading to poor morale;
  • increasing concerns over medical malpractice lawsuits by patients

One would have assumed that this would mean that Japan would take a more pragmatic view to immigration, particularly in the medical sector. However, it is looking very unlikely under current the current premier, Shinzo Abe. ‘Abenomics’ or a combination of economic policies including that of printing of money quantitative easing, weakening of the yen, and good old Keynesian pump-priming of the economy are helping boost (at least temporarily) the Japanese economy. 

There remains however a fundamental problem with the lack of a sufficient number of economically active individuals to support longer term economic growth. Immigration is one tool that can help mitigate this problem but there seems to be a long standing opposition to immigration and there is still a high level of insular behaviour. Tradition and somewhat misplaced views and tendencies (such as attributing crime mainly to a foreigner influx, or blaming foreigners for salaries being cut, and dilution of Japanese culture) still prevail and according to the article , in a national poll conducted in 2012 by the Japan Association for Public Opinion Research, only 1.7% of respondents said that Japan should promote immigration. 

Japan has tried to bring some of the nurses out of retirement but wages remain low which means less of the nurses are keen on coming back. Wages remain low because public debt remains high in Japan and since the government bears the bulk of the medical costs, they are unwilling to raise salaries and wages for those working in health-care. The Japanese Nursing Association estimated that the turnover rate for nurses in 2011 stood at 10.9 percent, indicating that about 150,000 nurses quit that year.

These are extremely serious conditions which Japan needs to tackle.

 

From diversity comes strength. Obscurity will follow insularity.

Japan has to decide which is more important. The preservation of Japan’s culture, the well-being of her people, and the ongoing progress of her economy, may well depend on Japan’s ability to look beyond the status quo and embrace a more pragmatic vision of the future.