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 Triumvirate of Technology, Education and Employability – Solving the Policy Riddle

I has the privilege to speak at the ACCA Asia Pacific Future Education Summit in Beijing earlier this month (January 2016).

 

Slide1

During the course of my presentation I touched on the changing trends in learning, the impact of technology on learning and jobs and ACCA’s response to these global changes.

Below are my thoughts on this critical triumvirate of technology, education and employability and how it will help resolve some of our major policy issues and challenges of the day.

 

Slide3

Young people today are three times as likely as their parents to be out of work.

I have been considering this very urgent issue of employability and the growing ‘employability gap’: the fact that the skills students have as they leave our educational institutions aren’t meeting the expectations of employers, and that employers also want wider, softer skills as well as demonstration of knowledge and hard competencies.

It is also my view that technology is often woefully underexploited when it comes to giving students the opportunity to develop their professional skills.

 

Slide4

Globally 75 million young people are out of employment. The issue of employability is not one limited to a certain geography or country. Below are some of the main challenges across some of the major nations/regions of the world.

INDIA

According to a survey conducted by the Singapore Management University (SMU) in conjunction with Indian partners, it was felt that the employability of Indian graduates is low due to skill and geographical mismatch.

The survey also concluded that this gap can be bridged by digitisation of learning.

It is worth noting that the employability ratio of management graduates was only 15 per cent, engineering (20 per cent), law (14 per cent) and medical graduates (32 per cent).

JAPAN

An estimated 700,000 young people, known as hikikomori, have withdrawn from society and rarely leave home. These individuals have collectively withdrawn from the economic population of the country as a result of employability and the subsequent marginalisation.

EUROPE

Across the 28 countries of the European Union, unemployment among 15- to 24-year-olds was 22 percent in 2014/2015. The lack of prospects in the job market for young people is a serious problem in large parts of the EU. The highest unemployment rates are found in the south of Europe.Spain has the highest rate, with half of 15- to 24-year-olds out of work. In Portugal, Cyprus, Italy, Croatia and Greece a little more than one in three people in this age group are out of work.

CHINA

According to a study by McKinsey, the number of students graduating each year from university or vocational school has risen from 1 million a year in 2000 to 6.1 million in 2011. This stunning increase means that the number of new graduates exceeds demand for their services in many areas of the country, resulting in an unemployment rate of 16.4 percent for college graduates.

McKinsey also estimate that by 2020, Chinese employers will demand 142 million more high-skilled workers—those with university degrees or vocational training—or about 24 million more than the country will likely supply. Companies could fill this high-skilled labor gap with less-skilled workers, but this would result in productivity losses or poorer quality products and services. Other companies may leave roles unfilled, delaying the decision to grow or expand.

The study estimates that if China does not bridge this gap by 2020, the opportunity cost could reach some $250 billion (about 2.3 percent of GDP)—which is almost the same as that of Singapore or Malaysia’s GDP! That’s a very large amount of money to put at risk – not to mention the impact on social welfare and harmony.

Slide5

There are a few reasons as to why this employability gap exists.

The first reason is a difference in what employers want from graduates and what they are getting. Surveys of employers consistently show that they are not satisfied with the skill levels of their new tertiary hires, whether these are graduates of universities or vocational schools. The main complaints, according to McKinsey research (and a wealth of anecdotal evidence), are lack of technical training, inadequate English, and deficient soft skills, such as the ability to work in teams, critical thinking, and innovative flair. For instance in China, in 2013, more than a third of employers in China surveyed said they struggled to recruit skilled workers, with 61 percent of these companies attributing this to a shortage of general employability skills.

A second mismatch has to do with the knowledge requirements of the future and the structural makeup of the workforce. As countries’ evolve their underlying economic models, their labour needs shift as well and the resultant demand for higher skilled talent is not met by the status-quo educational systems.

Thirdly is one of a geographic mismatch. There are instances where the universities in certain countries tend to be concentrated in an area and this leads to a distribution problem as there are other areas where there are not enough universities to support the demand.

There is also a large question about how the education and training system also operates in. In a number of countries, there is growing concern—among parents, employers, and policymakers alike—that the system’s emphasis on rote learning and focus solely on exam performance does not foster the mental agility and innovative flair that the modern work place requires.

Slide6

Therefore as you see, employability is a very real and serious issue that has serious economic and social consequences.

But before we proceed, it may be useful to have a brief view of what we mean by employability skills.

I have here a list which is not meant to be exhaustive but provides a flavour for some of the skill sets and capabilities we need to consider when talking about employability.

  1. Communication skills that contribute to productive and harmonious relations between employees and customers.
  2. Team work skills that contribute to productive working relationships and outcomes both within teams, the organisation and with external parties.
  3. Problem-solving skills that contribute to productive outcomes and with a commitment to finding solutions.
  4. Initiative and enterprise skills that contribute to innovative outcomes and driving stronger business performance
  5. Planning and organising skills that contribute to long-term and short-term strategic planning and building the processes to achieve desired outcomes
  6. Self-management skills that contribute to employee satisfaction and growth and ensuring they contribute to their organisation’s well-being in the process.
  7. Learning skills that contribute to ongoing development.
  8. Technology skills that the modern workplace requires.

Slide7

Institutions and organisations tackle student employability in a number of ways, including through for example through professional experience requirements,  and employability modules, careers services, work-placements and experiences, work-based mentors, volunteering and increasingly through looking at employability awards. We know there is already some excellent practice, particularly in vocational and professional disciplines where notions of ‘what it is to be professional’ are embedded in the curriculum, but for others this is less apparent. Few use technology really effectively in an integrated way to support student employability, although some are exploring this.

There is evidence of an ‘employability gap’ in the skills that students are actually starting with on day one of employment and the skills that employers are expecting from them. However, there is an increasing appreciation that ’technology for employability’ can provide many potential benefits to students, institutions and employers

Digitally savvy graduates are essential for shaping tomorrow’s entrepreneurial activities, but digital literacies aren’t well articulated.

Slide8

The nature of knowledge is changing and, in this digital age, our definition of basic literacy urgently needs expanding. The notion of digital literacy – those capabilities that equip an individual for living, learning and working in a digital society – is one that needs to be taken seriously by education providers and consider how it can be an enabler for employability.

Technology acts as an enabler in supporting employability in the following ways:

  • ensuring that opportunities are provided throughout the curriculum in a scaffolded and supported way for learners to reflect, plan, and articulate and showcase their knowledge and skills in an integrated way
  • embedding digital literacy skills more broadly across the learning
  • ensuring that assessments and learning are ‘authentic’, and more closely aligned to the workplace and real-world tasks
  • using a principles-based approach to change which places the importance of developing self-aware, independent learners (which some argue is the main purpose of education at the heart of institutional strategy, policy and practice
  • Supporting tutors through better management tools to help their students. By using technology as a tool for learner management, teachers can develop and execute individual learning plans and track the progress being made by the learner in relation to the employability skills.
  • empowering students as agents of change, which evidence shows benefits all stakeholders including students in the development of wider employability skills. Students and learners can also document their employability skills and self-assessment notes as evidence of their competency and knowledge levels.

We know however that although there is a lot of excellent practice, it is not widespread. Technology can support all of the aims above, but further work is needed to ensure that good practice is shared and teams dedicated to developing learners are supported in maximising opportunities offered by technology, and in exploring how existing employability opportunities can harness technology to best effect.

Slide9

According to research conducted by Cleary, Flynn and Thomasson (2006), it is recommended that for effective employability skills development; the design of an overall active teaching and learning and assessment strategy adheres to the following four adult learning principles:

  1. Responsible learning – learners take responsibility for their learning. Responsible learning emphasises self-management and initiative and enterprise as learners work independently to develop new knowledge and activities in the interest of furthering their skills.”
  2. Experiential learning – learners learn from experience. This “emphasises ‘learning to do’ and ‘learning from doing’. Authentic learning occurs when learners have an opportunity to apply their skills and knowledge in authentic work environments or in contexts which attempt to simulate the real.
  3. Cooperative learning – learners learn with and through others. This form of learning “encourages learners to learn from each other, share learning tasks and learn from a range of people including colleagues, mentors, coaches, supervisors, trainers, and others.
  1. Reflective learning – learners reflect on and learn from their experience. This can be introspective, where learners are encouraged to examine changes in their own perceptions, goals, confidences and motivations. It addresses: developing critical thinking skills, learning to learn and developing attitudes that promote lifelong learning. Reflective learning can be useful in directly addressing problem solving, initiative and enterprise and self-management skills

Digital or e-learning can foster these four types of learning and the development of all of the employability skills.

Slide10

Universities and colleges have a responsibility to develop students into individuals who can thrive in an era of digital information and communication – those who are digitally literate are more likely to be economically secure and these skills are especially important in higher education given that graduate white collar jobs are almost entirely performed on computers and portable devices.

But it’s not just about employability – increasingly digital literacy is vital for learning itself. Digital tools such as virtual learning environments, e-portfolios and social networking software for peer mentoring are now common within further and higher education and students without the skills to navigate them risk suffering an inferior student experience at best, and being left completely behind at worst. It goes beyond IT skills, a complete culture change is required to live fully within the modern digital society, from understanding how to communicate ideas effectively in a range of media to managing digital reputation and history.

Slide19

There are a number of success factors that will be critical as organisations consider an effective use of digital learning to support employability of their students.

They include the following and it is worth bearing in mind that this is an iterative and progressive process which will in turn drive better outcomes.

CONCEPT AND ROLE

  1. Develop the employability skills based on a strategic and structured approach that links the employability skills to each other
  2. Recognise the value of the employability skills in all aspects of life in addition to their employability role, and include recognition of prior developments in these skills in learning and assessment strategies.

PEDAGOGICIAL ASPECTS

  1. Use e-learning in blended learning strategies to cater for a range of learning styles and encourage individualised, self-directed learning.
  2. Adopt active learning strategies such as role plays, real work and simulated work environments, and incorporate e-learning.
  3. Recognise the centrality of learning skills as the foundation for addressing all of the other employability skills.
  4. Break the learning skills into four types: responsible; experiential; cooperative; and reflective learning.
  5. Implement an upfront induction/orientation program to develop awareness and understanding of the employability skills and the e-learning role using a conceptual structure that shows the linkages between these skills.
  6. Link remedial education for basic skills, such as literacy, and development of the employability skills in integrated strategies that harness e-learning.

ASSESSMENT AND REPORTING

  1. Use e-portfolios as a tool for student reflective learning as well as a tool for reporting and assessing learner progress in the employability skills.
  2. Pay attention to the different levels of application and performance of the learners and aid them through the journey,

MANAGEMENT ASPECTS

  1. Use a technology-based learning management system to support individual learning plans, tracking of learner progress and achievement, and the efficient use of teaching resources.
  2. Adopt whole of institution strategies, effectively coordinated and supported by staff development activities in both employability skills and e-learning and particularly e-learning facilitation skills to enhance cooperative learning opportunities.

KEY AREAS FOR FURTHER DEVELOPMENT

  1. Recognise that further innovations and improvements will be required to further strengthen the education framework and support learners and students.

Slide20

There are some efforts we can do to help bridge the employability gap.

We need to make a better case for using technology to develop employability. We need to raise digital aspirations of employers, universities, learning partners and professional bodies such as ACCA and develop students as ‘digital entrepreneurs’ that can go on to act as agents of change for business. Digital literacy often isn’t related to employability skills, and we need to see this change to make a clear link.

We need to work in partnership with employers to understand needs better

We must not forget about those youth that are outside the formal education system, or are otherwise marginalized due to disabilities or their gender. Many youth are employed in the informal sector, and may not be able to access traditional schooling or have access to schools in their regiosn. Offering alternative, non-formal models of relevant education are crucial.

Without these strategies, there is a risk that students leave university or college equipped with the right qualifications for their chosen career but without the tools and understanding they need to thrive in the connected, globalised digital world of today.

Slide21

Overall, I would like to conclude that digital learning and the employability skills should be seen as two of the dynamic influences whose interaction is likely to have a significant impact on shaping the evolving approach to l education and training now and into the future. There is much work to be done but finding effective solutions in this closely interlinked areas of technology, education and employability will help resolve some of the major economic and social issues of our time.

What the Asian Infrastructure Development Bank means for Asia and the world

Almost exactly a year ago, just prior to the Asia Pacific Economic Co-operation (APEC) hosted in Bali in October 2013, President Xi Jinping announced the proposal for the establishment of the Asian Infrastructure Investment Bank (AIIB). This was a major announcement which was unforeseen and unexpected particularly as no clear plans were outlined at the time.

Since the announcement however, Chinese officials have been very busy in encouraging other fellow Asian partners to be the initial founding partners of the AIIB.

To date, the Chinese Ministry of Finance has convinced over 22 Asian partners including the likes of Singapore and Bangladesh to confirm their participation as founding partners and contribute to the initial funding capital.

Other major partners such India, Qatar and Saudi Arabia have been very bullish about the prospects and the promise of the AIIB and have made very positive overtures publicly about their participation as founding members. Other South East Asia partners such as Thailand and Malaysia remain positive and other major partners such as South Korea and Australia are still studying the Chinese proposals.

 

The Asian Investment Infrastructure Bank

The role and rationale for the AIIB

The mandate of the AIIB, as a multilateral development institution, is to support the financing of infrastructure developments across Asia that supports economic growth and activity nationally and regionally.

Traditionally Asian nations have turned to the Asian Development Bank (ADB), the International Monetary Fund (IMF)  and the World Bank for financial support. However, the level of financial assistance, particularly from the World Bank and the IMF have dropped since the 2008 financial crisis.

The ADB is also being increasingly viewed as a bureaucratic entity which takes almost seven years to launch a project or initiative (from proposal to the approval of funding) which leads to significant delays due to red-tape.

These conditions do not support the urgent need for infrastructure investment by a number of Asian economies. The ADB estimates that Asia needs about US$8 trillion of physical infrastructure investment between 2012 and 2020. The OECD estimates that globally over US$50 trillion of infrastructure investment is required over the next two decades to support sustained economic activity.

The AIIB is expected to have an initial capital of between US$50 billion to US$100 billion with China contributing to half that amount. This will immediately create an entity that is stronger than the Asian Development Bank (which has a current capitalisation of about US$78 billion) and will be around half of the World Bank’s current capitalisation of between US$180 billion to US$200 billion.

 

Implications and impact for major Asian partners

The creation of the AIIB has a number of major implications for Asian economies. Growth prospects With depressed growth prospects – strong investment in infrastructure projects will support the creation of demand and improve production and consumption. The enhanced infrastructure will also support greater trade and economic expansion.

This is certainly the case for India which forecasted a need for approximately US$1 trillion to meet infrastructure requirements under its 12th five-year plan (from 2012 to 2017) but is struggling to meet the investment target. Participation in the AIIB will allow for India to raise greater capital and visibility for some of her public-private infrastructure initiatives. The rest of the South Asian subcontinent, including Sri Lanka, Bangladesh, Nepal and Pakistan have all either signed up with the AIIB or shown strong interest in the initiative. If India chooses to remain on the side lines, her influence across South Asia will further diminish. The AIIB will be a strong platform for India to take on a regional leadership role and be seen to be a partner for the region’s growth and success.

The AIIB will also certainly support a number of smaller Asian economies which have been unable to meet the stringent requirements or payment terms set out by the likes of the Asian Development Bank or the World Bank. This includes the likes of Nepal, Cambodia and Laos.

From a political perspective, the impact for Japan as a result of these developments is significant. The Asian Development Bank has traditionally been led by Japan (who along with the US share the majority voting rights in the ADB) which previously allowed Japan to exert her political and economic influence across Asia. The AIIB will certainly curtail Japan’s political influence across Asia and also strengthen China’s hand in the on-going disputes ranging from the South China Sea territorial issues to legacy World War II disputes.

South Korea on the other hand is trying to navigate its participation in the AIIB tenderly. On one side, Seoul has to please her largest trading partner, China, whom she is working closely with towards greater economic success. On the other side, Seoul’s traditional security partner, the US, remains a critical partner in South Korea’s regional defence strategy.

ASEAN (Association of Southeast Asian Nations) has certainly shown significant support for the AIIB. Indeed Singapore was one of the early founding members of the AIIB as they have a clear stated policy of working with China from the inside rather than remaining out on the side lines looking in. Other major ASEAN economies such as Thailand, Malaysia and Indonesia are likely to sign up to the AIIB to exert greater influence in the way the bank is run and managed which will in turn support their own investment and growth plans. However, there will be concerns, particularly from Philippines and Vietnam, which in recent times have had strong and sharp exchanges with China over the South China Sea islands. Their concern will be that should China take a greater role in economic influencing and funding, it will strengthen China’s hand and erode Vietnam and Philippines’ support in their respective claims in the South China Sea.

Asia has always traditionally had strong savings, currently estimated to be worth over US$3.99 trillion. This supply of savings can meet some of the immediate infrastructure requirements across Asia but there is a mismatch in channelling these savings towards the financing of the infrastructure projects. The AIIB can help resolve this funding gap moving forward.

 

Problems with Uncle Sam?

The US government has not hidden their opposition to the establishment of the AIIB.

Their biggest concerns are around how China will use the AIIB to further project her economic and political dominance across the region. It also gives greater clout to other major Asian partners such as South Korea and India whilst diminishing the influence of the United States’ traditional Asian partner, Japan (who leads the ADB as highlighted above). This does alter the geopolitical realities in the region and softens the US hegemony in the region.

Some of the other concerns highlighted by the US government is that the new bank will not have adequate and robust safeguards in areas such as environmental protection, human rights and a transparent procurement process which will undermine the need for good governance across the region. Indeed, if the AIIB fails to have strong safeguards, it will exacerbate the challenges of corruption, lack of accountability and proper due diligence which have remained endemic problems across Asia (and also around the world). However, it is likely that the AIIB will operate to very high and rigorous global standards when assessing and evaluating projects.

However, it must be noted that China has made it clear from the outset, and also recently at the Boao Forum for Asia, that they welcome the participation of the US and other European Union partners in the AIIB. This will provide an opportunity for non-Asian partners to support the bank and ensure that AIIB’s governance and strategy is in line with global standards.

The US should use this as an opportunity to partake in the region’s continued growth and stability. US participation in the AIIB (which will be subject to lengthy Congressional debates) will certainly do more to support US foreign policy of a safer and prosperous world rather than the current position of dissuading potential partners from participating in the AIIB.

 

The future

The AIIB will need to create strong and close collaborative partnerships with the likes of the World Bank and the ADB so that they are not working to cross purposes. Encouragingly, the World Bank have announced their wish to work closely with the AIIB when they launched the Global Infrastructure Fund (GIF) earlier in October 2014. Similarly, the ADB have also announced their intentions to work closely with the AIIB.

The AIIB will also need to create a viable and sustainable business model which channels funding appropriately towards infrastructure investment.

Recently, the BRICS Bank or the New Development Bank was set up by Brazil, Russia, India, China and South Africa. The BRICS Bank is headquartered in Shanghai and the Presidency is maintained by India for the initial five years. However, the funding from this BRICS bank is only available to the BRICS nations and not to the rest of Asia. The AIIB helps to alleviate this issue.

The AIIB can potentially create a platform that generates economic ties and greater unity across Asia. It provides a strong and credible opportunity for major Asian rivals to become partners towards growth and development. Initiatives such as these will help to provide resolution to tricky issues that always emerge between partners and friends.

 

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.