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Wang Haibo Discusses the Economic Future of China and Japan
Beijing Workshop: The 40th Anniversary of China-Japan Diplomatic Ties (Part Three)

The following article is based on a speech made by Wang Haibo, a prominent Chinese economist and honorary member of the Chinese Academy of Social Sciences. Wang describes the reasons for his view that there is a bright future ahead for relations between Japan and China.

Working Toward Better Mutual Understanding

When I participated in a Chinese government project in 2011 on the development of Chinese economics during the twentieth century, I learned about how the establishment of the Communist Party of China benefited from the work of Japanese intellectuals. The first works of Marxism-Leninism translated into Chinese, such as The Communist Manifesto, were based on Japanese translations—rather than the original German. And many Chinese Marxist economists returned to China after studying in Japan. From these examples we can see the considerable contributions made by Japanese to the process leading up to the establishment of the Communist Party of China; this is a historical fact that merits reevaluation.

Over the next 10 years, I think that overall there is a bright future for economic and cultural relations between China and Japan—although I imagine there will be many twists and turns. My view is based on various favorable historical, cultural, and geopolitical conditions, as well as four specific factors, which I will focus on here.

1. Building on a Solid Foundation

The 40 years since the reestablishment of diplomatic relations between China and Japan has formed an excellent foundation for positive developments over the next 10 years. Taking exports and imports between the two countries as an example, we can see that the total bilateral trade in US dollar terms was $47 million in 1950, and increased to $876 million in 1971—the year before the normalization of diplomatic relations between the two countries. This was an 18-fold increase, with an average annual growth rate of just under 15%.

If we look at the period from 1972 to 2010, the same trade increased from just over $1 billion to just short of $298 billion—for a 288-fold increase and an average annual growth rate of 16%. These figures, which do not take into account exchange rate fluctuations, demonstrate the enormous change that took place in the 38 years since diplomatic relations were normalized. We can also say that this trade expansion will serve as a firm foundation to further advance bilateral relations over the next 10 years. This is the first reason why I think China-Japan relations have a bright future. 

Year 1950 1971 1972 2010
Trade Amount (USD) 47 million 876 million 1,039 million 297.8 billion

At the moment, there is still economic disparity between the two countries, but this suggests that there is hidden potential for significant development in the future. Since 1987 the World Bank has been categorizing nations based on gross domestic product per capita. The categories are high income, middle income, and low income. There is no data prior to 1987, but based on exchange rate calculations, the requirement for high income in 1974 was $3,817 per person. In the same year, the figure for Japan was $4,290. Based on data from the International Monetary Fund, Japan’s GDP per capita was $42,325 in 2010—17th in the world. From 1974 to the present day Japan has always been ranked as a high income nation by this measure.

Although China overtook Japan in 2010 to have the second highest GDP in the world, GDP per capita is a very different story; at just $4,283, China’s GDP per capita is only 10% that of Japan, and at long last the country is on the verge of entering the middle income category. This shows the large economic disparity that I mentioned, illustrating the potential for development in both countries.

2. Avoiding the Middle Income Trap

China must learn from the example that Japan has set in its steady transition to the high income category. This is an extremely important problem for China to tackle. Before explaining further, let me take a moment to examine the characteristics of nations in each income category.

There are three different kinds of nations in the high income category. The first is characterized by countries like the United States and Britain, which were in the high income category before World War II, and have further solidified their position since. The second kind consists of countries like Germany and Japan, which were high income before World War II, temporarily dropped after the war ended, but steadily recovered thereafter. Then there is the third kind, consisting of territories and nations that were previously colonies, and have subsequently become high income—like Singapore, South Korea, Hong Kong, and Taiwan.

In the middle income category are countries like Brazil, Mexico, Argentina, and Venezuela, which have managed to enter the category but have been facing long term stagnation—the so-called “middle income trap.” We can see a similar situation in the nations that were a part of the former Soviet Union and countries in Eastern Europe and in the Association of Southeast Asian Nations. There are wide-ranging reasons why countries fall into the middle income trap, but they all share the trait of experiencing long-term, slow growth following their entry into the middle income category.

From left: Zhang Xiaode, Zhou Shaoming, Wang Haibo, Dong Qing, Zhang Zhanbin, and two interpreters.

For the low income countries, most notably in Africa, there is prevalent, long-term poverty. These nations are caught in what Western economists call the “poverty trap.”

Looking at the China of today, one cannot deny that the country could fall into the middle income trap, although the probability of this happening is low. More likely, China will move into the high income category, and in this case it must learn from the experiences of Japan. This is vital for China’s development. Japan made egregious mistakes at the macroeconomic level, resulting in its “lost decade,” but such experiences as its famous “income doubling plan” and its adoption and assimilation of foreign technology are highly relevant to China’s current situation.

3. Stimulating Relations Through Economic Development

The third reason to expect a bright future is that China’s economic development will propel forward China-Japan relations. China’s growth period started at the end of the 1970s and will probably continue to around the middle of this century. At the same time, this period of growth gives rise to a large variety of contradictions.

Generally, we can say that China is in a growth period now, but the coming years will not be like the ones when growth rates accelerated consistently. The average annual growth rate from 1953 to 1978, and from 1979 to 2011, was 6.1% and 9.9% respectively. China recorded average annual growth of 8.1% over the 59 year period from 1953 to 2011. However, this has been achieved largely by sacrificing the environment and making use of natural resources, and I think it will be sufficient if China can maintain growth at the 7% level in the coming years. Even at 7%, it should be possible for the government to achieve its objectives of realizing a “basically well-off” (Xiaokang) society by 2020 and modernizing society as a whole by 2050—and generally raising average income to the middle income level through this process. Further reforms and liberalization will be an important condition for continued growth in the future, which can facilitate China-Japan relations in turn.

Period 1953–1978 1979–2011   1953–2011
Average Annual Growth (%) 6.1 9.9   8.1

4. Greater Economic and Cultural Exchange

My fourth reason is that an expansion of economic and cultural exchange between Japan and China is extremely important from the perspective of global economic development trends. I think the global economy will exhibit the following two trends in years to come.

Firstly, developed countries like Japan will find it harder and harder to achieve economic growth. The bankruptcy of Lehman Brothers in 2008 provides a good example. Following the outbreak of the financial crisis, developed countries have instituted stronger oversight of financial markets, and implemented a variety of other measures. Yet, despite these efforts, a fundamental solution has not been reached.

Secondly, the pace of economic growth will increase in the BRICs countries (Brazil, Russia, India, and China), three of which are located in Asia. Looking at things from this perspective, Japan is in an excellent geographical position to capitalize on this trend. Today’s relationship between China and Japan exists in this advantageous environment, so strengthening economic cooperation is extremely important.

(Compiled by from the content of a lecture given at the workshop on March 14, 2012, held at the Chinese Academy of Governance.)

List of Participants

From Japan:
Ogoura Kazuo, Invited Professor, Aoyama Gakuin University; Secretary General, Tokyo 2020 Bid Committee
Wang Ming, Professor, Hōsei University Research Center for International Japanese Studies
Miya Kazuho, Professor, Kyoto Seika University; Former Editor-in-Chief, Chūō Kōron; Deputy Editor, Nippon Communications Foundation
Harano Jōji, Representative Director, Nippon Communications Foundation
Kondō Hisashi, Director, Nippon Communications Foundation
Takahashi Ikutomo, Translation and Editorial Dept., Nippon Communications Foundation

From China:
Wang Haibo, Honorary Member, Chinese Academy of Social Sciences; Editor-in-Chief, Almanac of China’s Economy
Zhou Shaoming, Deputy Chairman, China Public Economics Research, Chinese Academy of Governance
Zhang Xiaode, Deputy Secretary-General, China Public Economics Research, Chinese Academy of Governance
Zhang Zhanbin, Director-General, Department of Economics, Chinese Academy of Governance
Dong Qing, Deputy Director, Department of International Affairs, Chinese Academy of Governance
Zong Xiangdong, Division Director, Department of International Affairs, Chinese Academy of Governance

  • [2012.09.27]
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