Japanese theory

For some years now, the theory of “the fall of Japan in the 80s” has circulated in China. The omnipresent Japanese economy was conquering the world, and economists even spoke at the time of the Japanese economic miracle. Numerous articles and books in China (see Hongbing Song’s famous 2007 book “The Currency Wars” in China) are convinced that the United States orchestrated the fall of the Japanese island by putting pressure on the Japanese government to accept a devaluation of the yen. The scenario is redrawn with China in the place of its neighbor. The threat of China catching up with the United States frightens the last American administrations. But can we compare the economies of the two countries, China’s today and Japan’s at the time?

货币战争 currency wars song hongbing Chinese book

Three major differences

Certainly not! Taiwanese economist Lang Xianping believes that three factors differentiate them.

  1. At the time, Japan was a country semi-colonized by the United States, which had placed it under guardianship in 1945. Even in the early 1980s, Americans could still indirectly control specific Japanese organizations. As for China, it is a sovereign country, which controls its currency and can defend it. It is a nuclear power.
  2. In 1985, Japan controlled 78% of the semiconductor market, and the United States bought 55%. China is the largest purchaser of semiconductors and has a target to produce 40% of its consumption in 2020 and 75% in 2025, against 16% in 2019.
  3. Japan had a small consumer market. China is expected to overtake the United States in terms of consumption in 2020.

Is glass half full?

Will these points be enough to resist the American administration’s attacks and not suffer the fate of the Japanese archipelago? Of course, China has other strong points, but will they be able to counterbalance the weak points: structural problems, over-investment, over-production, export dependency, low per capita consumption, innovation challenges, energy risks, social and geographical inequalities?

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Sources:

27 August 2020

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