China in Transition

"Emerging-Nation Effect" or "China Effect"

Chi Hung KWAN
Consulting Fellow, RIETI

(Published on the February 16, 2011 edition of the Allatanys Newspaper Guide)

The real economic growth rate for Japan plunged to minus 6.3% in 2009, a reflection of the negative effects of the Lehman shock. Growth recovered to 3.9% in 2010, while corporate earnings have also rebounded. Driving this recovery is active demand in emerging nations, such as the BRICs (Brazil, Russia, India and China), which has become known as the "emerging-nation effect" (Refer to an article titled, "Nikkei Estimates Ordinary Income for Listed Companies Up 24% in October-December, Rising for the Fifth Consecutive Quarter, Led by Emerging Nations and North America," that appeared on the first page of the February 5, 2011 edition of the Nihon Keizai Shimbun newspaper and a report titled, "Listed Companies Expand Ordinary Income 84% in April-December (calculation by the Nihon Keizai Shimbun), Supported by Strong Exports to Emerging Nations," that appeared on the second page of the February 5, 2011 edition of the Yomiuri Shimbun newspaper.) The "China effect" is particularly conspicuous in this trend.

China as the Leading Player

The BRICs are increasing their presence in the global economy. Of the four countries, China is playing the lead role.

The BRICs expanded their share of global GDP from 8.0% in 2000 to 15.4% in 2009, largely reflecting China's dramatically rising share. China's GDP finally surpassed Japan's in 2010, taking China to second position in the world after the United States. The aggregate GDP of the other three BRICs nations remains smaller than China's GDP.

Not only GDP, the BRICS are expanding their trade rapidly. The four countries expanded their share of global exports from 7.1% in 2000 to 14.6% in 2009 and increased their share of global imports from 5.7% in 2000 to 12.5% in 2009. China in particular has emerged as the world's largest exporter and second-largest importer. The value of China's external trade is roughly twice that of the three other BRICs members combined

Ties between the BRICs and Japan are deepening, aided by the remarkable economic strides they have taken. The four countries' share of Japan's external trade reached 24.4% in 2010, with China alone accounting for 20.7%. China has become Japan's largest trading partner in terms of both exports and imports. In the meantime, the three other BRICs' exports to and imports from Japan are still at comparatively low levels, although their shares of Japan's external trade is expanding.

Asymmetric Treatment of China and Emerging Nations in Mass Media

Thus, the "emerging-nation effect," which is attracting attention as the engine behind Japan's economic recovery, should be understood as the "China effect" for the most part. However, Japanese mass media appear to take different views. For example, the August 1, 2010 edition of the Nihon Keizai Shimbun had a front-page banner that read, "Ordinary Income for Listed Companies Grows Fivefold to 90% of Pre-Crisis Level in April-June Thanks to the Emerging-Nation Effect." In this top story for the day, the newspaper used the expression "emerging-nation effect," instead of the "China effect," even though the report mainly covered favorable results posted by companies such as Panasonic, Nissan, and Komatsu in China.

In another example, the Nihon Keizai Shimbun used a headline that read, "Emerging Nations Increasing Presence in Research and Development with Rapidly Growing Patent Applications in China and India," for an article that appeared on the third page of its August 11, 2010 edition. In this article, the newspaper reported domestic and overseas patent applications filed by Indian researchers totaled about 2% of patent applications made by their Chinese counterparts, with absolutely no mention of the number of patent applications that had been filed by researchers in other emerging nations.

Are Emerging Nations the Source of Good News and China the Source of Bad News?

Generally speaking, the Japanese media call "China" by its name when it reports negative news from the country, such as the issue of bad debts and environmental problems. The media tends to group China together with other countries and call the group "emerging nations" when they report good news from China.

To confirm this tendency, I chose "favorable," "firm," "improvement," and "leading" as positive words and "concern," "deceleration" and "deterioration" as negative expressions, and checked how many times these words were used in combination with China and emerging nations in headlines that appeared in major newspapers (the morning editions of the Nihon Keizai Shimbun, Mainichi Shimbun, Asahi Shimbun, Yomiuri Shimbun and Sankei Shimbun) from January 2010 to January 2011. As a result, I found the five newspapers used one of the positive words in combination with China 193 times and one of the negative expressions in combination with China 298 times. In other words, the number of negative headlines about China was 1.54 times the number of positive ones. In the meantime, the newspapers used one of the positive expressions in combination with emerging nations 73 times. Headlines that combined emerging nations with one of the negative words were only 14 in number, or just 19.2% of the number of the positive combinations.

The asymmetric treatment of China in the Japanese media seems to be strongly influenced by the prevailing public opinion in Japan that emphasizes China as a risk factor or a threat, rather than a business opportunity. In fact, some Japanese companies are considering the possibility of shifting their direct foreign investment from China to other emerging nations from the viewpoint of risk diversification. As a reflection of this trend, Japan's combined direct investment in the three other BRICs countries, namely Brazil, Russia and India, has surpassed its direct investment in China since 2008.

Moving Away from China Not a Good Idea

Japanese companies, however, face greater handicaps when they advance into countries such as Brazil, Russia, and India, because not only are those countries more distant from Japan geographically, but they are also different from Japan in cultural backgrounds, in comparison with China. Moreover, the Chinese market is expected to continue to grow faster than markets in other countries. Thus, moving away from China is not necessarily a good business strategy for Japanese companies.

The original text in Japanese was posted on March 15, 2011

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March 15, 2011