Japan-China economic relations and RIETI's role

Sawada:

Today, we would like to hold a special round-table talk under the theme "Japan-China economic relations and RIETI's role." Last year, Japan experienced trade friction with China, following the issuance of tentative safeguards against certain farm produce imports from China. China subsequently entered the World Trade Organization and we expect that China itself and Japan-China relations will change in the coming years. As this year marks the 30th anniversary of the normalization of ties between Japan and China, China will be the focus of attention among mass media, business communities and academia. Mr. Aoki, could you briefly explain RIETI's research activities and focus in the field of Asia-study, looking back at some of the achievements during the past year?

"Asian Economy Research Project" as perceived by RIETI

Aoki:

At this institute, we try to achieve high quality research as a result of individual researchers' self-motivated research activities. Thus, it is not our goal that we, as an institute, propose a set of policies. However, there are certain synergy effects that can be generated through interactions among researchers. So, we have created a loose framework to promote such interactions, which consist of nine clusters of researchers. There are two clusters focusing on international economy. One of them discusses international economic relations and the evolution of international economic mechanisms, including issues related to the WTOand the other is on Asian economy.

During the past several months, China has been given extensive coverage in the media. Behind such a sudden rise in attention is the growing argument on China as a threat and the safeguard issue. At the preparatory stage for founding this institution, we already held the belief that Asian economic integration would become a very important issue, and thus created the Asian economy cluster. Also, taking advantage of the institute's nature as an independent administrative entity, we were able to scout such a prominent researcher as Mr. Kwan Chi Hung from the private sector. A native of Hong Kong, he has been engaged in research activities in Japan for many years.

When we say "Asian economic integration," we are not trying to promote the idea to create an economic bloc in confrontation with the globally integrated market. Our position is that Asian economic integration is supplementary to the global market integration and we conduct our research based on this viewpoint. Apart from research activities, we are also promoting a project called ANEPR, or Asian Network of Economic Research Policy Research. This is an attempt to become a knot linking economists in China, South Korea and Singapore and American and European scholars specialized in Asian economy. We held the first ANEPR meeting last year and Joseph E. Stiglitz, the winner of the 2001 Nobel Prize in Economic Science, was among the participants.

Sawada:

It would be interesting if we could build a bridge between Chinese researchers and Japanese researchers, and between China-study in Japan and Japan-study in China. Ms. Li, could you tell us about RIETI's Chinese language site and its purpose?

China lacking information about Japan

Li:

I strongly hope that both Japan and China prosper as I have long been studying Japanese. But information exchange between the two countries is not enough and I am worried about various friction as a result of the lack of information about each other. Through RIETI's Chinese language site, I would like to objectively introduce both good and bad points about the two countries to help deepen mutual understanding. When RIETI's homepage was launched, I simply wanted to convey how much effort this institute devotes to studying China and let Chinese people know about the content of China-study at RIETI. But my aspiration is growing and now I am trying to introduce various studies on the Japanese economy. For instance, I believe that the disposal of bad loans is of great interest to Chinese researchers.

Aoki:

Last year, I visited China for about 10 days following the publication of the Chinese translation of my book "Toward a Comparative Institutional Analysis." During the trip, I had opportunities to meet Chinese scholars and researchers at Fudan University, Tsinghua University, Peking University, Shanghai Academy of Social Sciences and so on. One thing that stuck me was the growing interest in Japan. Another impression from my latest trip is that those who graduated from Japanese universities are beginning to play important roles in Chinese universities. And those people are pleased with the launch of RIETI's Chinese language site, saying that they can now share more information with their fellow researchers who cannot read Japanese.

Zhou:

When I came to RIETI in July last year, I was impressed with the international working environment. When I was in Shanghai, I saw many Japanese companies with all their important posts filled by Japanese. My impression at that time was that Japan is not very keen on globalization. But I am now renewing my view. Japan too has this wonderful institution. This institution is close to the Ministry of Economy, Trade and Industry, and thus capable of proposing policies from such a viewpoint. It is quite encouraging for China to see such an institute placing great emphasis on China issues. Themes taken up by this institute are of great interest to me. For the moment, China is in a growth period but today's Japan is mirroring the future image of China, which is expected to face various problems. There is a lot I can learn from all those studies now being conducted on various problems in Japan.

Aoki:

I agree. For instance, how Japan is going to cope with banks' bad loan problems getting a lot of attention in China. The presence state-run companies decreasing China, accounting less than 30 percent overall industrial output, and figure as small 5 Zhejiang Province. Although they are corporation structure, state owned board members mostly insiders. However, such companies are gradually accepting board members from outside. Chinese economists are beginning to discuss how to incorporate outside board members into insider-governed corporate governance and they are interested in Japanese corporate governance. Although China's economic growth is continuing, we cannot exclude the possibility that China will face serious traffic and pollution problems similar to those that plagued Japan in the late 1960s to 1970s. In this sense, we should not be satisfied simply with the progress of economic integration between the two countries. It is important for Japan and China to learn from each other as to how economic systems are working and what can be done to bring stability and realize sustainable growth in the economy.

Kwan:

Now that China has entered the WTO, trade relations between Japan and China will become more intimate. China is in need of personnel who are knowledgeable about WTO rules and capable of conducting international negotiations. Japan, as a long-term member of the WTO, has abundant experience in this field. In international negotiations, Japan and China can cooperate, for instance, in dealing with the U.S. and European countries on trade issues.

Sawada:

Mr. Kwan, could you introduce your "China in Transition (Japanese language)" homepage?

Objective evaluation of changing China, not China as a threat

Kwan:

I have a strong sense of incongruity about the growing argument viewing China as a threat. Up until a year ago, a pessimistic view concerning the future of China was prevailing. Then, it changed all of a sudden and now people say China is strong thus posing as a threat. In reality, however, things do not change so much in one year. So, why don't we cool down a little bit? Based on this perspective, I would like to evaluate and convey through my homepage changes taking place in China as objectively as possible. Also, I am trying to convey to the Japanese public what kinds of policy proposals are being made in China by introducing Chinese scholars' views in Japanese. This is because I feel that Japan's view on China is extremely influenced by the Japanese media who tend to rely on Japanese residents in China and Chinese official papers such as the People's Daily for information. As I often find the coverage by the Japanese media failing to convey the true intention behind various events taking place and lacking objective observation of the situation in China, I would like to straighten up such unbalanced views on China.

Sawada:

Mr. Kwan's homepage has been attracting a number of hits and is a draw to our own site.

Kwan:

Thank you. I think it was timely. Although I do not agree with the idea of perceiving China as a threat, that argument definitely increased the interest in China. I could not have done this at a private research institute. At RIETI, I am glad to find the chief research officer very keen on China-study and I have been helped a lot by Chinese-speaking staffers here. I have got all the three key factors for success, "good timing, geographical advantage, and harmonious human relations," as we say in Chinese.

Sawada:

Mr. Tsugami, what do you think about the lack of accurate information?

Tsugami:

As Mr. Kwan pointed out, up until two to three years ago, Japan had a very pessimistic view about the reform of state-run companies in China. Japanese debate on the Chinese economy at the time concentrated on the reform of state-run companies. Living in China, however, I felt something was wrong about such perception. I thought China could not be full of vigor like this if it had only state-run companies whose reform is stumbling. As I kept on wondering what we were missing, I realized that China seemed to have private enterprises. The presence of such enterprises was not advertised openly because their presence is somewhat contradictory to the Communist Party's orthodox ideology. But they were, in fact, emerging as a new growth sector of the Chinese economy. I was lucky to have witnessed such an early stage of economic structural reform in China, just as a new driving force was beginning to emerge. And that is how I came to take a strong interest in China. Last year, Japan realized it can no longer afford to ignore China and began debates on China in an uproar, which itself I believe is a good thing regardless of the direction of such debates.

Japan lacking accumulated knowledge and arguments

Tsugami:

However, lacking both accumulated knowledge and arguments, Japan tends to sway from one extreme to another in its view on China. With little accumulated knowledge in stock, Japan is easily affected by fractional information on the flow basis. Unfortunately, Japan has hitherto accumulated little "added value" in international relations, its relations with China and other Asian countries. Japan has been providing yen loans and promoting cultural and academic exchanges but the impact of such efforts has been peripheral. When it comes to a fundamental question such as what Japan wants to do with Japan-China relations, Japan does not have any foundation for argument and tends to import U.S.-type perceptions of security as an added value. Instead of emulating the United States, Japan should accumulate knowledge based on its own standpoint, to draw up future visions for its relations with China and other Asian countries.

Kwan:

I have been thinking why this perception of deeming China as a threat is spreading in Japan now. Not many people share such a view in the U.S. and Europe. For Americans and Europeans, a stronger China means a greater market, creating a win-win situation. In contrast, many Japanese people see China as a powerful producer but not so much as a market. Since China's income must increase as its production expands, this sounds contradictory. Then, how do we explain Japan's "China Syndrome"? There are probably two reasons. First, judgment on the situation of China at the time of the currency crisis several years ago was totally wrong. Many people thought the value of the yuan would go down and wondered what happened to loans extended to China's financial institutions. I believe that Japan's extreme optimism on the Chinese economy as seen today came in reaction to that extreme pessimism in the past. Second, the deterioration of the Japanese economy during the past two to three years might have created a situation in which many Japanese people feel the grass is greener on the other side of the fence. In a sense, it is good. That is if Japan thinks it has to try harder because China is trying harder.

Tsugami:

Yes. It is important to use this sense of crisis as a leverage to make positive efforts.

Kwan:

But unfortunately, that seems not to be the case now. Japan seems to be throwing itself into desperation, blaming China for whatever wrong things happen to it. It is unfortunate that neither politicians nor corporate managers try to take responsibility for their own failures.

Analyzing beyond personal experience

Aoki:

There is a tendency that Japanese people try to draw out big conclusions from their limited personal experience and observation. They have done so in viewing the Chinese economy and U.S.-Japan relations. In the late 1980s, for instance, trade friction appeared to be the single most important issue for U.S.-Japan relations if you looked at Washington. At that time I was in Silicon Valley, California and I found many Americans there had a totally different perception of Asia. At that time, the fall of America was a fashionable argument in Japan and no journalists listened to me when I said that was not true. In the case of arguments concerning China, if some people tried and failed in a joint venture with a sinking state-run company, with which they came in contact through mediation by a certain politician, they conclude that the Chinese people do not keep contracts. According to a comparative study conducted by Jin Jian Min, a researcher at Fujitsu Research Institute, the perception that Chinese people do not keep contracts is widely held among Japanese corporate mangers but not among those in the U.S. and Europe. Is this because Chinese people use different standards in dealing with Japanese than those for Americans and Europeans? I don't think so. I think that U.S. and European corporate managers, who are successful in China, have learned ways of doing business in China through their own bitter experience. If we are to build favorable economic relations with China, I think it is necessary to analyze situations in China more objectively and outside of our own personal experience. At this institute, we would like to think about China and Japan-China relations based on such objective analysis and statistics. And that is exactly what we are trying to do with ANEPR. We would like to provide an environment in which scholars from China, Japan and South Korea and American researchers specialized in Asia freely discuss regardless of their nationality and backgrounds. That can be one way for Japan to contribute to globalization.

Sawada:

As for personal experience, we often hear that many Chinese people who come to Japan, either for study or work, return to China with negative experiences in Japan.

Kwan:

It takes a very long time to get accepted in Japan. Probably there is a certain critical point and once you go beyond that point you are among them. Foreigners have to overcome far more handicaps than language barrier. As the first theme for my research, I picked the yen's internationalization in Asia. But I had a hard time before being accepted by Japanese researchers as a specialist on the issue as they already had lots of internal debates on the yen's internationalization and wondered why they should listen to a foreigner on this issue. On the other hand, if I said I am working on the Chinese economy, it would automatically make me a specialist. "You are a Chinese, you can read People's Daily and you are an economist. Then, you must be a specialist on the Chinese economy." So prepossessed with such an idea, people tend to make judgments based on superficial factors rather than examining substance. In retrospect, this served me both as advantage and disadvantage.

Aoki:

At Stanford Institute of Economic Policy Research, to which I belong, there are some 30 professors and assistant professors and roughly two thirds of them are non-Americans. Of the 25 graduate school students who entered last year, only five are Americans with the rest coming from abroad. Those who do not speak English and those who are not properly doing their research would be ignored. But once they are recognized for their work, national borders cease to be a problem.

Japanese people know little about Chinese students in Japan

Tsugami:

There is a research program ongoing in my division on Chinese students in Japan, as I believe those students will become important human resources for Japan in deepening relations with China. In reality, however, we know very little about them. We don't know how they live in Japan and what kinds of jobs they are getting after finishing school here, and we even don't know just how many Chinese students are studying in Japan. Based on the tentative outcome, there are more than 40,000 Chinese students studying in Japanese universities and graduate schools. In addition, more than 20,000 are attending Japanese language schools here in preparation for entering universities. There are also some 30,000 Chinese working at Japanese companies as trainees. Thus, in total, roughly 100,000 Chinese are in Japan to learn. But Japan is not fully utilizing such precious human resources, despite its strong interest in China.

Kwan:

The issue of foreign students is another area of my specialty. We discussed the relative success of the U.S. and European investment in China vis-a-vis Japanese investment. I think one reason behind this is ways of utilizing people. Americans used to leave everything to ABC, or American-born Chinese. But now they are entering the next stage and are being replaced by Mainland Chinese who studied in the U.S. Japan actually has lots of NEC, or Nippon-educated Chinese. Those people are both economic and diplomatic assets for Japan. When they return to China, some of them will be doing business and others will be working for the government. One day in the future, you may find your Chinese classmate across the negotiation table. Japan should attach more importance to such potential diplomatic assets. Otherwise, Japan's diplomacy may someday come to a deadlock. I think this is a very critical problem.

Tsugami:

It is true that Japan still has a closed nature that does not accept non-Japanese unless he or she demonstrates extremely distinctive ability. I am afraid that this nature will be a big minus for Japan as the integration of the world economy further proceeds. Japanese companies' failure to localize may be one explicit example of this. As I am an optimist, I believe things are beginning to change. Still, I feel we must accelerate such changes. In this regard, I think RIETI should be going ahead in recognizing the true state of affairs and send out signals.

Japan is failing to attract talented human resources from abroad

Kwan:

When the Japanese economy was doing well, many Chinese, including many bright ones, came here to learn something from Japan. Today, however, bright students tend to go to the U.S. On the other hand, Japanese corporate managers say they want to leave their Chinese operations to local managers but they cannot find personnel fit for the job. How to break this vicious cycle is a very important issue.

Aoki:

Mr. Zhou is one of the 40,000 Chinese students here. Do you have any requests or opinions as a foreign student in Japan?

Zhou:

People studying in Japan are becoming a minority in China. People are increasingly becoming the U.S.-oriented. One reason behind this is Japan's system for receiving foreign students. For instance, it is relatively easy to get scholarships in the U.S. in a sense that many routes are available, whereas you must make far more effort to get scholarships in Japan. This is one area Japan should improve.

Aoki:

Every year, some 200 Chinese students apply for the graduate school of Stanford University. Of those candidates, we select about five. In doing so, we make a judgment based solely on the ability of individual students regardless of whether they have economic support or not. We are competing with MIT and Harvard in getting good students to create the best pool of human resources. After securing good students, we will provide scholarships, teaching assistants, research assistants or whatever else they need to live and study, regardless of their nationality. The growing tendency among Chinese students heading for the U.S. probably has something to do with this.

Sawada:

So, does it mean that we should rethink the scholarship and other systems for foreign students within a more strategic framework based on the long-term perspectives on Japan's relations with China?

Kwan:

As for foreign students, it is not a question of how many students come to study in Japan. At one time, some people made a fuss over how Japan could achieve its goal of accepting 100,000 foreign students, but the number doesn't matter. The question is how to stop the decline in the quality of foreign students coming to Japan. Naturally, top-class students would not come unless Japanese universities are top quality. It may appear to be a problem concerning foreign students. But this is, in fact, a problem that concerns the Japanese education system. Unless Japan recognizes this point, things will not improve.

Aoki:

I absolutely agree with you.

Tsugami:

This is also a result of Japan's policy failure in creating a competitive environment to attract capable foreign students. In this sense, however, we can still change the Chinese students' perception about the idea of studying in Japan by changing systems. As Japan's past efforts have been nearly nil, our future efforts should have ample marginal utility.

Kwan:

From individual students' points of view, this is an economic issue. Studying in Japan is not an economically viable investment for them. It costs a lot but they get little benefit in return. Studying the Japanese language takes lots of time. It is extremely difficult to get a doctorate especially in liberal arts. Given all those circumstances, I would stop them if some aspiring Chinese students come to me and ask whether they should study in Japan.

Li:

Although Japan promotes various cultural exchanges with China, such activities result in little added value as Mr. Tsugami said. When one event runs its course, it's over and leaves little residual effect behind. If you ask Chinese people on the street how much they know about today's Japan, you would find they know very little. This is probably because of the lack of information from Japan. In promoting cultural exchange, for instance, South Korea was quite aggressive last year and South Korean movies and TV dramas are rapidly spreading in China. Japan, in comparison, lags behind. For Japan, it is very important to think how to better convey its message to China.

Kwan:

That's exactly your job from now on, Ms. Li.

Li:

One Chinese girl I know told her parents she wanted to study in Japan because she likes Japan and Japanese designs. But her parents dissuaded her, saying that she would have a hard time in such a workaholic country as Japan. So, she decided to go to Britain instead. Actually, Japanese people are quite workaholic. According to recent statistics from the International Labour Organization, South Korea has the longest working hours, while Japan came in the sixth following the U.S. and Australia. The old image of Japan still persists in China.

ANEPR project aims to create Asian network of policy research

Aoki:

As Ms. Li pointed out, it is no good if it ends with a one-time effect, whatever event China invites from Japan. The purpose of promoting the ANEPR project is exactly to tackle that problem by networking people. When we hold a conference, it should not end as a one-time festival. Instead, we would like to network scholars and other participants, creating a framework in a way that they can continue to use this network both formally and informally. We will be holding the second ANEPR conference in April and we are in the process of sending out invitations for political economic scientists in China, South Korea, Singapore and Malaysia. We will be inviting scholars from the U.S. as well. In that symposium, we will be asking researchers and journalists interested in China issues to join our roundtable discussion. Apart from such formal sessions, we will be providing opportunities for more informal exchange of views among participants. Some 70 Chinese economists and corporate managers attended the Japan-China Economic Forum hosted by METI at Osaka, in September last year, and they were issued a multiple visa. It may be a trivial thing, but they had to go through bothersome procedures for each visit before. But now they can come here anytime. A month ago, prominent Chinese economist Fan Gang came to Japan to attend some kind of conference. When I asked him how long he was going to stay, he said one and half days. And he said, "Now that I have a multiple visa, coming to Tokyo is just as easy as visiting Shanghai." We're planning to invite him for the next ANEPR meeting in April.

Tsugami:

We should ask the Foreign Ministry to issue a multiple visa for those planning to attend the next meeting, if there are any who have yet to get one.

Aoki:

Yes. That way, we can keep in constant contact with them. And I believe by accumulating these kinds of efforts, we can probably prevent minor miscommunications from developing into major trade friction as seen in the recent safeguard problem. I hope that through our activities we can create a network of people, so that we can frankly discuss how we can solve problems when they arise.

Sawada:

I think that the purpose and mission of RIETI has now become clearer. While serving as a linking point for human and information networks, we would like to be an institution capable of solid and in-depth analysis of information.