August 10, 2008
China to emulate Japan in bid for global dominationPosted in International Economy · 22 comments ·
Shanghai has turned from a paddy field into a bustling megalopolis in just two decades, and the growth won’t stop there.
The Olympic Games have always been as much about politics as sport. Last Thursday, US president George W Bush’s predictable swipe at the Chinese for their human rights record was par for the course. Notice he said nothing about cutting trade links, or investment plans for that matter.
Talk is cheap and the Chinese know it. The US needs China and, while going to some Protestant Church this morning (which Bush will do) might be a sop to those who believe that religious freedom is crucial, it won’t interfere with the ongoing deepening of Sino-US economic relations.
This is the crucial financial battlefield over the coming years, because, like Japan before it, China is playing a ‘long-game’ with the US. It’s only a matter of time before China overtakes the US as the world’s largest economy. According to the IMF, this will probably occur by 2030.
The Beijing Olympics are simply a punctuation mark in an inevitable shift in world power. The parallels with Japan are striking. Clearly there are enormous cultural differences between both countries, but anyone who has watched both can see that China will do what Japan did after World War II – only bigger and quicker.
For example, my father has nail clippers in the shape of a fish. Or more accurately, a fish lure. It is an intricate little thing, the gills are emerald green and the eyes and mouth reasonably realistic. It is extraordinarily resilient. Someone must have spent a bit of time and effort in getting everything right in this minute piece of technology.
I can remember playing with this fish as a very young boy. Despite the fact that it looks like something he got in a lucky bag in the 1950s, it still works and it is certainly close to 40 years old, if not older. My father and mother are from the hoarding generation – unlike the current generation, their generation bought things to last, saved money and never threw anything out.
An interesting thing about the clippers is if you flip it over it has ‘Made in Japan’ written on it. This is interesting because it must have been the last low-tech item ever made in Japan. Japan is now the world’s centre of technological excellence.
When did Japan make this type of basic stuff? Or more interestingly, when did Japan stop making these bog-standard, cheap, pile-’em-high, flog-’em-cheap trinket things? When did Japan move up the value chain from toys to computers, from computers to videogames, from hardware to software, from the Mazda 323 to the Lexus and the Prius?
If you ask our parents they will tell you that, in the 1960s, the image of Japan was of a cheap manufacturer churning out bargain basement pots and pans, second rate cars, transistor radios and nail clippers. It was a byword for cheapness.
But over time, to use the vernacular of the business world, Japan moved up the value chain. The Japanese realised that they could only pay themselves well by investing in technology and increasing the productivity of every worker.
The country did this with extraordinary breakthroughs in innovation. Japan went from a defeated country of cheap labour to a resurgent country with the best paid workers in the world. It transformed from an importer of capital to the world’s largest creditor.
Yes, it got burned in its Kamikaze Capitalism phase of the late 1980s and early 1990s, as we’ve noted before, when it became infected with the ‘Irish disease’- an infatuation with property. It got over that. Today, Japan is the high end of the high end, the most sophisticated economy in the world.
It has passed the low-tech baton over to China and now China is where Japan was 40 years ago. How long will it take China to grow out of the cheap goods phase? How long will it be before China moves up the value chain?
The answer to the first question is simple: it will not take China long and, because of its scale, China will be two or three world-beating economies at the same time. It will be a low cost producer of tat and a high-tech producer of state-of-the-art exports. Things are unlikely to move at a single pace, but rather at different speeds.
However, one thing is clear, the 21st century is likely to be China’s century. The country is on course to overtake the US by 2030 as the world’s largest economy and there doesn’t appear to be anything that can stop this process. It’s an economic juggernaut similar in scale to the US in the early 20th century.
Strolling on the Bund in Shanghai gives you a glimpse of the new China. This place was at the heart of pre-communist mercantile China when Shanghai was the centre of east Asian trade.
It was here that Mao, always aware of the nationalist symbolism of the great foreign banking building that overlooked the Huangpu River, encouraged his cultural revolutionary students to beat up members of the bourgeoisie, parading them through the street like medieval criminals.
Today, a little over 40 years later, looking out over the river to the monuments of glass and light across on the other bank, you cannot but be moved by the singular ambition of these people. The Cultural Revolution and any vestiges of communism have been erased and replaced with the most vibrant strain of capitalism on this earth.
Twenty years ago, on the far side of the Huangpu River were paddy fields. Today, it is a glittering megalopolis with a skyline that dwarfs Manhattan. Until three years ago, Times Square was the most photographed streetscape in the world. Not any more – now it’s the Bund Shanghai, testament to the emerging middle class in China, as millions of Chinese tourists visit the city.
It should be no surprise to anyone that this year’s Irish Entrepreneur of the Year – Liam Casey – runs his company, PCH, from southern China, where it outsources components for household ‘American’ names such as Apple, Dell and Logitech.
Like the Japanese makers of my fathers nail clippers it’s only a matter of time before the Chinese begin creating their own Apples and Microsofts. As Casey said in a recent interview: ‘‘It’s not that China’s cheap – it’s fast.”
Bush might heed these words. In today’s globalised economy, the quickest exposes the sluggish and wins. For America, the message being sent by China is that if you have a weakness, they will exploit it. And that’s not just in the Olympics.