China doesn’t quite have the game sewn up.
So bad is the West’s public-relations standing in the era of Trump and Brexit that it’s easy to see Chinese ascendancy as a welcome stabilizer in markets, finance, economics and trade. Awe at President Xi Jinping’s Belt and Road Initiative is a prime example, conveying the unhealthy notion that democracies can’t do big things anymore and China is sweeping all before it.
The same mythology characterizes China as the only country that matters in Asia. Suddenly in the Western mind, Asia is China and China is Asia. (Never mind that as recently as the 1990s, many people said the same thing about Japan.)
Writing off the rest of Asia overlooks the strength of Japanese companies and steps by Tokyo to steer economic policy - not to mention development aid - toward countering Chinese influence. A secondary theme is the sense that America, Japan’s closest economic and security ally since 1945, is increasingly inward looking and unreliable.
Japan needs to diversify its portfolio. The country wants back in the game and is enlisting partners where it can. India, which feels encircled by China, is eager for an ally. In September, prime ministers Shinzo Abe and Narendra Modi jointly announced plans to build a bullet-train line financed almost entirely by Japan. India gets infrastructure, and Japanese companies like Hitachi and Kawasaki Heavy get contracts. A few months earlier, the two leaders unveiled the Asia-Africa Growth Corridor, aimed at joint development in Africa. The contest with China, which has made big inroads into Africa, is impossible to miss.
In Southeast Asia, Japanese companies are also winning the infrastructure race. Not only are they doing more business than Chinese firms among the 10-member Association of Southeast Asian Nations, they remain the dominant Asian direct foreign investor. Together with the U.S. and the European Union, Japan accounted for more than half the total in 2015.
Chinese companies may catch up. And the Chinese military may come to dominate Asian security. But Japan isn’t going to acquiesce. Japanese interests haven’t just packed up and headed for their low-growth, low-inflation home turf.
On the contrary, conditions at home are partly responsible for corporate Japan’s renewed interest in the overseas markets. Abe and Bank of Japan Governor Haruhiko Kuroda have made concerted efforts to reflate and reinvigorate Japan’s economy. They have met with mixed success. Deflation is no longer pervasive, and capital spending plans look promising, but officials and executives still wrestle with the implications of an aging and dwindling population. Prospects for sustained earnings and revenue growth look stronger away from home.
Japanese companies direct a lot of investment toward China, but here again Japan feels the need to diversify. China’s pace of economic growth is still high by almost any measure, but it’s cooled considerably over the past decade and will probably slow to about 6 percent over the next couple of years.
Japanese companies, like other foreign investors, feel increasingly exposed to diplomatic tensions. Imagine if a Japanese minister makes one offhand remark that displeases Beijing. Next thing you know, that plant in Guangzhou is placed on hold or, as was the case with South Korean conglomerate Lotte, fire safety rules suddenly become an issue.
It was different when China was building its economy and needed to catch up to the major industrial powers. That era is over. “Made in China 2025,” another signature Xi initiative, may offer opportunities for technology investment, but that program is about making China great. Not anyone else.
The idea of a Japanese “southern strategy” has roots in the country’s history. As Corey Wallace writes in International Affairs, the concept has been around since the Meiji era in the late 19th century. Back then it had military as well as commercial components.
However it diversifies its portfolio, Japan is sending one clear message: China hasn’t yet vanquished all competitors.
Daniel Moss writes and edits articles on economics for Bloomberg Opinion. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.