In the 1980’s, everyone was predicting that Japan economy will topple the USA economy but that did not happen.
The problem Japan had was twofold. It was too small, China being 10 times larger, and it made the same mistake the US made in its last recession. It let overleveraging of inflated real estate undermine the economics of the country. Today, Japan is still trying to recover. It pumps more funds into the economy, borrowing from it’s domestic retirement savings, desperately trying to refloat its economy. By doing so, it is buying time to recover. It may not work. What is happening is Japan is getting old and with her past and current culture of not allowing foreigners become long term residence, her population is on a decline.
“Japan remains definitively stuck, despite a long and aggressive experiment with ultralow rates. A quarter-century after its property bubble burst, a penny-pinching generation has come of age knowing only economic malaise, stagnant wages and deflation—a condition where prices fall instead of rise.” The enduring mystery of Japan’s economy
China knows and studies the Japanese history that led to her success and now failure decline. China has copied Japan’s rise and is shift gears like Japan into technology. Having said that, times are changing because technology is already here and moving at a frightening clip. Most developed countries are using robotics and AI to improve their manufacturing. With this strategy, China hopes to beat the issue of falling labor resources caused by demographics. China is also more open to the outside world. The US complains about restrictions to China, but all developing countries try to protect their nascent industries, especially those that the feel are in the national interest. Do you see restrictions on Walmart, McDonalds, or Pizza Hut? There are restrictions on the auto, infrastructure, and financial areas of the economy, but in Xi Jinping’s last speech at the PRC Congress, he promised to open China up more. As that happens, it will accelerate China’s growth into the future with further FDI from a broad spectrum of foreign countries. That, and the ability of foreigners being able to get permanent residency in China broadens China’s ability to integrate more smoothly into the world. It also ties other countries into the economics of China. Things like the BRI will also broaden her soft power as China rises. Japan never attempted to develop a world infrastructure base. Her international ventures were limited to factories abroad where it made economic sense because of tariffs and economics.
China also knows that STEM is key to technology. China graduates 8 times more STEM university students than the US. China is creating a new university or a foreign/China campus every week. China knows education is her future.
China also is structured so she can plan long term and with focus, something Japan tried, but it didn’t bear as much structural fruit as we see with China. Maybe it was the time in which Japan rose? Maybe it was japan’s governance? Who knows? You see China more focused and has the ability to look long term at solutions to her rise. Even the US can’t do this well so, in the long run, China will beat the US in the economic race. That is exactly what Trump and others fear. The attack on ZTE, the trade war, the demand for China to end her subsidies on research (Made in China 2025), her calls to limit Chinese STEM students studying in the US, are all signs that the US sees as a threat to her world dominance. We are losing our leadership by not competing.
If war doesn’t preclude this rise, China is on her way to be dominant in the next industrial revolution, it is the technology revolution. China plans to be the top dog. Today, the US is top dog, but we are whittling away our leadership because our leaders are taking us back to old technology and reduced focus on education for the masses. We seem to be aiming at elitism among the rich and abandoning our middle class. The vision that we see today, is almost polar opposite of China.