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In the late autumn of 2023, there was no dramatic development in Japanese foreign policy. Prime Minister Kishida’s trip to the San Francisco APEC summit reinforced existing thinking with little drama. Hopes centered on carrying forward the triangular momentum of the Camp David summit, rebooting Sino-Japanese relations after the setback due to China’s ban on maritime products, and making progress on economic agreements whether CPTPP or IPEF. Attention was also focused on Sino-US relations with little concern about Biden and modest anticipation that the downward spiral would be halted, which would have positive spillover for Sino-Japan ties.
On October 18, polling data on Kishida’s sharp loss of support after two years in office were posted in Yomiuri. At first, he enjoyed 50-60 percent backing, climbing to 62 percent in May 2022 after Russia’s invasion of Ukraine and 65 percent right after Abe was assassinated. But from August as revelations concerning the Unification Church appeared, support fell sharply. Even as Japan’s three whitepapers were issued in late 2022, support had fallen to 39 percent. Visiting Ukraine and hosting the G20 led to a bump to 56 percent in May 2023, but scandals brought the level down to 35 percent in July, and 34 percent in October. Whereas the drop over two years for those over 60 years old was just 10 percent to 43 percent, for those 18 to 39 it was as much as 36 points to 26 percent. Kishida’s economic policies had failed to resonate for those who had started with the highest expectations despite a degree of success the Kishida cabinet achieved through security and foreign policy success. His demographic, employment, and inflation policies had proven disappointing. At year’s end, support only dropped further as scandal gripped the LDP. Kishida’s foreign policy activism no longer could overcome this trend.
On November 15, Yomiuri pointed to Kishida’s difficulty in using foreign policy at APEC to revive his political fortunes, as he had done earlier in 2023. There is little prospect of Chinese actions on the discharged water or EEZ buoy. Japan’s balanced diplomacy to the Middle East puts it at some odds with the US. Also, possible Sino-US improvement could leave Japan on the outside. Yet, such doubts paled before the overall trust in the US and sense of continuity ahead.
On November 18, Yomiuri reviewed the IPEF summit, leading to summits every two years, while also discussing the wariness of Japanese firms to invest in China, much of it through Hong Kong. There is still enthusiasm to invest in the world’s second market, and in January 2024, a Japanese business delegation will go to Beijing after a 4 ½ year hiatus. Chinese tourists have returned to the pre-pandemic level of 9.59 million. Yet in the first half of 2023 Japanese investments fell to $4.1 billion, the slowest pace in a decade. Leaving China (datsu Chugoku) over economic security and China’s anti-spy law continues to have an impact. An editorial two days earlier stressed the importance of Japan and the US forging the new economic framework even if it, regrettably, lacks TPP market opening. Japan’s role is great, including investments in newly rising states, as many struggle to reduce excessive dependence on China by tightening economic ties to Japan.
Reverberations from the war in Gaza impacted Japan’s ties to the Middle East, Southeast Asia, and the United States. On November 23 Sankei reviewed articles that raised concern about how Japan could manage the new environment, struggling to maintain balance in the region serving its energy needs and to not be tainted by its closeness to the United States in places such as the Muslim-majority countries of Southeast Asia. News from the Middle East kept casting a dark shadow.
ASEAN
Asahi on December 19 declared that the era of Japan leaning on assistance is over, as true equality replaces it in ties to ASEAN. The Tokyo 50th anniversary conference points to the great importance of this region—a trading partner for Japan on a par with the US and China and a transport route for oil and more. ASEAN has more start-up companies than Japan and will in several years surpass Japan in GDP. In gender gap indicators ASEAN countries are surpassing Japan too. There is lots to learn from them, including bold reform thinking. Countries are deciding whether leaning to the US or China better serves their national interests. People are losing interest in study or employment in Japan, as polls show that China is ahead as a future partner. Japan must aim to raise ties for a new era, not rest on results over half a century.
In Yomiuri on December 19 the Japan-ASEAN summit drew praise for deepening trust and for a joint statement covering a broad range of cooperation. Equality was the buzzword in place of one-sided Japanese assistance. Kishida is considering public-private investment of $35 billion over five years in policies to mitigate climate change, infrastructure, etc. A joint strategy was declared to make ASEAN a production point for next-generation cars. Over the coming decade over 10 million persons could join exchanges, studying language and culture, that could deepen understanding. The article ends by warning of China’s debt trap, which is used to gain security interests in lieu of repayments, which is contrasted with Japan’s transparent investments.
On December 20, Sankei commented om the event marking the 50th anniversary of Japan-ASEAN relations, leading to a joint statement strengthening maritime security cooperation and aiming for a world supportive of democracy and the rule of law while employing the words free and open for the Indo-Pacific region. Within ASEAN attitudes vary toward China, and mentioning it was avoided. Kishida drew sharp contrasts with China on the use of force and economic pressure. ASEAN has changed over half a century, reaching a cumulative $3.6 trillion in GDP compared to Japan’s $8 trillion level, contributing to an equal. Meanwhile, the US and China are contesting for influence in the South China Sea, a factor influencing the international order’s shape. The expansion of China’s economy has lessened Japan’s status, but polls show that Japan is the most trusted country among those with influence in the region, seen as contributing to regional stability. Facilitated by exchanges and scientific and technical cooperation, Japan’s image is now tested by how it defends freedom of the sea, joining against China’s pressure.
China
Angst toward China permeated the late 2023 news coverage. Hope for a summit to ease tension often raised in 2013 to 2021 had collapsed. The prospect of driving a wedge between China and Russia had faded. Shaken expectations of sustained US commitment to the Indo-Pacific strategy and multilateralism followed news of Donald Trump’s rise in the polls and of the new distraction in the Gaza war to add to the deepening distraction of the Ukraine war. Kishida’s slumping polls at home amidst LDP scandals only worsened the serious malaise over foreign policy challenges.
In Toa, No. 11, Nogimori Minoru wrote of the high risk of long-term stagnation of China’s economy, i.e., China’s “Japanification.” He found strong similarity to Japan after the bubble economy in price deflation, a frozen jobs market, and depressed real estate after failing to correct an economic structure of distorted investment. Thus, China had a high probability of sinking into a “lost 30 years,” he said. Deflation reflects a drop in demand as youth unable to find jobs in China, parallel to Japanese youth in the 1990s, reduce consumption, along with population decline and falling real estate demand. A huge structural problem resulted from excessive reliance on investment centered on real estate, as personal consumption remained as low as 37% of GDP in 2022, after failures to reform. In addition, barriers arose in the rapidly growing high-tech sector from recent tightening political control and US export controls. There is a high likelihood of short-term effects through relaxing controls over real estate and again resorting to expanded infrastructure investment to avoid a rapid economic downturn, again putting off structural reform. This will not reduce fear that China cannot avoid “30 lost years.”
Warnings about Chinese politics have grew louder of late beyond the past ambivalence toward Xi Jinping, when he was treated as a partner inclined to reach some sort of deal with Japan as well as the United States. His economic policies, security outlook, and attitudes toward Japan are all showcased in recent analyses as threatening to the future Japanese had long envisioned. An October 9 Yomiuri article on concern over the widening gulf between the US and China over the internet postulated a future divided into two rival, international information systems.
An expose in the October 16 Yomiuri pointed to suspicions that Chinese citizens returning from Japan are taking secrets concerning weapons development, often from universities. Special attention is given to hypersonic technology. Negative comparisons are drawn between security clearance systems of other states and Japan. Concerned about civil-military fusion, the article points to Chinese researchers at Japanese research facilities who return home with vital access.
On November 16 Yomiuri traced the past decade of Sino-US relations, starting with Obama’s 2013 8-hour summit with Xi Jinping, seeking cooperation, while Xi stressed respecting each other’s national interests and a “new type of great power relations.” Xi aimed to show both at home and abroad an equal relationship, as Obama’s “pivot” sought to stop Xi’s hegemonic tendencies. Xi’s words at summits and actions failed to match. After his assurances in October 2015 not to militarize artificial islands in the South China Sea, he did just that. After promises to Trump in April 2017 to completely enforce UN sanctions against North Korea, Xi permitted oil exports. International society will be watching what comes of the November 15 summit words.
On November 17, Yomiuri reported that as a condition for Xi’s visit to the United States, China demanded that Xi Jinping be put on a pedestal above other leaders and that a location be chosen away from anti-China demonstrations. That day the paper noted that China uses dialogue with the US as a diplomatic card. If there is no dialogue at times of tension, what is the point of a framework? A long-term confrontation is ahead with numerous dimensions. A danger lurks that the US will too much store in dialogue with China. If China does not have confidence in a US response to an attack on Taiwan, deterrence loses its effect. Only with deterrence can the inevitability of a Sino-US clash be avoided, readers were reminded.
The November 18 Yomiuri headlined that improvement in Japan-China ties is further away than ever. It editorialized that despite Xi’s words for managing differences, on the water discharge issue and others Xi offered no clear answers. It is not velar that China seeks better relations. A day earlier it had editorialized on Sino-US relations, asking skeptically if anything was achieved in avoiding conflict or other matters. It urged Xi to play a constructive role on Russia’s invasion and other global troubles, leading a “responsible country.” Articles that day saw no progress on Sino-US trade issues, which had grown more serious in 2023 over security. The CEO dinner was not seen as alleviating tensions despite Xi’s desires to the contrary, one article concludes. Yet, another article that day said the order had been given in China to resume exchanges and keep relations from further faltering. Official exchanges at various levels will expand, and Chinese criticisms will be toned down, according to one source. Japanese exchange students will again find it easy to go to China. Yet, lack of transparency leaves the Japanese side still uncertain.
On November 19 Yomiuri reported on Xi’s speech before the CEOs, message to Biden, and talks with some smaller countries. He seemed to appeal for China and the United States to share responsibility, while trying to limit damage from growing distrust of China as it aims to deepen its hold in the Global South. Yomiuri says it will not be easy for China to forge the order seeks.
Kitamura Shigeru on November 19 commented on de-risking, pointing to China and Russia and how the EU changed course with the Ukraine war. He urged Japan to catch up to the EU and the United States on investment controls for economic security, taking note of China’s new anti-spy law. Information exchanges between companies could now lead to charges of espionage. Rules such as those in the EU and US would curtail Japanese firms’ activity in China The era of global free economic activity is past. How to respond poses a big question for Japan, Kitamura said.
A November 23 Yomiuri article reported on Yamaguchi Natsuo’s visit to China, seen as useful as propaganda to China and a celebration of the 45th anniversary of the 1978 treaty. As early as 1968, Soka Gakkai founder Ikeda Daisaku, who has just died, called for normalized relations. In the 2010s Yamaguchi has carried on the mantle of “China pipe.” Yet, the party’s traditional pro-China stance is at a crossroads, given recent criticisms of it and Yamaguchi’s August visits to the Philippines and other ASEAN states in an effort to achieve some balance.
On November 30, Yomiuri warned that stable “management” of Sino-Japanese relations is important. In November 2022 the two sides had agreed to expand dialogue and exchanges, and Foreign Minister Hayashi had visited China in April, but from July the water discharge issue had riled relations, along with Taiwan, the Senkakus, and arrests of Japanese. In October 2006, Abe had led in resetting relations. Can this be done again? Now it is China pushing for that after in December 2022 Japan labeled it the biggest strategic challenge. The article points to obstacles.
Taiwan
In Toa, No. 11, Suzuki Takashi scrutinized Xi Jinping’s approach to Taiwan, linking it to a rising sense of alarm in Japanese society about China using military force in Taiwan aroused in 2021 by a high US official warning that China would possibly invade by 2027 and in 2022 by talk of a Taiwan contingency with today’s Ukraine becoming tomorrow’s East Asia. If in one case, the historical consciousness of a strong-man leader could bring this result about, Xi Jinping’s view of Taiwan offered no assurance that this would not happen again, as seen in publications from his time in Fujian Province and his thinking about shared blood and historical redemption from a century of humiliation, in which the war of 1894-95 plays a big part. Taiwan symbolizes the struggle against the United States as well, including the historical inevitability of the rise of the East and the fall of the West. Hong Kong also served as a symbol of Westernization aimed at splitting China in a “color revolution,” which is extrapolated to Taiwan. Xi’s way of thinking has striking similarity to Putin’s. Suzuki postulates a Taiwan contingency beginning with a danger scenario reaching to the Senkaku Islands and Okinawa leading even to the possibility to a plan for control over all of Japan—a complete reckoning for East Asia’s modern history. Considering the long postwar century since 1895 as an affront to China, Xi is definitely making the Taiwan question into the Japan question.
While Xi Jinping garnered headlines for meeting in San Francisco with CEOs of US companies, Kishida on November 17 met there with TSMC founder Morris Chang, as reported in Yomiuri. He called for peacefully resolving problems involving the Taiwan Strait.
South Korea
A joint Japan-ROK poll reported in the October 13 Yomiuri found a 7-point rise to 37 percent in Japanese views of relations (good or quite good) with South Korea—the highest figure since the polling began in 2013 and greater than the 33 percent choosing “not good,” for the first time surpassed by the positive figure. In contrast, the negative 53 percent in South Korea exceeded the positive 29 percent. As for what change had occurred over the past year, while more than three of ten Japanese credited better trust in relations, Koreans narrowly valued the removal of export controls and normalization of trade, as nearly 70 percent focused on the discharge of Fukushima water under way.
In response to the CJK Busan foreign ministers’ meeting, Yomiuri on November 27 emphasized that Seoul is seeking better relations with China. Yoon was unable to meet Xi at APEC. Park Jin in Busan urged China to play a constructive role on the North Korean question. Yet, hopes for a CJK summit with Premier Li Qiang to be followed by Xi’s visit to Korea face rough sailing. This first foreign ministers’ trilateral since 2019 also saw Japan seek renewal of maritime exports. At the same time Japan gave its support to Korea’s application for the 2030 world’s fair in Busan. An editorial the next day complained of China’s cancellation of the joint press conference and dinner, while contrasting Japan-ROK agreement to China’s actions, including support for North Korea. Park Jin reaffirmed the 2015 agreement with Japan and no backtracking is expected.
On the left, appeals continued for Japan to do more to resolve history issues of lingering concern in South Korea. Asahi on December 8 noted that in November a Korean court refused to recognize a sovereignty exception in international law and ordered compensation for “comfort women,” while Japan repeated its position that the issue has been settled. Both sides need to take measures to prevent their recently improved relations from deteriorating, Asahi argued, recalling the precedent in 2018 for forced labor. In the spring of 2023 South Korea found an alternative compensation package for the forced labor issue despite strong resistance from public opinion and some refusals to accept the money. In the South Korean government there are voices calling for business circles in Japan and South Korea to set up a fund for youth exchanges, including participation of the accused enterprises. Although the Moon government disbanded the fund set up after the 2015 bilateral agreement, the Yoon administration respects the agreement. Now both sides should adopt policies in the spirit of the agreement to restore the dignity of the “comfort women.” Courts and government agreements cannot resolve everything related to historical issues that arouse public emotions. It is important not to say “talk is over,” and to keep facing the past without any end in sight.
On December 22 Yomiuri called on the South Korean government to minimize the damage from an unjust court judgment on the forced laborers. The court called for compensation from two companies that utilized the labor. Relying on the 1965 treaty, the Japanese government must reject the ruling. If the Korean government insists on its enforcement, relations will be deeply damaged. By setting up a foundation that began in March, Yoon has avoided this outcome. More than 80 additional cases await adjudication. Cooperation must not cease to deal with the rising threat of North Korea. On the same day, Sankei took a similar stand, while going further in justifying the wartime conduct of the Japanese employers.
North Korea
The late November successful North Korean satellite launch led Japanese to wring their hands, blame Russia for assisting the North, and stress the joint threat to Japan, the United States, and South Korea with renewed calls to bolster deterrence. No optimism could be found in analysis.
Russia
Yomiuri on October 9 reported on Suzuki Muneo’s visit to Russia and its use for Russian propaganda. The opposition Diet member, long active in Russia policy-making and used by Japanese politicians as a go-between, is accused of damaging Japan’s international reputation. Were Japan to lift sanctions, as he seeks, for the benefit of grave visits and fishing access sought by his constituents in Hokkaido, it would do great damage, the article warns.
A Yomiuri editorial on November 23 blamed Russian technological assistance for North Korea’s satellite launch and appealed for efforts for closer trilateral cooperation and persuasion aimed at international public opinion. An urgent task was to block cyberattacks funding the North’s steps.
On November 25, the National Institute for Defense Studies issued a report asserting that China and Russia may effectively become allies as they share strategic goals including change of the current US-led international order. They “could effectively enter into a de facto alliance” as the contest between the United States and China/Russia over the international order accelerates over the next decade. Xi and Putin are expected to deepen cooperation to build a new order, according to the report, including through joint exercises around Japan and forming authoritarian groups among Global South states that do not necessarily share universal values.
On November 21 and 25, Yomiuri reported on a new Russian tourist ship from Vladivostok to Etorofu, starting in December to make weekly round trips with Chinese tours in mind. Facilities are being added, including hot springs, and the “Muneo house,” built by Japan for the visa-free travelers returning to their ancestral home, is being used for the expected upsurge in travelers.
On December 17, Deputy Foreign Minister Andrei Rudenko slammed Tokyo for open pursuit of an unfriendly policy, saying that there is no prospect of continuing dialogue for concluding a bilateral treaty of friendship and cooperation. By not calling it a peace treaty, Rudenko indicated Moscow’s aim of excluding any territorial dispute from the pact. Sergey Lavrov just afterward claimed that his country has no territorial dispute with other countries including Japan, indicating that Moscow will not engage in negotiations over the Northern Territories. He mentioned Japan after claiming that Russia has no territorial dispute with NATO, in rebuttal to U Biden’s recent remark that Russia may attack a member of the military alliance as it did Ukraine.
Later in December Russian foreign ministry spokeswoman Maria Zakharova warned that a move by Japan to provide Patriot air defense systems to Ukraine would have “grave consequences” for Russia-Japan ties. Days earlier Japan had announced that it would prepare to ship Patriot air defense missiles to the United States after revising its arms export guidelines, which would give the US more weapons to allow more military assistance to Ukraine. Zakharova said that such a scenario would be “interpreted as unambiguously hostile actions against Russia and lead to grave consequences for Japan in the context of bilateral relations.”
Central Asia
Uyama Tomohiko in Yomiuri on November 24 described a turning point in Central Asian diplomacy in response to the war in Ukraine, even as states maintain ties to Russia. It is not realistic for them to enter the Chinese sphere of influence, given public attitudes toward Chinese culture. They seek diversification. Turkey is a beneficiary. Kazakhstan is particularly wary of Russia. In the 2000s Japan initiated Central Asia + 1 talks at the foreign ministry level, but it has been left behind by 5 + 1 summits, and Japanese companies are negative on investments. If it does not change course, Japan will be left in the shadows of other states.
Global South
Tanaka Akihiko in the November Voice described the illusion of the notion of the Global South, while contrasting Japan’s efforts to build trust with China’s approach. Recognizing the media fascination with this notion, he conceded that it has become difficult to use the expressions of “newly rising countries” and “developing countries,” given past inclusion of China, India, and Brazil, each of which has come to exert great influence on the world economy. Global South too ignores the diversity in today’s world. In GDP Singapore and Saudi Arabia boast per capita GDPs higher than or equal to developed countries, while Sudan is one of many at levels below $1000. Some Asian states included in the Global South, such as Mongolia and parts of Central Asia are as far north as Japan.
In March 2022, votes on Russia’s invasion of Ukraine were split among states in the South, some abstaining, others voting for the resolution critical of Russia. India considers itself representative of the Global South, but in its relations with Japan, Europe, and the United States it hardly is. Japanese diplomacy commonly uses the “Indo-Pacific” and “Inner Asia,” while China in August succeeded in expanding BRICS by six countries, while naturally wanting to add states out of sync with Europe, the US, and Japan, given criticism of it for strategic and human rights reasons. Owing to criticism of it for the BRI, including as a “debt trap,” broadening BRICS has diplomatic merit, but this will have little impact on positively changing international politics and economics, and it will not be easy for the renminbi to gain widespread use. BRICS is a defensive grouping, reflecting dissatisfaction with the West but not leading to real political and economic change. The G20 raised India’s profile and lowered that of Russia and China, but its statement will have little impact on international relations. Xi Jinping did not appear for domestic reasons.
Over the past two years, the American alliance system in East Asia has been strengthened with a line extending from Japan and South Korea to the Philippines and on to Australia, bolstered by Biden’s September stop in Vietnam. Japan’s multinational diplomacy has shown it to be a trustworthy and stable player. At the ASEAN and G20 meetings, Japan’s diplomacy succeeded while China’s failed, seen in the response to the Fukushima water discharge. Since Abe’s second term, Japan’s leadership diplomacy has progressed, and its international influence has grown despite not being viewed as an economic power as it was before China’s GDP overtook it. Some criticize Kishida for not going beyond Abe’s diplomacy, but the continuity builds trust in Japan. Under Kishida, strategic diplomacy has advanced, making Japan more reliable and trustworthy.
In Gaiko, Vol. 81 (September/October), Sahashi Ryo discussed a world of mini-lateral groups, not multilateralism, even as dialogue was picking up between the United States and China. The structural confrontation will continue even if there is some calming on the surface, he said as he pointed to the Taiwan 2024 election as one source of tension. Mutual dependency will decline, whether de-risking or de-coupling. Building toward mini-lateralism was the “Camp David spirit” of August 2023, promising a wide range of trilateral cooperation, including in supply chains and real time sharing of intelligence on missile launches. Japan appreciates Yoon’s posture on the unification of Korea. The Biden administration aims for an expanded deterrence system across Northeast Asia as well as a broader security partnership reaching to India and Vietnam. Alliance architecture will be based on bilateralism, which will come close to completing Obama’s “Asia pivot” of a decade earlier. Biden’s absence from the East Asian summit should not be taken as slighting Asia, as he spent his political capital on the Japan-US-ROK triangle, India, and Vietnam. The G20 is less united than the G7 and is in danger of breaking apart, but it adds another layer to the patchwork of international cooperation, while an authoritarian grouping is advancing, and BRI exists. China’s ban on Japanese marine products is its latest use of economic pressure and sign of weaponizing economic interdependence. Kishida’s pushback and speech at the East Asian Summit were well received, while he mixed a hard line with a soft one pursuing dialogue with Premier Li Qiang. Japan sends a message to China favoring constructive, stable relations, but its words should not be misconstrued as lowering vigilance, as for a Taiwan contingency.
In Gaiko, No. 81, the negative assessment of China was overwhelming. Xi Jinping is likened to Mao Zedong. His concentration of power is treated as destroying whatever power balance China had achieved, causing a sharp reversal in the political reforms introduced by Deng Xiaoping. In addition, the three years of pandemic greatly exacerbated China’s endemic problems. Views of the four authors—Anami Yusuke, Masuo Chisako, Naito Jiro, and Kawashima Shin—paint a picture of overconfidence in China’s superiority. One dilemma noted is the that of inequality, after some were enabled to get rich first, the party leaders benefiting greatly refused to redistribute wealth, choosing instead to crush social unrest and dissent and to blame them on the outside world. The theory of color revolutions serves to distort the path of internal reform. In turn, demonization of Japan as well as the United States contributes to destabilizing those bilateral relations. Over the last months of 2023 China used the water discharge issue to fuel greater criticism of Japan even as it responded to a weakening economy with softer appeals.
A second dilemma noted by the Gaiko authors is the spillover from blaming the outside. Xi seeks to use exclusive nationalism to distract from China’s domestic troubles and to refocus on Taiwan as an urgent mission. The article looks back to demonization of Japan in the 1990s as the start of the strategy to boost the Chinese Communist Party. Since reform requires the separation of companies from the government and liberal intellectuals playing a leading role, China is moving in the opposite direction, tightening controls over society. The former social contract of safety and convenience in exchange for political quiescence is broken. The corona lockdown caused great damage, and the digital administrative state is compounding the difficulties.
In international relations, China is pushing to use the Global South to lead the global order, but the BRI and BRICS expansion do not achieve this since many states fear China and are not anti-West. Sino-Japanese ties have been based on politics cold and economics hot, but the risk to that model keeps growing, from the 2010 rare earths export restrictions to the demonstrations targeting Japanese firms in 2012 to the 2022 national security law to the 2023 water discharge impact. The article argues that Japan must reconsider its economic dependence on China, by de-risking, rebuilding supply chains, and seeking new frontiers. There is also a need to make Japan appealing again, replacing the image of a former great economic power. Mention is made of Chinese academics demanding reconsideration of the San Francisco system, reconstructing the international order with China a victor at Cairo and Potsdam, and even seeking Okinawa’s independence. What should Japan do in such strained circumstances? It must stick with the United States, appeal directly to Chinese society Including tourists, and emphasize values as it awaits possible change in China over the mid- or long-term.
In Sekai, No. 10, an article by Ke Jiang (Ka Ryu) centered on China’s economy at a crossroads. Ke traced the stages of China’s economic development: 1978-89, preparing to explore a market economy; 1990s, advancing to a market economy; 2000s after entering the WTO, a lost decade when reform largely stopped but the results of market reforms led to high growth along with vast infrastructure spending; and the 2010s, reversing reform and slowing growth linked to state control of the economy, setting back the private sector further. Under Xi Jinping under loss is the clash with advanced economies resulting in capital transfers abroad and restrictions on high-tech development. This is leaving Chinese industry with a dumbbell shape: high-tech using government funds, and labor-intensive, low-value added production, now being squeezed as costs rise. Intermediate-sector firms are scarcer, many hurt by the three years of COVID controls and unable to hire the large number of urban unemployed. The possibility is high that capital efficiency will worsen, given the weakening of the market mechanism and the yes-men Xi has appointed. A period of deflation may have begun. Firms are putting off capital investments, governments at various levels lack cash, and a prolonged economic slowdown is very likely. As for Japan, its firms must manage the China risk, suffering more damage than anticipated. Some will stay in China for China. Re-exporters will move to Southeast Asia and elsewhere. Some time is needed for India to become the next giant market. Since Japanese firms cannot pick up and leave, they will have to rework their China strategy.
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