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Finance & Economy

Future growth of India and China to be tuned by Japan


Tokyo, Japan

Tokyo, Japan

The gear shift of Asia’s growth in the decades to come is in the hand of Tokyo as Japan is in control of the formation of the emerging India-China-Japan (I+C+J) power structure in Asia.

In its “World 2050” research report, PricewaterhouseCoopers (PwC) suggested that “… in purchasing power parity (PPP) terms … India should become the third ‘global economic giant’ by 2050”. PwC further projected that 9 out of 20 biggest GDP countries would be in Asia — China 1st , India 3rd , Japan 5th , Russia 6th , Indonesia 8th , Turkey 12th , South Korea 17th, Saudi Arabia 18th and Vietnam 19th ; and their combined GDP volume would make up 58.5% of the world top 20’s total [Note 1].

Despite no guarantee that this forecast would come true due to lots of domestic dins and dissensions, India with its 1.2 billion young and talented population has the capacity of arising quickly. Had India still been under the leadership of Oxford PhD Manmohan Singh (prime minister 2004-14) or Cambridge-educated Rahul Gandhi, New Delhi might have continued to formulate policies with reference to the mainstream economic doctrines (e.g. free market entry, comparative advantages, consumption-led growth). However, it is now street smart Narendra Modi in charge.

Modi has no reason to overlook Nobel laureate Joseph E. Stiglitz’ insight that “China itself is a testament …… I visited formerly remote areas of the country that are now prosperous as a result of the connectivity — and thus the freer flow of people, goods, and ideas — that such investments have delivered. …… in developing countries, lack of infrastructure is a far more serious barrier to trade than tariffs” [Note 2]. Tokyo, equipped with an abundance of cheap money (after a series of QEs) and technical know-how available for upgrading India’s infrastructure, be it railway or transmission towers, is more than willing and able to engage with Modi’s India lucratively to revive the lost-in-decades Japanese economy.

The Japanese, a highly diligent nation who targeted at imitating as well as matching with the Americans in the 20th century, will come back to Asia for the potential exponential growth here and no longer be oblivious of India (trading with Japan made up only around 2.3% of India’s total import/export in 2013). After shaking hand with Modi in Tokyo on 2014 Sep 1, Shinzo Abe stated that “their bilateral ties have the most potential in the world” [Note 3].

Geo-economically speaking, India is the most valuable country to fulfil China’s vision of “One Belt One Road” (the land-based Silk Road Economic Belt and ocean-sailing Maritime Silk Road) and thereon simultaneously consolidate Asia’s rise in the world arena.

Located at the mid-way of the two Silk Roads between Europe/Africa in the west and China/ASEAN in the east, it is not difficult for Beijing as well as Tokyo to fathom how much more the ‘market value’ of a co-operative New Delhi government together with a secured Indian Ocean thoroughfare than that of the crude oil (and natural gas) reserve under the sea in East Asia.

“EIA (U.S. Energy Information Administration) estimates that the East China Sea has about 200 million barrels of oil in proved and probable reserves. Chinese sources claim … as high as 70 to 160 billion barrels of oil for the entire East China Sea” [Note 4]. Fine, let us suppose it has 100 billion barrels and half of the treasure (i.e. 50 billion) is below China’s waters, and also assume it will take 100 years to fully pump the oil up for use. It means China can get about 0.5 billion barrels here each year. Multiplying it by the market price USD56 per barrel producing USD28 billion per annum, but in 2013 China’s total value of import and export of goods amounted to USD4,158.99 billion already [Note 5]. There is lacklustre financial justification for Beijing to exchange gun fires with Tokyo for such a tiny annual benefit (0.67% of trade volume of goods, let alone services) to disrupt China’s blooming trade so perilously.

Other EIA data shows that in 2013 China’s oil consumption was 10,303,000 barrels per day, meaning a total of around 3.761 billion barrels per year [Note 6]. In other words, the drilling in East China Sea can merely meet around 13% of China’s annual demand at the 2013 combustion level. Again, economically speaking, bearing in mind that China is prioritising its green industries such as electric vehicles, only tomfools in Beijing would blunder into a costly war against the Japan-U.S. alliance for this 13% oil consumption. Apparently, unless embittered by Tokyo’s real efforts to turn the islands in dispute habitable for the Japanese, Beijing will refrain from taking military actions. It is therefore entirely up to Abe to tune the neighbouring relationship with Beijing for various political needs.

In my Dec 2013 article on Japan-China relation, I said, “…When the calculation and pressure for election campaigning in Japan subside after 2016, serious negotiation will resume…”[Note 7].

The good news for world peace is that, much earlier than I expected, Abe who returned to power after his 2012 election triumph called for early election in Nov 2014 and stamped his victory on Dec 14. Having been relieved of the election engineering pressure to affirm the electorate of his LDP’s superiority to the opposition parties in respect of safeguarding national interest, Abe and his colleagues are now calculating how much can be garnered for Japan by reconciling with China.

The facts are, first, just two weeks before Abe’s call for a general election with confidence in securing a second victory, Japanese National Security chief Shotaro Yahi and Chinese State Councillor Yang Jiechi jointly issued a four-point consensus on improving China-Japan ties. Secondly, however awkward the handshake may be, Abe and Xi Jinping had a personal touch at an APEC meeting on 2014 Nov 10 and “Abe told reporters afterward that the countries made a ‘first step’ toward reconciliation.”

Thirdly, in March 2015, the ruling LDP secretary general Sadakazu Tanigaki led a group of senior Japanese lawmakers to attend China’s 70th anniversary of the end of WWII and had an almost one hour meeting with Yu Zhengsheng, the 4th ranked de facto Chinese leaders serving at the Politburo Standing Committee. The fruit of the visit was to “resume their regular consultations (between Japan’s ruling parties and China’s Communist Party) that have been suspended since 2009.” [Note 8]. Fourthly and the latest on Apr 22:

“…… Abe told reporters after the meeting (with Xi Jinping in Indonesia) that the two leaders agreed to work for better relations and contribute to regional stability by promoting ‘mutually beneficial strategic ties’ …… Abe said: ‘We want to make the improving trend in the bilateral relations solid’…” [Note 9].

What can be observed, in short, is that during the pseudo tension since Abe’s took over the authority from Yoshihiko Noda (Democratic Party) in Dec 2012, Beijing has been ineffectively reactive (e.g. futile protests of Abe’s war shrine visit and the impuissant ADIZ) whereas the Abe administration with the strong American support has the full proactive control over the timing and extent of either angering or befriending with Beijing. Tokyo’s new “trend”, obviously, is to maintain a medium level of Japan-China collaboration in that peace rather than war is the better element for sustaining the momentum of Abenomics.

In the wake of the recent 15-year high of the Nikkei Average Index [Note 10], Tokyo will approach New Delhi with warm open arms so as to secure a bigger slice of the growing Asian cake (for baking it, India is the primary raising agent). Nevertheless, realistically speaking, although Modi is capable of squeezing out from China and Japan tons of advantages, India as the receiver of capital funds is unable to have the final say on the terms and rules.

With the Asian Development Bank in hand as an alternative to China’s Asian Infrastructure Investment Bank, Japan will forge a dynamic India+China+Japan working relationship to co-lead Asia, and through fine tuning of its relationships with these two odd partners, Japan will always have the upper hand.

The opinions expressed are those of the author, and not necessarily those of China Daily Mail.

[Note 1]
PwC, “World in 2050”, Jan 2013.
http://www.pwc.com/en_GX/gx/world-2050/assets/pwc-world-in-2050-report-january-2013.pdf

[Note 2]
Huffington Post, “Why America Doesn’t Welcome China’s New Infrastructure Bank”, Apr 13, 2015.
http://www.huffingtonpost.com/joseph-e-stiglitz/america-china-investment-bank_b_7055222.html

[Note 3]
Time, “Why India’s Modi and Japan’s Abe Need Each Other — Badly”, Sep 2, 2014.
http://time.com/3255880/japan-india-narendra-modi-shinzo-abe-business-economy-trade-china/

Eurasia Review, “Shinzo Abe’s visit to India: Reviewing the Strategic Partnership – Analysis”, Feb 27, 2014.
http://www.eurasiareview.com/27022014-shinzo-abes-visit-india-reviewing-strategic-partnership-analysis/

[Note 4]
EIA, “East China Sea”, Sep 17, 214
http://www.eia.gov/countries/analysisbriefs/east_china_sea/east_china_sea.pdf

[Note 5]
National Bureau of Statistics of China, “Year Book 2014: 11-2 Total Value of Imports and Exports of Goods”.
http://www.stats.gov.cn/tjsj/ndsj/2014/indexeh.htm

[Note 6]
EIA, “China: Overview data for China”, last updated Feb 4, 2014.
http://www.eia.gov/countries/country-data.cfm?fips=CH

[Note 7]
FPIF, “Susan Rice Attempts to Solve the Japan-China Deadlock”, Dec 11, 2013.
http://fpif.org/susan-rice-attempts-solve-japan-china-deadlock/

[Note 8]
The Diplomat, “A China-Japan Breakthrough: A Primer on Their 4 Point Consensus”, Nov 7, 2014.
http://thediplomat.com/2014/11/a-china-japan-breakthrough-a-primer-on-their-4-point-consensus/

AP, “An awkward handshake: Leaders of China, Japan meet”, Nov 10, 2014.
http://news.yahoo.com/leaders-china-japan-hold-ice-085529407.html
http://www.reuters.com/article/2014/11/10/us-china-japan-idUSKCN0IU08420141110

Kyodo News, “Japan’s ruling coalition, China agree on restart of exchanges”, Mar 24, 2015.
http://english.kyodonews.jp/news/2015/03/343232.html

[Note 9]
The CS Monitor, “Japan’s Abe and China’s Xi meet, agree to work for better relations”, Apr 22, 2015.
http://www.csmonitor.com/World/Latest-News-Wires/2015/0422/Japan-s-Abe-and-China-s-Xi-meet-agree-to-work-for-better-relations-video

Kyodo News, “Abe to seek contact with China leader at next week’s int’l meeting”, Apr 18, 2015.
http://english.kyodonews.jp/news/2015/04/347973.html

[Note 10]
Market Watch, “Japan Stocks zoom to fresh 15-year high”, Apr 21, 2015.
http://www.marketwatch.com/story/japan-stocks-zoom-to-fresh-15-year-high-2015-04-21?siteid=rss

This article was first published by Eurasia Review on Apr 23, 2015.

 

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About keith K C Hui

Keith K C Hui is a Chinese University of Hong Kong graduate major in Government and Public Administration and the author of "Helmsman Ruler: China's Pragmatic Version of Plato's Ideal Political Succession System In The Republic" (2013).

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