Japan, China Become Closer Economic Partners: Morgan Stanley Economist

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Last updated at: (Beijing Time) Monday, September 09, 2002

Japan, China Become Closer Economic Partners: Morgan Stanley Economist

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While the United States remains the most important market for China and Japan, the two Asian countries are becoming closer economic partners, with China replacing the United States as the largest source of imports for Japan, an economist in Hong Kong said Monday.

Chinese products have become essential for pensioners to survive Japan's high cost of living, while Japanese investments are providing jobs for tens of thousands of Chinese, said Andy Xie,chief economist for Morgan Stanley Asia Pacific.

When China and Japan established diplomatic ties 30 years ago, Japan had just emerged from a decade of double-digit growth in itseconomy, while China was at the tail end of its self-destructing Cultural Revolution, Xie said. The gap between the two countries continued to rise and peaked in 1994, when Japan's economy was nearly nine times as big as China's but with one-tenth as many people, he noted.

But the tables have begun to turn. Last year, Japan's economy was merely 3.4 times as big as China's. If the current trend continues, the Chinese economy could become bigger than Japan's sometime in this decade, though China's living standards will remain far lower than Japan's due to its much larger population, the economist said.

Xie said Japanese companies first went into China thinking that they would set up assembly operations in order to avoid high mainland tariffs on imports. Unexpectedly, Chinese companies learned to produce the same goods with Chinese components that were much cheaper. Now, China is learning to make the same products as the Tiger economies did 10 years ago but at a much faster pace.

Xie predicted that Chinese labor costs are unlikely to rise quickly, even as its manufacturing capability improves rapidly. China's market share in US imports is likely to exceed Japan's this year, and its total exports could exceed Japan's in just three years, he said.

Japan's imports from China have risen 12 times as fast as its economy in the past decade. The mutual interests are so powerful that China and Japan are becoming each others' primary economic partner, Xie said.

According to Xie, China and Japan would embraced a plan to eliminate barriers to the flow of goods, services, and capital across East Asia, elevating the value of Japanese capital in a regional context.

Such a plan would anchor both countries in a regional framework,enabling Japan to maintain its influence for much longer. Japan needs to pursue a regional free trade area to start this process, Xie added.

Source: Xinhua News Agency

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