Don't Shift the Blame onto Others: Economic Observation

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Last updated at: (Beijing Time) Friday, August 15, 2003

Don't Shift the Blame onto Others: Economic Observation

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In the past two years, some Japanese people have been clamoring for the revaluation of China's Renminbi (RMB). One who has a thorough understanding of Japan's domestic trends is aware that these people actually include a handful of hawkish politicians, one or two bank directors, some individual cabinet ministers, a few economic scholars and entrepreneurs. Some of them make a great fanfare in disregard of facts out of the needs of domestic politics and election; and some others are pressuring their government for partial and temporary interests. Regarding this, most Japanese enterprises, serious economists and officials in charge of government departments believe that even if the RMB value rises by 30 to 50 percent, it could exert very limited influence on Japan's export and the competitiveness of Japanese products. The long-standing sluggishness of Japan's economy has the root in itself. In other words, a dramatic appreciation of the RMB, if any, would not bring much benefit to Japan.

A change of the RMB exchange rate directly affects enterprises engaging in the production or trade of imports and exports. Therefore, whenever the exchange rate is mentioned, evaluation is often made of its influence on import and export. In fact, under the circumstances wherein the total value of China's imports and exports has exceeded US$600 billion, any substantial revaluation or devaluation of the RMB would bring tremendous impacts, which is by no means so simple as asserted that "devaluation facilitates export, revaluation benefits import". On the contrary, it is precisely a relatively steady exchange rate policy that is most capable of protecting enterprises from foreign exchange risks and helping them steadily expand exports. This is the main reason why Japan's "RMB revaluation" theory fails to be accepted by most Japanese enterprises.

One of the absurd arguments of Japan's call for substantial RMB revaluation is that the excessively low selling prices of China-made products on Japanese markets have caused a price fall on the Japanese market, thus resulting in the shrinkage of Japan's economy. Indeed, the low-price, high-quality China-made products have been well-received by Japanese consumers in the past two or three years, and have taken certain market shares especially in textile, garment, farm and aquatic products, food and daily necessities. But the true reasons for the long-term slump of Japan's economy is the lagging government economic reforms, and the repeated setbacks suffered by Japan's macro-economic policies including that dealing with deflation. For example, bad loans are the arch culprit causing economic shrinking and operation crisis of financial enterprises; a problem the Japanese government has never been able to solve over the past dozen years. To adjust the economic structure, Japanese companies have broken the de facto lifelong employment system and pursued a policy of cutting down the number of staff and reducing burden, resulting in the unemployment of a large batch of personnel.

Besides, the poor performance of enterprises manufacturing domestically needed products has entailed a decline in wage incomes for their employees. These are important factors for the decline in personal consumption of the whole society. It is precisely due to the existence of the China-made high-quality, low-price daily necessities that have prevented a sharp drop in the living standards of Japan's medium- and low-income consumers. In the face of these basic facts, a small number of people, including government officials, instead of devoting their efforts to domestic economic reform and introspecting the failure of their economic policy, have shifted the blame to China's exports to Japan, their intention is to distract domestic opinion criticisms and the public's discontent with the Japanese government's faulty economic policy and shift the responsibility onto China.

The China-Japan bilateral trade has been increasing rapidly in the last decade, with the total value of bilateral trade jumping to US$100 billion. There is a trade balance as a whole, with trade deficit going to the Chinese side sometimes, and to Japan at other times, but generally, a mutually beneficial and complementary win-win situation has always been maintained. Japan should cherish such a rare trade relation.

Besides, among China's exports to Japan over 60 percent are products produced by Japanese enterprises in China through a certain form of cooperation. That is to say, of the profits earned from the export of China-made products to Japan, more than 60 percent fall into the hands of Japanese enterprises. Japan's exports to China have increased year by year, at a two-digit growth rate beginning from the spring of last year. China has become a main bearing supporting the growth of Japan's export-oriented industry and the decline of Japan's external export is never due to the influence of the enhanced competitiveness of China's exports. So, what reason is there for Japan to spoil the China-Japan trade ties, which are very favorable to Japan's economy, and to insist on a revaluation of the RMB, thereby causing a decline in China's trade with Japan? The great fuss made by a few Japanese about the exchange rate of the RMB actually cannot justify themselves.

By PD Online Staff Member Li Heng

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