BEIJING — Something strange is going on in China. Economic scholars are looking to Japan for inspiration.
Poring over the lessons China can learn from the country it overtook in 2010 to become the world’s second-biggest economy, after the United States, has long been a thriving cottage industry.
In Chinese circles, the main conclusion is that Beijing must on no account fall into the currency trap that Washington laid for Tokyo in the 1980s and needs to resist U.S. pressure for a sharp rise in the renminbi.
According to received wisdom, it was a spike in the yen at the United States’ behest that pumped up Japanese asset prices in the late 1980s. When the bubble burst in 1990, there followed two decades of stagnation from which Japan has still not really recovered.
Some Chinese researchers, however, have been going further back in history. They want to emulate the Income Doubling Plan started in 1960 by Prime Minister Hayato Ikeda, which underpinned a decade of golden growth in Japan. The China Development Research Foundation in Beijing invited a professor from the University of Tokyo just before Christmas to give a lecture on the subject.
Invoking the plan is appealing because China is at about the same stage of development as Japan was then. Mr. Ikeda stoked consumption by cutting taxes, bolstering welfare, raising farm prices and reducing income inequality. China needs to do the same.
The problem, according to Ting Lu, an economist at Bank of America Merrill Lynch, is that some advocates have distorted Mr. Ikeda’s plan. Somewhere along the way, his aim of doubling Japan’s national income, which was easily achieved, has mutated into a leftist goal of doubling Chinese labor income over the span of the ruling Communist Party’s five-year plan for 2011-16.
“The most dangerous thing for the Chinese government to do would be to regulate too many prices, including wages,” Mr. Lu said.
In the five-year plan that just ended, China wanted wages to lag just behind economic growth. In contrast, following the next blueprint, to be announced in March, labor and household income would rise in line with or faster than overall economic growth, Mr. Lu said.
But he said Beijing would create more problems later if it mandated a 20 percent increase in the minimum wage every year. What if there were another financial crisis and costs had to be cut?
“Just let the market do the job to determine people’s wages,” Mr. Lu said. “Migrant workers wages have been growing 20 percent, not because of government regulation but because of supply and demand for labor.”
Yifan Hu, chief economist at Citic Securities in Hong Kong, said the five-year plan would embody the spirit of Mr. Ikeda’s program.
“The Japanese plan wasn’t a single idea to increase salaries or household income, but a comprehensive plan,” she said.
Above all, Beijing would give priority to tax changes to put more money in people’s pockets and spread national wealth more fairly, she said.
“The most important thing is to increase income, because across Asia you can see the propensity to consume is quite low, no matter whether you have a good social security network or not,” Ms. Hu said.
As for the role of the exchange rate, a recent International Monetary Fund working paper found no evidence that the yen’s rise was to blame for Japan’s stagnation.
Thanks to supportive macroeconomic policies, Japanese economic growth had rebounded to 7 percent by 1987, according to Papa N’Diaye of the monetary fund’s China desk.
The problem, he wrote, was that Japan kept its monetary policy loose for too long. Monetary easing by the Bank of Japan after the 1987 Louvre Accord, which was intended to halt the dollar’s fall, together with incentives to expand consumer and mortgage credit, lit a rocket under equity and land prices.
On the face of it, China is in a similar situation: credit growth, investment and property prices are all bounding ahead.
But Mr. N’Diaye said he saw grounds for optimism that China could manage its rebalancing better than Japan did.
First, household, corporate and government debt in China is much lower than in Japan in the 1980s. Second, China is at an earlier stage of economic development and so can grow faster before overheating. And third, China has already started to stem the run-up in property prices.
“The right calibration of policies — including prudent monetary policy and an increase in real interest rates — should allow China to avoid the boom-bust asset cycle that was experienced in Japan,” Mr. N’Diaye wrote.
He said another big difference between Japan then and China now was that the Chinese financial sector remained highly regulated.
The Chinese central bank governor, Zhou Xiaochuan, has said that interest rates could become more market-driven in the coming five years.
But if China truly wants to learn from Japan, it will have to tread carefully.
Hiroshi Shiraishi, an economist with BNP Paribas in Tokyo, said deregulation of deposit rates in Japan from the mid-1980s meant banks faced higher financing costs while demand for loans slumped after companies were allowed to issue “euroyen” bonds, which are denominated in yen and issued outside of Japan.
Their response? Excessive risk-taking.
“Financial liberalization and deregulation were by no means solely to blame for Japan’s asset bubble of the late 1980s, but clearly had a significant impact on bank behavior,” Mr. Shiraishi said in a report.
Examining China through the prism of Japan is instructive. But why is there not more discussion of what China can learn from, say, South Korea instead of Japan’s Income Doubling Plan?
“The demographic structure is totally different, as is the external market, but people always like to compare China with Japan,“ said Ms. Hu of Citic Securities.
Alan Wheatley is a Reuters correspondent.
Lo he visto hoy en el avión ... brutal.