But can we continue like that? It is Japan which has done a great job in realizing today's economic development in Asia, and Japan matters for building a system in Asia to maintain the status quo and to guard the principle of global free trade.

And the tide is changing. "The Economist" on Dec.1 cited an article by Albert Keidel implying that China's GDP may be 40% smaller than the number reported by the World Bank. China's bureaucratic approach to economy, methinks, will ultimately curb their dynamics, too.

I am not an anti-Chinese, but in building a viable international framework for stability and prosperity in Asia, we ought to have an objective understanding on both Japan and China.---

The article below is about it.

Aiming to change the mood of Japanese society

The other day I was speaking with a Chinese expert on Japan who criticized Japan for its lack of effort. He said to me, “Mr. Kawato, China has become Japan’s number one trading partner but from China’s perspective Japan’s status is steadily dropping. Japan’s status as a trading partner has certainly slipped beneath that of the United States and the European Union, and in the near future we may see South Korea and ASEAN outpace Japan in its trade with China.”

In response I said, “Until now Japanese corporations that set up operations in China have exported a large amount of capital infrastructure from Japan. However now this has settled down, we are not likely to see a large increase in trade volume. In fact, nowadays Japanese investors are beginning to turn their attention to Vietnam.”

When my counterpart heard me say that there is an emerging investment boom toward Vietnam, his face fell, and so I stopped at this point. However, what I had really wanted to add was the following, “From Japan’s perspective, we actually welcome the fact that the volume of trade between ASEAN and China is on the rise. This will certainly contribute to the stability and prosperity of the region. Furthermore a very significant portion of the trade that takes place between ASEAN and China is in reality accounted for by exports to China by Japanese companies that have established operations in ASEAN.” In fact we are beginning to see a steady flow in the supply of automobile platforms and components from automobile factories and parts manufacturers affiliated with Japanese corporations that have been established in the ASEAN region, in particular in Thailand, who are shipping these products to Japanese automobile factories located in Guangzhou and other regions of China.

From my perspective, I think that it is time that we take steps and make an effort to shift the general mood prevailing in Japanese society toward a more forward-looking optimistic outlook. Recently we have seen a lot of negativism coming out. There are statements which proclaim that Japan is simply no good and that we are soon to be overtaken by China and the Republic of Korea or that we have been abandoned by the United States. Furthermore I read in a newspaper report that Japanese university students have a lower level of intellect than even baby chimpanzees. Indeed the students who I teach certainly cannot be motivated to read these kinds of things.

However it seems to me that we are starting to see the beginning of a transformation in the trends in the world. For example, a specialist affiliated with the Carnegie Institute named Albert Keidel made a contribution to the Financial Times in November in which he said that we must revise our views of the Chinese economy because it is in fact 40% smaller than we thought it was. This evaluation is actually in line with the reality we witnessed when we went to China to see for ourselves.

Furthermore, if we calculate the entire amount of added value that has been created in Asia as a result of Japanese Official Development Assistance and direct investments from Japan, we would see that it is truly enormous. I am certainly not trying to say that this should be included in Japan’s gross domestic product but what I am trying to say is that Japan should be much more confident in making statements toward securing the stability and prosperity of Asia.

Due to the reduced value of the yen, the actual economic might of Japan is receiving a lower evaluation than it actually deserves. At this point in time Japan is certainly one of the cheapest places to live for foreign expatriates amongst the advanced countries of the world. One of the reasons for the low value of the yen is that the interest rates are being kept low, which prevailed during the many years of recession. And now that Japan's industry has recovered, why do we not increase interest rates? Well if Japanese yen interest rates were to go up, it could very well trigger a collapse of the dollar.

Nowadays many Japanese people complain that the reason Japanese stock prices are not going up is because foreign investors are not paying enough attention to Japan. However, it seems to me that this is a rather selfish and self-serving way of thinking. In fact it is the Japanese themselves who have created a structure in which foreigners find difficulty in garnering profits from their investments in Japan. Even the Japanese themselves do not make significant investment in Japanese stocks, do they?. Therefore, it is unreasonable to expect foreign investors to invest in Japanese stocks.

On the other hand, we are now seeing an economic bubble and rising inflation in China. If the economy is in inflation, its currency usually should come down. But the yuan is going up in fact due to the growth in exports.

However the high tempo in Chinese economic growth will not be permanent. The construction and export boom that have supported growth of China must have a ceiling.

We are now seeing an extraordinary world in which it costs US$600 per night to stay at a good hotel in Moscow or London. Perhaps this is a result of abnormal inflation phenomena due to inflows of oil money. Oil money has had a distorting effect on currency rates and commodity prices around the world.

And it will finally lead to a rise in the prices of manufactured goods, which will certainly realize a readjustment on global price structures. We will see a drop in the relative price of oil. The excessive transfer of incomes to oil producing nations shall eventually decrease.