The Land of the Rising Sun is now drenched in ‘Japo-pessimism’. It should not be. Asia’s new emerging middle class provides an excellent growth market for Japan’s exports -- not only manufactures, but also agricultural products and various services.
Everyone in Japan seems to have forgotten the “Koizumi-boom” from January 2002 to October 2007. It was the longest, though not the strongest, period of economic growth in post-war Japan. Sure, it was driven by exports, but Japan has always risen and fallen with exports. This came to a halt with the 2009 export crash which resulted in Japan having the weakest economic performance of the developed world.
The 2009 export crash put us into such a state of ‘Japo-pessimism’, many people don't realize that growth has now picked up again thanks to fast recovering Asian markets, especially China. According to the IMF, China may well grow by 10% this year thanks to its large-scale stimulus package, while India could grow by 9%. China’s imports recovered sharply and increased to exports to China contributed substantially to Asia’s export recovery most notably in countries like Japan, Korea and Thailand.
So it seems like we are back to a situation like the Koizumi boom where Japan has been able to grow with Asia’s development through its exports of high-tech intermediate goods, and its many local production bases in Asia.
Looking ahead, Japan should be able to surf on emerging Asia's wave for much time to come. Sure, Asia has established the status of world’s factory, and Asia’s manufacturing has become top in the world in value added.
But, according to Japan's Ministry of Economy, Trade and Industry, Asia is expected to become the “world’s major consumer market”. China is expected to overtake Japan to become Asia’s largest consumer market. Asia’s overall consumption is likely to expand about 4.5 times that of Japan by 2020, surpassing Europe and leveling with the US. This will provide many business opportunities for Japan.
How can become the “world’s major consumer market”? In short, as us Asians become richer, we will spend more and more. Emerging Asia's middle-income population (annual income between $5000 and $35000) is expected to double over the next decade to reach 2 billion by 2020. Of this, some 1 billion could come from China, while 600 million might be from India. Emerging Asia's high-income population (annual income over $35000) population could exceed that of Japan within the next 5 years. And by 2020, emerging Asia could have a high-income population of 226 million, with 126 million coming from China. At the same time, Japan might only have a high income population of 103 million people.
This is where Japan comes in. Japanese products have the level of technology, sophistication, security and luxury that emerging Asia’s markets are looking for.
Japan has great high-tech components for electronics, motor vehicles, engineering and so on. Our technology in areas like efficient energy and water will be important for Asia’s continued urbanization. According to the Asian Development Bank, emerging Asia’s infrastructure needs are expected to grow in line with urbanization, and are estimated at $8 trillion from 2010 to 2020.
We can also create new products (“kotozukuri”) that consumers just die for – remember the Walkman or Kindle. “Cool Japan” products like anime and fashion are also a winner. Asia’s middle class are also interested in buying and international education and undertaking medical tourism. Unless we can improve our English language skills, we will never be able to exploit this market very well. Although we see growing numbers of tourists, our poor English language is also holding us back there too.
All things considered, Asia’s growing middle class market provides Japan with a promising future. But it is not something that we can take for granted. Other countries are also competing for this market. Apparently, Korean companies like LG and Samsung are beating Japan hands-down in the rapidly growing Indian market. Now that US and EU markets are weak, American and European enterprises will also be chasing emerging Asian markets – as are Chinese enterprises themselves. One thing that we need to learn better is to develop and provide products that respond to local needs. This might involve some “strategic downgrading” of our high-tech and high quality products. The Koreans are very good at this.
If we really want to conquer these emerging Asian markets, we need to have more open markets. This means rushing to a free trade agreement with China and Korea, and hopefully moving on to an East Asian free trade agreement. Agreements will also be necessary in the areas of taxation, investment and social security. We should also be seeking to attract more foreign companies. Given the highly internationalized nature of business today, this is critical and one reason why Korea and Singapore are so successful.
So, instead of wallowing in pessimism, we need to find some "animal spirits" and seize the opportunity we have from being Asia's real economic leader.
White Paper on International Economy and Trade 2010
http://www.meti.go.jp/english/report/downloadfiles/2010WhitePaper/summary.pdf
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