ASIAN AFFAIRS ON JAPAN

Jean-Joseph Boillot - Economist

IS JAPAN A SPENT FORCE?

1- The Rise of Japan Inc in Asia until the beginning of the years 1990.

After the political disaster of the second world war, its economic miracle recovery of the years 1960-75 led Japan at the edge of a new era of super economic power in Asia as shown with the rapid diffusion of the so-called Japanese model (Japan Inc.) through the famous Flying Geese model of Kaname Akamatsu and the record level of the yen reached in 1985. However, as dominant power in Asia Japan was during the passed century (before the war and after the 1960s), it never reached the supreme statute of being recognized as the superpower of the area, much less as an anchor of stability and power, bringing some semblance of Asian coherence in the political field as well as the economic one. This is in spite of a rise during the 1970s and he 1980s to quasi imperial economic power as demonstrated by all the economic indicators in 1990: the Tokyo stock exchange index then reached its historical record near to 40,000 while the skyrocketing prices of the real estate in Tokyo make almost possible to buy all the State of California with only the surface of the imperial palace. It was a time where the Japanese direct investments increasing flows (FDI) in Asia and in the world brought in the United States a vast public discussion around the best seller of Luster Thurow published in 1992 "Head to head: the coming Economic Battle among Japan, Europe and America". The yen finally, true symbol of a complete power, was taking its first steps as international currency thanks to exports of Japanese capital propelled by Japanese banks which ranked as the 5 largest international banks.

This rising Japanese economy was also based on a true mobilization of Asia which expresses perfectly the concept of Flying Geese introduced by the Japanese economist Kaname Akamatsu as early as in the 1930s. Notwithstanding, the militarist drift of the Thirties did prevent then the dynamic economic mobilization of Asia to the profit of a predatory colonial exploitation of the natural resources in very narrow and pre-industrial markets. Although deprived from its military might after the 1945 defeat, Japan took advantage of its strong yen, its industrial and technological power and its capture of the Western markets to massively delocalize its production to benefit further from the comparative advantages of the new industrialized countries of Asia (NICs). This transfer was facilitated by the progressive adoption in the area, since 1965-70, of the Japanese model of industrialization and export-led-growth coupled with a voluntarist industrial policy to protect its domestic market from external competition.

After 1992, exports to the United States from the offshore Japanese factories located in Asia started to exceed the direct sales from Japan-based factories. That phenomenon was only the first stage of a direct conquest of the fast growing Asian markets, with the hope that the weight of the Japanese groups in the local production of these countries would make it possible to circumvent local protectionism and to even profit from the local barriers with respect to the Western groups.

Taking into account a growth of emerging Asia higher than 10% per annum in USD terms, Japan appeared a double winner: its world competitiveness remained intact in spite of the rising yen while it became the major player of the most dynamic area of the world economy. The economic performance was indeed stunning and inevitably led to countless regional meetings, seminars or fora, where concepts such as the superiority of the Asian values, or the characteristics of a specific Asian model of capitalism were debated at length. Finally such talks gave birth to the idea of a yen zone, or a common currency area around the yen, in particular when the American crisis of 1987-90 weakened significantly the weight of the United States in Southeast Asia.

2 - The decade of the reversal

2.1- The ambivalent rise of the Japanese radiation in Asia

The burst of the Japanese bubble at the beginning of 1990 opened a black decade for Japan and its role in Asia. On one hand, the impulse given by the "wealth" effect of a strong yen resulted in a broadening of the Japanese presence in the area, the more so as some Japanese companies had bad fortunes in their ventures in USA and Europe, leading them to focus more and more on what they considered their chasse gardée. As a result, the total amount of Japanese FDI which was equivalent to the total US FDI in Asia in 1985, was twice as large as the US FDI in Asia ten years later. This intensification of the direct Japanese presence in Asia was accompanied by a geographical widening, due partly to the pressure exerted by the Chinese economy following the success of the open policy initiated by Deng Xiao Ping more than a decade earlier. This opening-up of China, after more than 40 years of autarky, led to a quick irruption of mainland China products on the export market, first in Asia, and then increasingly in the world economy.

Hence, whereas the second peak of Japanese FDI in 1987 is concentrated on the ASEAN region, the first one in the 1970s being concentrated on the so-called tigers (Korea, Taiwan, Singapore and Hong Kong), the third peak of 1995 is clearly concentrated on China which represents up to 36% of the notified Japanese direct investments during the year 1995. This structural deformation of the Japanese FDI in Asia announced the coming shift in the area with one major consequence for Japan vis-à-vis its Chinese rival : a clear reduction of its bargaining power, for, while the Japanese FDI in the small Asian economies often represent a dominant weight for the host countries, for example in Thailand, it represented more than 50% of the incoming FDI, the mass of China and its capacity to attract capital from all over the world during the first decade of opening-up created without doubt a great dilemma for the Japanese companies: on the one hand, to avoid such a market would leave room to the Western competitors of Japan on a market which represented already half of the GDP of emerging Asia; on the other, to enter China with the suitable means was likely to reduce the amount available for the other Asian countries, and to respect a strict balance throughout the area was likely to reduce everywhere the effect of threshold which confers visibility, capacity of negotiation and economies of scale for the Japanese companies.

Such a problem had already been felt in the countries of ASEAN. Multiplication of assembly factories in the growing number of special economic zones, which each country multiplied jealously, led to a dispersion of units which often did not reach the necessary critical mass to be fully competitive (this problem explains partially the Japanese pressure for the construction of a true ASEAN Common Market). In the case of China, the country has attracted more than 240 Billion USD of FDI between 1991 and 1998, which represent almost the cumulated total of all Japanese FDI in the world up to 1998. Even over the period 1994-97 when the Japanese companies rushed to China, they never weighed hardly more than 7.5% of the total amount of FDI invested in the country whereas, on an average, they represent 18% in the rest of the region. Admittedly, the percentage goes up to 15% if one excludes the Hong Kong FDI (which actually includes part of Taiwan FDI and the red-chips of Hong Kong, which are actually mainland Chinese companies taking advantage from the huge fiscal preferences offered to foreign investors in Mainland China).

But such a difference, from 15% down to 7.5%, is precisely a measure of the emergence of a true Chinese pole vis-à-vis a Japanese one, which appeared to be oriented more on a North-South arc, with a stronger presence in Southeast Asia than in Northern Asia. Indeed, the growing outward FDI of the combined Hong Kong and Taiwan economies reflect a rising force against the Japan influence. Their worldwide amount of FDI in 1998 was respectively estimated at USD154 billion and USD38 billion (UNCTAD source), a cumulated USD192 billion, compared to USD296 billion for Japan.

As for the true presence of respectively Hong Kong and Taiwan in the Chinese economy, it is difficult technically to separate the two Chinese entities due to the political obstacles between the continent and Taiwan which lead Taiwanese entrepreneurs to the use of Hong Kong as a gateway to China. And to have a complete picture, it would be necessary moreover to also add the increasing Taiwanese FDI channeled through offshore entities (Bermuda, the British Virgin islands and the likes) considered by some to offer better protection than Hong Kong.

Since the FDI of Hong Kong and Taiwan are much more concentrated on China than the Japanese FDI, one realizes the dilemma for Japan: on one hand, the huge attraction of the mainland market for any transnational companies looking up on the next millennium; on the other, two southern Chinese competitors with growing financial and industrial capabilities and know-how, investing heavily in new technologies (NTIC) since the Asian crisis, a legendary entrepreneurial skill, their own financial centre (Hong Kong) and the direct access to a huge surplus of cheap labor: 709 million workers in 1995 for mainland China compared to 877 for all East Asia.

This emerging Chinese economic power was not so visible during the 1990s. The strong yen decade was marked by the record presence and the huge visibility of the Japanese companies in Asia which largely shaped at the regional level a strong integrated trade and financial circuit. Not surprisingly, the intra-Asian trade went up to account for more than 50% of the total trade flows of the Asian countries. GATT pointed out then, in its 1997 annual report, that a new commercial zone was born in the world and Japan was clearly at its centre in terms of trade and financial flows, with the characteristic asymmetry of any dominant power: each Asian country counts relatively little for Japan whereas Japan represents an unquestionable strong weight for each Asian countries taken individually. However, it is important to remark that, collectively, the reverse asymmetry is also true : overall, Japan counts only for 10-12% of the total of Asian exports whereas Asia is Japan's first export market, taking in 35% of its total exports, well ahead of Europe and front to front with the United States.

Paradoxically thus, as shown in a recent study of Andrew Freris, the Chief economist for Asia with the Bank of America, it is Japan which depends more and more on Asia and not the reverse. The reason of this trick of history is due to the dual goals of the Japanese penetration in Asia : to conquest fast growing emergent markets in the area, specially in the sectors where Japanese companies are strong: cars, iron and steel, chemistry, construction, banks ... and to use the comparative advantages offered by these countries for cheap reexportation to the Western markets, or as a means to circumvent tariff and non-tariff barriers.

This reversible asymmetry undoubtedly explains why Japan never reached the monetary supremacy even in Asia and why the yen remains a dwarf currency. Indeed why use it whereas all the economic apparatus of Asia finally aims at exporting on the external markets whose prices are made out in American dollars? 97% of the transactions of Korean won are treated thus in USD against 1,5% in Yen, 90,5% and 4,4% respectively for the Taiwan dollar, and 96,7% and 1,9% for the Thai bath.

2.2- The crisis at the heart of the Japanese economic system

Notwithstanding, the roots of the failed Japanese takeover of Asia are in Japan itself where the very structures of the Japanese economic power have steadily been eroded by its system of governance and a lost decade which ended into the infamous November 24th 1997 with the President of Yamaichi Securities' confession, and an economic recession in 1998. Today, a large public debate around the solutions to come out of the Japanese deflation is still raging. By another example of the well-known reversal of fortune in the history of the great powers, it is often when the imperial influence is at the apex at the periphery that the heart of the empire weakens.

The impact on the position of Japan in Asia is all the more visible as the crisis of the Japanese economy coincided in 1997 with the most serious crisis of emerging Asia since its takeoff. "Coincided" is the proper word, as it was not the cause or the consequence like some might think readily. All the indicators of the Japanese economy indeed worsen throughout the decade and the Asian crisis was only a drop in the ocean, even though it was a drop too many. As high efficiency is not at the heart of the Japanese system (see Kobayashi's interview), it is therefore logical that during the decade the coefficient of capital keeps rising, due to an industrial over-investment which inevitably led to huge over-capacities estimated in 1998 at around 40% of the GDP.

The Japanese economy showed then itself unable to adjust to its new statute, that of an economic powerhouse with a strong currency because its system of life employment made it necessary to sustain ever-rising investment in relation to the GDP as it was the only way to generate the productivity necessary to keep the competitiveness of Japanese industrial products on the world market.

One serious detrimental effect of such a mechanism was that the banks had to finance and did kept financing such capital intensive expansion while absorbing quietly the reversal of the real estate and the implosion of the financial bubbles of the late 1980s. Ultimately, the financial sector piled up considerable losses to become virtually bankrupt at the end of the decade. During that period, the Japanese economy did not open up but rather huddled itself up behind the veil of its artificial hyper-productivity. As a result, its import to GDP ratio decreased continuously, even with the Asian countries which registered an ever-increasing trade deficit with Japan.

Last but not least, a natural transition towards a services economy did not take place as such an evolution encountered insurmountable obstacles such as rigid structures and antiquated mentalities thus preventing Japan from implementing at home its own model of Flying Geese in Asia (the best indicators of the lost decade are the growing gaps in productivity between Japan and its Western competitors in most services sectors and the inward and outward Japanese FDI which lagged well behind USA and even in that respect France).

Unable to respond at the onset of the Asian crisis of 1997, Japan's attitude was quickly questioned on two fronts:

- for its failure as the economic growth engine in the region, as well as the main financier, both roles evaporating at the very moment they were badly needed, the Asian countries in crisis expecting Japan to play the same role that the United States played in 1994 to rescue the Mexican economy. The Japanese imports of Asia, expressed in USD, fell 15% in 1998 (whereas the USA increased their imports by 6%); external banking loans to Asia contracted of 49% between July 1997 and June 1999 and although the flows of FDI remained positive, records at the Finance Ministry show a reduction by half (expressed in USD) between the fiscal years 1997 and 1998; the fall of Japanese tourism reaching 50 to 60% with a 78% contraction of expenditure in a place like Hong Kong since the high point of 1996.

- for its failure to provide leadership in Asia, while being the largest economy of the region.

Finally, not only its economic model (Japan Inc), since then largely copied elsewhere appeared to be at the roots of the large distortions built-up during the 1990-1996 over-investment period which would worsen the financial markets panic of 1997 but its lack of leadership and failure to protect the "Asian community" from the financial crunch that ensued became obvious to all after the resounding failure of its Asian Monetary Fund proposal submitted to the international financial community in the autumn 1997.

The crisis may prove to have been a turning point for Japan as its slow rise to regional economic supremacy seems now to have broken down during 1998 like a house of cards, in spite of powerful initiatives like the Miyazawa plan which keeps increasing its budget, to exceed now USD30 billion in 1999. Whereas the country was floundering in deflation and its corporate sector piling up losses which have to be tackled without the assistance of the banking sector, in near bankruptcy, Tokyo was summoned by the countries of the area, China ahead, to prevent the fall of the yen which reached a low of Y145 to the dollar in the summer 1998.

To export its crisis as a way out being now impossible, the only alternative for Japan remains an in-depth restructuration accompanied by deregulation and a fast opening of the economy. However, Japan appears to lag considerably behind its neighbours. Under the impact of institutional reforms and a thorough change of economic model in line with world globalization, FDI reached in Korea USD5.1 billion in 1998 and nearly USD12 billion in 1999, in Thailand USD6.9 billion in 1998 and USD10 billion in 1999, while it was a paltry USD3.2 billion in Japan, a much larger economy, in 1998.

Ironically, by many aspects, Japan appears at the end of this Millennium like a new emerging country, unfortunately not like a progressive one such as the USA model as described by the New Economics teachings, where the present technological revolution brings about a change in the productivity trend, but in its regressive version like the Philippines during the second half of the 20th century.

During peaceful time, an erosion of economic might would always be slow rather than sharp. It can register some partial reversal, for example, a sharp rebound of Asian exports from the Japanese factories in countries like Malaysia or Thailand as we have witnessed in mid-1999 when the world demand was fueled by the Y2k effect and the growing imbalances of the US economy. But the turning point in 1998 appears sufficiently marked for Japan to worry seriously about its future economic position in Asia at the beginning of the next millennium where one expects irreversible swings to occur.

The lost or missed decade can be clearly gauged by the evolution of the yen. A currency is probably the best synthetic index of the economic, political and even psycho-sociological climate within a country and towards the rest of the world. Historically, there is always an established relationship between economic might and the broad use of a currency: Pax Britannica and the pound in the 19th century or the Pax Americana and the US dollar after WW2 are good examples of this law. As for the yen, at its apex, it accounted for 13.5% of the daily transactions on the currency world market in April 1989 before seeing its use to decline continuously afterwards to reach 10.5% in April 1998 and plunge below 10% in 1999, a year where the euro represented nearly 25% of the transactions.

This early evaporation of the role of the Yen did not go unnoticed to the Japanese authorities. A meeting of the Council of Foreign Exchange and other Transactions, a council under the MOF of Japan, was held specifically to study the failed internationalization of the yen. In its conclusions, the Council first observed that "the yen is not in parity with the international weight of the Japanese economy which would be 14% of the total GDP in 1997 and especially its rank of being the first net creditor country in the world". The numbers are telling. Only 35% of the Japanese exports and 20% of the Japanese imports are priced in yen. On a global scale, the yen accounts for only 5% of the total world trade transactions whereas the weight of Japan trade is closer to 7%. As for the issue of bonds, those priced in yen account for less than 4,5% of the total issued worldwide in 1997, a sharp decline from a peak of 13% registered in 1994. Lastly, as a reserve currency, the yen accounts for only 5% of the world official reserves.

What worries most the Council is the negligible use of the yen in Asia whereas the weight of Japan's trade is at least on par with the United States' trade in the region. Furthermore, on the bilateral assistance front, Japan is undoubtedly number one, providing 69% of the assistance against only 2% for the USA and 24% for Europe. To counter the decline of the use of the yen, the Council suggests to promote the idea of baskets of currency in which the yen would be a significant component besides the USD. But the Council recognizes that a preliminary condition is to restore the financial and economic health of Japan. Moreover, it is clear that in the past the various projects of monetary coordination in Asia put forward by Japan directly or indirectly, such as the Asian Monetary Fund, met each time strong oppositions from various quarters. They were not all due to economic considerations but rather political ones.

In addition to geopolitical or psychological considerations (the last war syndrome), financial houses such as Goldman Sachs point out to structural economic considerations which would prevent Asia from moving quickly towards a monetary harmonization such as the European one: 42% of the total Asian trade are done outside the area whereas in Europe the intra-European trade represents nearly 70% of Germany's or France's trade. Therefore, it can be argued that, in Asia, the conditions for a convergence of the economic situations and structures are currently lacking.

3- 2000-2015 : Japan and the New Asia. What scenario?

3.1- Few factors of short-term rebound

An economic powerhouse of the size of Japan cannot vanish in one day. One can also misjudge the capacity of rebound of Japan and especially that of its large conglomerates, left with no option but to win or to perish. The middle-of-the road scenario hardly appears however favorable to a resumption of the growth for two reasons:

1) The magnitude of the overcapacity and the banking debts to restructure. The drastic plan of reorganization of Nissan epitomizes openly a wide range of huge problems. That a foreign company takes the initiative to break the silence around a taboo does not mean that the Japanese corporate leaders do not know the harsh reality (see interview with I, Kobayasahi). Such prestigious groups as Sony, Toshiba or Hitachi are perfectly aware of their precarious position. The negative impact of any massive restructuring on the household consumption, due to the precautionary saving mentality vis-à-vis the inescapable rising unemployment is indeed a bad omen for consumption. As for the investments, taking into account the massive overcapacity, they should remain in the doldrums for several years.

2) The magnitude of the fiscal deficit. The public debt keeps growing largely beyond the 100% GDP line under the effect of the huge budgetary deficits the Obuchi government has engineered to stimulate the internal demand. Such Keynesian mechanism does not appear viable nor credible any more. Japan ages quickly. The saving surplus which financed first, the expansion in Asia, then started to offset the bad debts of the banks and the companies, and lately that of the State won't support any longer the virtuous equation of the country in the coming years.

3.2- An ineluctable shift in the balance of powers.

The demographic, economic and commercial long trends reveal an inescapable shift in East Asia in favor of the Chinese world (provided of course that continental China continues its stable growth, even at a slower rate of about 5.5% per annum as in the following estimates from Angus Maddison -OECD 1998- and finds the keys of a gradual adaptation of its political and administrative system).

- In terms of economic mass, the second demographic giant, India, being included, the weight of Japan will move back within 15 years from 25 to 14% of the total Asian GDP calculated at international constant prices 1990 (purchasing power parity, PPP). Continental China will gain 8 points and reach the critical mass of 40% of the GDP of the area (including Hong Kong and Taiwan, the economic mass of Greater China would be 52% of the GDP of Asia).

- In commercial terms, and at today current exchange rate, the total trade of Greater China, exports plus imports (net of their intra-trade flows), reached already USD647 billion in 1998 against USD669 billion for Japan. Recent estimates from Goldman Sachs for mainland China only (under the assumption of a WTO accession), are a total volume of exchanges of USD600 billion by 2005. Assuming a reasonable growth rate of 8% per year, China will see its trade ballooned by 2015 to about USD1300 billion. In the span of time, it is doubtful that Japan's external trade will grow significantly faster than the assumed 1.5% GDP annual growth rate. Even factoring an elasticity factor of 1.3 in relation to the opening-up of the economy, that would bring Japan with a total trade 30% lower than mainland China alone and nearly 50% lower than Greater China's trade.

- Exports of capital of Greater China in 1998 were already in parity with those of Japan. Moreover, the demographic trend of China, including Hong Kong and Taiwan, means that Greater China will enjoy a much younger society than Japan, which ensure that the Chinese rate of saving should remain close to the current 35% of the GDP well in the next decade. As a result, there is no doubt that in addition to be the largest trader, Greater China is likely to become the largest investment force of the region.

- Finally, in sheer demographic terms, Japan, already a marginally small country in Asia, would account for less than 3% of the population of Asia (India included), or only one-twelfth of mainland China. In turns, Greater China could also see its weight drop slightly from 38% to 36% while India would increase its weight by one point (29 to 30%) while the poorest Asian countries that still are far from having completed their demographic transition, (Indonesia and Pakistan in particular) would also increase their relative weight to the detriment of Japan. In any case, the population ethnically Chinese in Asia would account by 2015 for more than 45% of the total Asian population.

From the above, it is clear that the geo-economic dynamics of Asia do not favor Japan. Therefore it is likely that we could see, shifting with time the emergence of two curves : one for Japan that will probably level-off at best at a given time, and another, for Greater China, which will grow experientially. That would translate for a while in an increasingly bipolar structure in Asia, with at stakes for Japan, the quite real risk of losing its postwar economic pre-eminence to Greater China.

Such a development might not be without friction, the more so as economic pre-eminence is very often paired with a military and political supremacy as international economic relations are never mere relations between merchants but also from country to country.

3.3- What scenario for the 15 next years in Asia?

As ineluctable as it may be, a politico-economic switch of supremacy in Asia relies on assumptions which could prove to be erroneous for at least three reasons:

1) Even within the paradigm of the Nation-State, Asia cannot be reduced to two big powers, Japan and China. The chart identifies roughly two other groups: the remainder of East Asia on one hand, and India on the other. Their demographic, economic and even political sizes substantially modify the Chinese traditional design of the two fighting dragons (Japan-China) surrounded by six other Lilliputian dragons.

In that respect, the current reinforcement of the Japanese FDI in Asia except China could be an advanced indicator of the possible coexistence of two economic integrated circuits in East Asia : a Chinese triangle between Mainland China, Taiwan and Hong Kong, and a Japan-Asean arc, all the more justified since many countries of Southeast Asia could seek the support of a weakened power to compensate for the pressures of a rising one. Moreover this assumption is reinforced by the obvious weakness of the commercial links between China and ASEAN, compared to those with Japan as one sees with the compared export/GDP ratios for these economies vis-à-vis Japan and China. Only Korea in Asia remains for its part in a very balanced position towards its two powerful neighbors with its trade to China, or Japan representing only 4-5% of its GDP, while, by comparison the trade of Malaysia with Japan represents approximately 13% of its GDP.

As for the Indian economy, its remains so far rather self-centered. With a nominal GDP half that of mainland China, and even making allowance for a suspected wide discrepancy in its computation (because of its fiscal system, India considers that most of the internal trade is excluded from its GDP as the merchants are reluctant to account for their trade at the true value), its external trade is a smallish USD75 billion, a quarter of the China's trade. One should add that such a difference might be partially due to a much stronger integration of the Indian domestic economy whereas the most dynamic provincial economies of China are traditionally geared towards the export market rather than the domestic market. However the undeniable acceleration of the growth trend of India towards a regular 6-7% level per year makes the subcontinent a likely winner in the reshuffle of the economic houses of Asia that would take place in the next decade or so. Admittedly, one can think that China entry into WTO might accentuate the trade gap between the two demographic giants of Asia. A Japanese strategy of enlarging its arc of influence with respect to China would then call for a stronger direct implantation of its conglomerates in India. And indeed, since the mid-80s, the Japanese corporate world has turn its attention to India, with success in general. Nevertheless, Japanese FDI flows towards India still accounts for only a tenth of those towards China.

2) If the Nation-State approach is considered to be in the future largely irrelevant, then the inescapable rise of the globalization and transnational companies would constitute a second argument for prudence as regards the hypothesis of an ineluctable shift of power in favor of Greater China. Transnational corporations (TNCs) do represent today close to half of the world trade. The Asian crisis resulted clearly in the reinforcement of their penetration in the area, Japan included. That phenomena will be also probably a significant side effect of the Chinese accession to WTO in sectors such as distribution, telecommunications, automotive or finance. In China already a third of the manufacturing output is realized by foreign-owned companies. In Shanghai, about a third of its GDP in 1999 was produced by foreign-owned companies, against 10% at the beginning of the 90s.

But the reinforcement of TNCs does not significantly improve Japan's outlook, as, inward-looking for a long time, it is now at the risk of being marginalized in the globalization process burgeoning in Asia rather unless it takes up seriously the challenge of attracting the TNCs or building new ones. However a recent evolution indicates that Japan is moving the right way, as, of the recorded amount of mergers and acquisitions operations in Asia done in 1998, 40% involved Japanese companies. In the financial sector, it is clearly the future of Tokyo as the Financial centre of Asia that is at stakes. After all, it is its over-regulation that paved the way in the past to the emergence of two other financial centers, still of very modest size relative to Tokyo : Hong Kong and Singapore. And tomorrow will see the emergence of the New Shanghai and the project of linking all the Chinese financial centers in an efficient computerized network.

This assumption of an accelerated globalization leads to a different vision of the structural economic shift in Asia, with the emergence of a third economic force supposedly only attracted to peaceful and capitalistic aims rather than political or nationalistic ones. Such a third force would undeniably lead the Japanese corporations to restructure and concentrate on their core business and develop a more profitable Japanese model. But there is a long way to go. Of the first 1000 Asian companies listed by Asiaweek in 1999, 680 are Japanese. They account for 77% of the sales and 72% of the credits. But they only account for 23% of the net profits. This is further proof of the challenge they face to remain or become major actors of the regional economy in the 21st century.

3) Remain a last paradigm which could moderate the deterministic vision of the Japanese decline in Asia versus the rise of Greater China: a regionalization or decentralization of the economic actors.

The Chinese rising power could indeed at some stage evolve towards a federal structure. Although, to combine Taiwan into the Chinese world is, politically and even economically speaking, a gross approximation since the Taiwanese external trade (exports plus imports) with the United States was in 1998 close to twice the amounts with China and Hong Kong and its external trade with Japan 35% more important. it is clear that regionalization is on the rise. For example, in the case of Hong Kong, a true integration with the South of mainland China is taking place. In the North of China, it is with Korea that further integration is taking place, as can be seen from the strong presence of the Korean companies in Tianjin. Further south, the economy of a province such as Yunnan, roughly the size of France, is more integrated with its sub-Mekong neighbors' economies than with the remainder of mainland China.

Ultimately, the only scenario that would certainly lead Japan to worry about a rising power with which its room for maneuver seems now historically limited would be one of a political and economic recentralization at the centre. But such scenario is the least likely as greater political and economic regionalization of the Chinese world seems inescapable, once China is a member of WTO. In such a case, Japan may have a card to play to remain one of the large economic actors of a more regional and more peaceful Asia.