Opinions & Ideas

Category: JAPAN


For China, the Second World War began in July 1937, and did not end until August 1945. China’s casualties in the war were greater than those of any other nation in the world, apart from the Soviet Union.

Whereas the enmities of the Second World War in Europe have largely been subsumed by the economic integration within the EU, they are still very much alive in the brittle relations between Asian states, notably between Japan and China.

I have just finished reading “China’s War with Japan, 1937-1945, the struggle for survival “ by Rana Mitter, which sets out the background to this brutal war and explores all its complexities.

Throughout the nineteenth century the central government in China had been steadily weakening. The Emperor had to rely on local warlords, raising their own forces to suppress the Taiping Rebellion between 1856 and  1864. The government had to make major trade concessions to western powers and lost effective control of some of its key port and its trade policy. It  had to allow foreign troops, including Japanese units, on  parts of its territories.

After the overthrow of the Emperor in 1911, the Nationalist Chinese Government of Chiang Kai Shek, began to reduce these foreign privileges, and in 1930 took back control of its own trade policy. This was seen by Japan, which from the early 1930’s could no longer rely on western markets because of the protectionist policies of western powers, wanted to create its own exclusive  economic zone, including China.

Japan decided in 1937 that it would demand that China cut its tariffs on Japanese goods, employ Japanese military advisors, and join a military pact ultimately directed against the Soviet Union. It did not intend to conquer China, just to control it.

But a minor incident between Japanese and Chinese troops near Beijing in 1937 escalated into a general war, because the Chinese did not, as the Japanese expected, back down and apologise.

Japanese troops took over large parts of Northern and eastern China, committing major atrocities including the rape of Nanking. There was no outside intervention to defend the territorial integrity of China, by the United States or anyone else. The Chinese retreated inland but did not surrender or make peace, as most people expected they would.

The war in China was costly and Japan needed more resources, and it  decided it had to choose between seizing territory and resources from the eastern part of the Soviet Union, or from South East Asia. 

It decided on the latter option. 

This led to a response from the United States which, in November  1941, demanded that Japan withdraw its troops from both Indochina and China.

Japan saw what was coming and attacked Pearl Harbour a few days later.

This did not solve China’s problem, because the United States gave priority to rolling back the Japanese in the Pacific, and to liberating Europe, over direct US military  intervention in China. Indeed the Japanese continued to advance further and further into China right up to 1944. China sensed that it was being treated as a second class global citizen, and that shapes present attitudes, both to the West and to Japan.


I was in the Far East recently doing some work in Singapore on behalf of IFSC Ireland.

It is a part of the world, like Europe, where a sudden bad political development could easily over turn good economic potential. 

The approach China is taking to oil exploration in the South China Sea, claiming the whole of the sea for itself, is deeply troubling to its neighbours. We see this in the riots in Vietnam in the past few days. There is, unfortunately, no agreement to jointly exploit the resources under the South China Sea, and that is a continuing source of tension, and is leading to an expensive arms race. 
Internal economic problems can often lead to external aggressiveness, as a means of distraction, as we have seen in  the case of Russia.

Many of the players in Asia, notably China, Japan and South Korea, despite their rapid recent growth, have internal problems arising from rising income expectations, indebtedness, and ageing.

Wage inflation in China is running at 18%, which will have a long term effect on its competitiveness. Its banking system has many non performing loans.

Japanese corporations are heavily in debt. The Japanese Government has a debt/GDP ratio of over 200%. Japan is one of the most elderly societies in the world, but is reluctant to allow immigration.

A rise in international interest rate would aggravate all these vulnerabilities. Such a rise will eventually happen.

Meanwhile North Korea, with its nuclear arsenal, remains an existential threat to all in the region. 

Conflict in East Asia could have disastrous implications for the world economy, because it would disrupt the complex, interdependent, and fragile multinational supply chains on which global manufacturing is now based.
Meanwhile, China and the United States are pursuing competing agendas. Each would like to incorporate East Asian countries into rival economic blocs.

The US sponsored proposed Trans Pacific Partnership does not include China, but China is offering an alternative, less demanding, trade deal to its Asian neighbours. The choice is important.

If Senate Democrats continue to deny President Obama the authority to negotiate trade deals, on which the Senate agrees to vote on as a single package rather than pick apart, there has to be a possibility than the Chinese approach will win out.

This would bring about a significant shift in the global balance of power.


I am visiting East Asia this week with a delegation from the Irish Funds Industry Association. Ireland is in one of the world’s leaders in the creation, registration and administration of investment funds In the last 25 years Ireland has become the international fund hub for investment managers from over 50 countries and from an Irish base these managers distribute their funds worldwide with Asia becoming a particularly important marketplace. In fact in some instances and most recently up to 40% of the investments in Irish based funds are coming from Asia.
These funds include the widest range of investment strategies ranging from ones with a conservative fixed income goal, to ones which aim at higher yields and invest in growth sectors. The industry provides 10000 jobs directly in Ireland, and many more indirectly through legal, accounting and auditing firms. It benefits greatly from Ireland’s EU membership, which provides Irish based funds with an EU regulated investment product and a capacity to compliment services all over the world.
Singapore is, in many respects, the crossroads of Asia. In fact it is the second largest port in the world.  I met the Governor of its Central Bank and the leaders of its two big Sovereign Wealth Funds.   Singapore is a place from which investors can observe, and take part in, developments in the most dynamic part of the world. Asia is not unaffected by the debt crisis in the west. If European banks were to dramatically curtail lending in Asia that would slow development here.
Our visit to Malaysia focussed on the rapidly developing sector of Islamic finance. Because Islamic rules forbid the charging of interest, other ways are found to ensure that those providing the finance  share in the fruits of the endeavours they support.
Ireland has put in place a legal and regulatory system that has allowed the country to become the venue for the creation, registration and administration of Islamic funds, alongside the conventional funds in which we already are a world leader. There are many further opportunities for Ireland in Islamic finance. We need to realise that the Islamic market is much bigger than the Middle East and includes huge populations in Indonesia, India, Pakistan and Malaysia, as well as 50 million Muslims in Europe
Korea is a country the size of Ireland, but it supports almost 50 million people, as against Ireland’s 5 million. Its recovery after the devastation of occupation and war in the first half of the twentieth century is one of the true miracles of human development.
Unemployment is only 3%, and 80% of young Koreans obtain third level education, at enormous financial cost to themselves and their families. Korea and Singapore consistently top world rankings for educational attainment among second level students. But many well educated young people find themselves unable to find high status jobs which they feel are appropriate to their qualification level, and to the debts that have been incurred to attain it.
Japan has  had  the experience that  western countries  are now having, a real estate bubble leading to a crash, a big increase in Government  debt and a  very slow recovery.  Real estate prices peaked in 1991.  After that there was a crash which brought down the stock market as well. Government debt has now reached  225% of GDP, higher than  almost anywhere in the world. But most of the money is owed to the Japanese people themselves.
There is scope to close the gap between  revenue and spending.  Japan is a low tax country. VAT rates are only 5% and many workers are outside the income tax net. The Japanese birth rate is so low that the population is falling.
I spent a considerable portion of my time explaining the reasons for the crisis in the euro zone and possible remedies. Many of the countries here had similarly severe financial crises   ten years ago, but have recovered very well.
As in Europe, the ageing of the population is a concern in some East Asian countries. Birth rates in some of the countries are very low, so the size of the elderly population, that will have to be  supported by a diminishing working population, is set to grow rapidly here, as  in Europe. That is why saving is so important for many Asian families.
Some interesting views were expressed to me about neighbouring countries.
China is expected to have short term economic problems arising from its mistaken policies of subsidizing the consumption of energy. On the other hand, it plans to build a huge number of new cities, The number of big cities in China is to grow from  90 to 280, which could  open up big opportunities for Irish  firms with construction, engineering and  infrastructure financing expertise.
India’s economic growth has stepped up considerably, but is still constrained by too much regulation. Unlike China, it still has a literacy problem. It too will see major new urban development.
Indonesia has a lot of growth potential, but the Philippines  suffers from an oligarchic and paralysed system of  government,
There was much criticism of global banking rules which are pro cyclical, in the sense that the add to  the contraction of the economy when it is in a  downturn anyway, and  exaggerate expansion when  things are going well anyway. This topic is being ignored in the European Union at the moment.

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