EDITORIAL: China now No. 2 in GDP

Today's China, which has climbed from third to second place in the world's economic standings, in many ways resembles the Japan of four decades ago. A chorus will soon arise, if it has not already, of people in China questioning the meaning of wealth amid this economic leap forward.

In May 1970, The Asahi Shimbun started publishing a series about the downside of Japan's economic growth, under the title "Down with GNP." At that time, Japan's economy was in the final stage of what was called the Izanagi boom of prolonged expansion, and Expo 70 was running in Osaka.

Two years earlier, Japan had overtaken West Germany to become the second-largest economy in the free world. "Isn't there any other way to measure the affluence of a society?" asked the first piece in the Asahi series. It went on to highlight the undesirable byproducts of economic growth, such as waste, pollution, overwork and depopulation.

Japan's economic growth, however, would soon lose steam amid the negative effects of the "Nixon shock" and the oil crisis. Osamu Shimomura, an economist who was the chief architect of the government's economic policy aimed at doubling national income during the high growth era, declared, "Now that the economic environment has changed, we have to accept zero growth."

But neither Japan's political leaders nor the public accepted that new reality with such philosophical resignation. The country simply kept on pursuing economic growth even at the costs of sharply rising government debt and soaring land prices. In 1993, Japan switched its leading measure of economic output from gross national product to gross domestic product.

Japan surpassed the former Soviet Union when it became the second-largest economy in the world. But the economic bubbles that formed in the late 1980s eventually collapsed. The government responded to the ensuing downturn with a string of fiscal stimulus packages composed mainly of public works spending. The government has since issued more and more bonds to finance these stimulus packages amid a revenue shortage. As a result, Japan's outstanding government debt is now close to 200 percent of its GDP.

Japan's economic growth is too feeble to pull the nation out of deflation. The government has mapped out a new "growth strategy," but no one knows if it will be effective.

The bigger question is whether government policies should focus more on the quality and security of life than on enlarging the economic pie. There has been little progress toward the fundamental reforms needed in taxation, fiscal responsibility and social security to deal with this question.

Japan's situation has much to teach people in China as they ponder the future course of their country.

China's per capita GDP is still one-10th that of Japan. But China has reached a stage of economic development where people are starting to demand a higher quality of life. Japan also went through an era when people's calls for more of freedom, justice, environmental protection and security had huge political repercussions, even while new cars sold like hotcakes. China seems bent on ensuring that its economy will keep growing at strong annual rates of 8 percent or higher, partly to ease the political pressure.

China will eventually become an economic superpower. But there is also the danger that China may follow the path of Japan as problems accumulated through rapid economic growth, such as a wider income gap, inefficient investment and pollution, lead to the bursting of bubbles and economic stagnation. That's why pursuing only high economic growth would be risky for China.

Beijing should make serious efforts to ensure stability reigns in the lives of people and balanced economic development.

Tackling this challenge effectively requires promoting democracy in both the political and economic spheres. China needs to end its current system in which the Communist Party and the government are solely responsible for economic management. Instead, it should opt for allowing business greater independence and individuals and households more freedom of choice.

What is true affluence? Japan has long struggled to find a satisfactory answer to this question. China will inevitably face the same question in coming years. As it tries to figure out an answer, a maturing China may find a new vision for its relations with Japan and the rest of the world.

--The Asahi Shimbun, Jan. 21