The major change that I noted since my last visits to Japan is the increase in upscale spending. Kobe has always been noted as a sophisticated city and the department stores in the city center carried all of the world noted luxury brands. You could see that orinary citizens dress well and wear brand-name accessories.

Japan emerged from the doldrums of the 1990’s by making some tough economic reforms. The government streamlined both regulation and the bureaucracy. The banking sector wrote off many bad debts — including real estate loans that had been on the books for years. (I would encourage our economic policy makers in the US to look at that example. The current trend is to postpone the day or reckoning in the US.) All of the changes and reforms coincided with the global upswing from 2004-2007 and Japan prospered. Most importantly the ratio of exports to GDP rose significantly during the period. Japan had returned to its traditional export-led economic model, except that this time it was without the heavy-handed “guidance” from the Ministries in Tokyo.

As I noted before, Japan is spending its money on consumption, moving it a bit closer to the US model. The Japanese are now enjoying the fruits of their hard work. In the pure economic sense, saving too much (Japan over the past fifty years) is a drag on the economy as well as saving too little (the US since the 1980’s). Allowing the markets to find balance is everything in economics

The major change that I noted since my last visits to Japan is the increase in upscale spending. Kobe has always been noted as a sophisticated city and the department stores in the city center carried all of the world noted luxury brands. You could see that orinary citizens dress well and wear brand-name accessories.

Japan emerged from the doldrums of the 1990’s by making some tough economic reforms. The government streamlined both regulation and the bureaucracy. The banking sector wrote off many bad debts — including real estate loans that had been on the books for years. (I would encourage our economic policy makers in the US to look at that example. The current trend is to postpone the day or reckoning in the US.) All of the changes and reforms coincided with the global upswing from 2004-2007 and Japan prospered. Most importantly the ratio of exports to GDP rose significantly during the period. Japan had returned to its traditional export-led economic model, except that this time it was without the heavy-handed “guidance” from the Ministries in Tokyo.

As I noted before, Japan is spending its money on consumption, moving it a bit closer to the US model. The Japanese are now enjoying the fruits of their hard work. In the pure economic sense, saving too much (Japan over the past fifty years) is a drag on the economy as well as saving too little (the US since the 1980’s). Allowing the markets to find balance is everything in economics

At the Temple of the Jade Buddha, monks chant while the courtyard is filled with ordinary people — old and young — burning incense sticks that waft their prayers above.

The Maserati dealer shows off a beautiful yellow sports coupe and competes with the Ferrari dealer next door. Meanwhile, outside the street vendors, those peasants from the countryside without work visas for the City, make a few Yuan shining shoes or selling trinkets. Meanwhile down the road, the Shanghai Aesthetic Surgery Center does a booming business.

The City boasts incredible vistas with daring buildings. Yet if you look up towards the sky, the view is obscured with hundreds of wires. Wireless communications have supplanted the old telephone lines but what to do with the legacy of the communist rule?

Shanghai is busy and bustling. As you look up and down busy Nanking Road, people are everywhere, shopping and carrying out business. Along the way, buildings from the Mao era and from before the revolution are being gutted and restored. New highrises are going up by the dozens.

Beside the new Shanghai, there are symptoms of other social problems. The Chinese authorities attempt to slow the rural to urban migration by requiring work visas before the peasants can look for work in the City. As a result, there is a vigorous informal economy. Along the waterfront by the Bund and Nanking Road are hundreds of street vendors selling all manner of goods. We got a number of “Mao” watches with the face of the Chairman and a waving hand — taken from the wind-up Mickey Mouse watches we had as kids.

As with all the cities on our Asia journey, traffic is overwhelming. New freeways are going up but there are already too many vehicles. One can smell the exhaust everywhere. While the new cars must meet strict standards, every effort is made to keep older vehicles running, particularly for delivery vehicles.

Shanghai is the symbol of new China - rapid growth, highly populated and facing major environmental challenges.

Seoul is largely built out but there is incredible amount of in-fill development and renovations to structures that were built during the go-go years of the 70’s and 80’s. The heavy manufacturing locations have largely left the city but there are nevertheless quite a large number of decaying factories. It’s ironic that a country that made its debut on the world market as a low-cost labor country is losing business to countries with even lower wage costs.

One common thread of all of the East Asian countries is dealing with congestion. Seoul, with a metropolitan area population of 23 million, faces gridlock 24/7. The same challenge faces Japan, Taiwan and China. Beijing, with a rush to finish infrastructure, has traffic jams throughout the city. As with other cities around the world, you can’t seem to build enough highways or public transportation to meet the demand for additional time. The same is true on the US side - - because of the deteriorating state of the interstate routes and railroads, congestion is lengthening time to move goods from the port to the final destination.

Over the past five years, the economies of East Asia have prospered as interregional trade has increased. Given the geography of the area, goods flow by these small freighters using the Yellow Sea. The more apparent route from Korea to China by land is blacked by North Korea. In addition, the Chinese rail system is largely focused on the movement of people, not goods. Thus the solution is that goods are shipped by container on these small coastal freighters. This trend will likely intensify as manufacture and investment flows become more intertwined over time.

China has financed an incredible expansion in its highway system by using toll roads, at fairly steep prices for a developing economy. In California, the current debate is on expanding the roads leading out of the ports. The state passed a multi-billion dollar bond package to relieve port congestion. Maybe we should be investing more in toll roads? After all, we’re just at the other end of the Yellow Sea Asian Highway.

From the airport to the port at Tianjin revealed the explosion in infrastructure spending. There were literally hundreds of apartment buildings or new factories under construction. The construction at the Tianjin airport zone continues, supplementing the dozens of existing structures.

The new apartment boom continues apace with 20 and 40 story structures rapidly going up. In the mean time, the shoddily constructed structures of the Mao era, particularly in Tianjin, are being abandoned and torn down.

The highway from Beijing to the port was chockablock with trucks carrying containers to the port for export to the US and the rest of Asia. There were almost as many trucks coming from the port. China has increasingly become an assembly location for consumer goods being designed in Korea and Japan. Both countries already have major automotive assembly operations in the country and the streets have brand names from US, Germany, Japan and Korea. (While I was Consul General in Hamburg, I had a tour at the VW factory in Wolfsburg and then VW CEO Piech underscored the growing importance of the Chinese market to their global operations.)

As we went down the highway, I was thinking about the volume of new construction and what might happen if there is a slowdown. These apartments are being built on the assumption that the economy will continue growing at a 10% growth path. There are two possible scenario for the slowdown – exports to the US fall as the US economy cools or China pulls the reins in on the economy after the Olympics. One only needs to remember the decade of the 90’s after the Japanese boom collapsed. So, how will China’s new found banking system deal with an eventual slowdown?

]]> http://clynchinternational.com/blog/2008/03/26/day-1-oceania-cruise-beijing-tianjin/feed/ http://clynchinternational.com/blog/2008/03/14/trade-policy-and-the-us-presidential-election/ http://clynchinternational.com/blog/2008/03/14/trade-policy-and-the-us-presidential-election/#comments Fri, 14 Mar 2008 04:06:24 +0000 Administrator Trade Policy http://clynchinternational.com/blog/2008/03/14/trade-policy-and-the-us-presidential-election/ As the Democrat party race for the nomination has tightened, trade became a major issue in the debate. Hillary Clinton claims that the US needs to take a second look at NAFTA and negotiate a better deal. Barak Obama made similar statements while campaigning in Ohio, although an aide explained to a Canadian diplomat that the statements were just political posturing.

The bulk of the academic studies come to the conclusion that NAFTA had little impact on employment in the US and that there was a net contribution to economic growth. In fact, the greatest growth in imports came from China and the value increase in oil imports as crude prices have soared. In the traditional manufacturing areas of the mid-west, jobs have been dwindling for decades as new technologies have moved in and high-labor content has moved off-shore. Many manufacturing processes have been automated. I remember touring a Caterpillar factory in the 1990’s in which an entire line used to make transmission gears had been automated. What was surprising was not the absence of workers but the fact that the machine could consistently manufacture gears to tolerances that were 10x better than the best master lathesman could do. The sad fact is that most of these jobs would have gone in any case and the workers were caught in the middle. The frustration by the states which had lost many of these jobs without seeing new opportunities replace them focused on NAFTA. States like California which also lost manufacturing jobs were able to replace them with new jobs scarcely mention free trade arrangements.

I do think there is one issue about NAFTA  and job losses that does bear discussion. Mexico opened its borders under NAFTA, particularly to agricultural products. The result was that traditional subsistence level farms in southern Mexico failed and the peasants fled to large cities in Mexico and to the US. Some studies of immigration in the US suggest that over 8 percent of the Mexican population has moved to the US in the past 15 years. Many African countries that have experienced civil conflicts have not displaced such a large percentage of their populations.

The US could have learned an important lesson from the EU with its expansions. The EU gave billions in development aid to the new entrants to build infrastructure and jobs to avoid large migrations of workers for jobs. This clearly worked with the expansion to Spain and Portugal and to a good extent with admission of the former East Bloc countries. The US should make part of its policy a determined policy to help out with economic development in Mexico and Central America to ensure that local citizens find good jobs at home where they will buy goods manufactured in the US.

In Latin America, families were all encompassing and everyone was free to involve themselves in another family member’s life. We were lucky because of our position in the embassies to get to know and be accepted by families in the area. Certainly a lot of that is due the outgoing personality of my wife Linda. Once we were accepted, we were able to be part of the families, lack of boundaries and all. Being part of the clan also brought obligations. Sometimes that put me in an uncomfortable position as an official American (visas were always a topic of discussion).

Megan noted by contrast that Germans have strong boundaries around their personal lives. One calls work colleagues as “Herr” and “Frau” I remember one time when I wanted to send an invitation to an Embassy reception to a colleague at the German Foreign Ministry. I knew him only as Herr Hoffman and so I called to ask about his first name for the invite. He had been working in the office for years and not one person knew his first name. Most Germans have only a handful of friends with whom they use the informal you “du” (In University, it is a symbol of collegiality to call many of the classmates “du” but that seems to vanish as students graduate and enter the workforce.)

This issue of formality and informality vary by culture. Americans tend to be at the informal end and Japanese at the other. Learning how to conduct business with other cultures requires an understanding of how to navigate the varying degrees of formality and boundaries.

Do you have a favorite anecdote