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 AOYAMA VIEW

LOOKING AT NEIGHBORS, JAPAN SEEMS STABLE AND SAFE
The financial world was in panic last month. First it was millions of Chinese private investors, who saw their savings and big borrowings disappear in air duped by propaganda to put them in share market that was said to rise forever. Then it was China's central government, who could not stop the slide of the monster bubble they had created however they tried to manipulate it, even closing the market for a while. Finally, the panic spread around the world markets when the global investors realized that China's rulers, after all, did not have absolute control over what happens in their country and economy.

Until now we had been always told, whenever there was any sign of trouble in China, that Beijing mandarins would have a plan and resources how to handle it. The realization that they did not and that the real economy was probably in deeper decline than their superficial data admitted, wiped out USD 8 trillion of wealth around the world - more than economies of Japan and Germany put together - and caused wild swings in major currency rates. The simultaneous catastrophe in Tianjin port, coming after similar accidents before it and others that followed, reinforced the image of a country out of control. That government media suppressed all news, blamed share market problems on "irrational distortions" by scrupulous foreign speculators and claimed that there was no concern for environmental poisoning in Tianjin, did not help their case. Even Prime Minister added his own claim that the trouble spread to stable China from instable outside and not the other way round as we all others thought. With the trust gone both home and overseas, it is hard for Beijing to recover it. It seems, the sudden devaluation without warning, however small and positively explained afterwards, was the trigger for the global turmoil.

It is said that China government is its own worst enemy as its actions often betray its beautified stories about "peaceful rise", "advanced" economy and "free" society. Now the same credibility gap hit its widely declared commitment for transform to market economy. When the share market plan failed to work, the officials moved quickly back to heavy government interference under central command. Inverted, the global investors and economists, who had been repeating China's mantra, felt themselves betrayed and reacted probably more rabid than they should have done with cool reason.

After all, the slowdown in China had been clear already for long time with the demand for imported raw materials and energy in decline and destroying prices, profits and share value of their producers, even entire economies like Brazil. Now the panic extended even to parts of financial markets, who were not connected to China. One example was the US "Fab Five" investor darlings - Apple, Google, Facebook, Amazon and Netflix - all but one inactive, even outright banned in China - who had USD 100 billion value wiped off overnight. It was a reflection of what a central position China has reached in the global economy, business and finance. Its seemingly invincible growth stood out when Europe and Japan struggled, USA's recovery seemed slow and the emerging markets like BRICS and SEA stumbled. Hence, the violent reaction to the small change in the CNY/USD fix today while back in 1994 nobody took any notice when China devalued its currency by whopping 33% to make its export drive model fly. Now, that its economy had become world No.2 and its share of world trade reached 15%, doubt of its credibility dwarfed the impact from Greek crisis that had gathered all attention in Europe recently. In fact, EUR turned into a "safe haven" currency in line with JPY which has always gained from any global turmoil.

The business operators on the ground, too, have seen China changing already some time. With the social and political atmosphere getting worse during the current regime, free discussion suppressed and those thinking differently thrown to jail quicker than before, well-known foreign companies have also been being harassed by the officials. Same time, salary costs were rising rapidly and securing new workers turned difficult while the demand was slowing down and new savvy local products were eating up market share. Dreams of easy sales and big profits were shattered well before last month: in June 25% of the European companies in China were considering downsizing or withdrawal according European Chamber's business survey. In comparison, only 4% of the European and American companies in much maligned Japan thought same in a similar survey here, incidentally run by our own FCCJ. For many big corporate head offices back at home, this has been hard to admit publicly.

President Xi's widely promoted witch hunt for corrupted party officials has been little more than camouflaged campaign to get rid of his adversaries and concentrate all power in his hands. What it has achieved is collapse of luxury product trade and Macau gambling as well as suppressing ambitions of good officials as well as bad for any initiative as it is now safer to just keep quiet and and not raise your head for the time being. More power concentrated to the leader than any other after Mao and the economy now seemingly cracking at its seams is not a good combination and the criticism against Xi is said to be rising inside the party, even if secretly in fear. As the party's only claim to power is continuous improvement of living standards for all, missing growth, secure employment and rising pay would spell fear for social upheaval and unruliness, increasing strikes and demonstrations, which could test the party's control.

In difficult times, more anti-Japanese propaganda has always been a useful tool for China's leaders and the coming big military parade tomorrow celebrating China's win in "The War of Chinese People's Resistance against Imperialistic Japan" could not come at better time. The party propaganda machine has stepped up its usual "patriotic education" of the masses to unforeseen heights for this week with a flood of TV programs, war dramas, movies and books reminding all about their suffering in hands of the "Japanese devils" and glorifying the Communist party's role in fighting them.

While the first part of their story is well-documented, China's "win" and CCP's role in it are more fantasy. Japan's unconditional surrender came on August 15 as result of two US atomic bombs while the Imperial Army's millions strong occupation of large parts of China still stood unchallenged. When the ceremonial papers were signed on the deck of USS Missouri anchored in Tokyo Bay on Sept 2 with the Allies led by General McArthur, China was represented by Kuomintang, not by Communists, who had proved little resistance to the Japanese. That CCP later managed to beat KMT in the ensuing civil war, where both parties incidentally used Japanese POW's as forced mercenaries, is another story. School books and daily television propaganda over the past 30 years has changed history for most people long time ago, yet some critical voices in China still know better and take distance from the worst exaggerations. In a recent case, they managed to get their word through internet that the Cairo meeting, where the Allied leaders vowed to first beat Germany, then Japan, was not instigated by China nor chaired by Mao. Even Chiang Kai-Shek was flown there by the Allies more as a guest and out of courtesy to represent China by the main Allies. Yet, the control has been made fool-proof against getting any protest through about Tiananmen Square, hardly a good place for the parade as it is well-known for the killing of hundreds of Chinese students just 25 years ago.

Happily, withstanding tomorrow's spectacle that has been in planning for long time, China seem to be relenting on its rejection of Japan in preference for improved economic co-operation. In fact, a visit by PM Abe to Beijing for some serious talk this week was already contemplated between the two sides, but rejected as little concrete progress could be achieved in China's high tense mood today. As all other Western leaders have declined the invitation, it seems there will be the same "usual suspects" in the parade box together with Chinese leaders as in Moscow on May 9 with one exception: Korea's president Park has also accepted the invitation to many observers' surprise and considerable annoyance of ROK's main ally USA.

With 4 out 5 Koreans wishing to get rid of her and export based economy in danger with 30% of it going to China, Park's choice is motivated by economy and anti-Japan slant that could inch her support up. Yet, her attendance looks pretty demeaning for the usually proud Koreans, especially when Park's counterpart in North, almost 100% dependent on China's economic help, has decided to stay away. Not a man for begging, the "Young Leader" instead drummed up attention to himself from both two neighbors with his usual threats of war, fire and brimstone. No love had been lost between the "two brothers" recently with no celebratory events together for the first time ever for their independence from Japan's colonial rule in 1945, but this was another step up from the ever unpredictable Mr. Kim. "Miraculously" again, an armed conflict was avoided with marathon talks at DMZ, something both sides took credit for. It is said, it will also get trucks loaded with food and other essentials flowing in from China, where they were held back in exchange for "better behavior" from North. Once again Mr. Kim proved himself the winner.

What is baffling most observers is how South can so completely forget the feelings of USA, who maintains a 20,000 strong armed force in the country to guarantee its safety against any aggression from North, especially in view of President Park re-scheduled official visit to USA where the political mood is now highly sensitive due to the 2016 president election campaign that is already in full swing. With her original visit cancelled by the virus crisis in Korea, some candidates were quick to quip Park should skip coming even this time and start looking after South's defense on her own or call in her Chinese friends to help instead. That some US presidential candidates have let out similar noises about President Xi's coming US visit is still somehow more understandable than saying same about a traditional ally, but bashing other countries and bashing each other is what we can expect to hear now from USA all the way until end next year.

Before the parade, Beijing also had well-timed luck in hosting the World Championship games in athletics last week, another national PR event. The "Bird Nest" stadium, that has been idled most of the time since 2008, was put in good use again and its Chinese co-designer was released so he can travel to host exhibitions of his works in London and Helsinki. Yet, the audience numbers looked surprisingly low and Japanese corporate sponsors like Toyota, TDK and Canon ironically seemed to provide large part of the money, both phenomena that we are used to see in international football events there. Watching "Boruto", "Gaturin" and other track stars night after night did neither hold the same old magic after reading recent reports how widespread performance improving drugs probably are among the athletes. According them, new tests with latest laboratory methods on old samples from Helsinki Games 10 years ago, showed that a high number of medalists were tainted, but IAAF suppressed release of details "to avoid confusion" as they say. An American witch doctor, who had helped drug a number of well-known US athletes around that time, opinioned that Jamaica is today a government commissioned drug center at same level as East Germany and Russia used to be, while Kenya has repeatedly refused to organize full-scale testing of its athletes. The long distance stamina of Kenyan runners is probably not based on fabled high-altitude training like most of us blue-eyed fans have believed, but widespread EPO use. The global sport organizations' reluctance to change the widespread malpractice comes clear from IOC budget allocations: just 0,5% of its billion dollar income is given to WADA, the world anti-drug agency who is tasked to get the problem under control.

Under such criticism, the IOC has been compelled to curtail its earlier bombastic demands on Olympic arrangers and meekly accept most changes that Tokyo City has proposed to its 2020 plans to control the rapid rise in costs. On last week's visit to Tokyo the IOC bosses accepted that new design for the main stadium that central government provides, can be smaller, cheaper and without retractable roof and air conditioning as long as it is delivered 6 months before the scheduled opening ceremonies, not just 3 months as government proposed after its decision to scrap the original design and restart the project from scratch. Based on this, Abe and his ministers set out the bidding rules for more simple design 62,000 seat stadium with costs capped at JPY 155 billion instead of JPY 252 billion in the latest estimate for the original plan. It will be interesting to see what kind of bids from what kind of architect-builder combinations will be in the books by the deadline this year.

That Prime Minister himself is so clearly in charge of the national stadium project approach the Mao-like powers that China's current president has taken for himself. The difference is, of course, that here people have possibility to vote him and his party out in next elections. Yet, it looks clear that after two tries with other parties, Japanese voters are convinced that only LDP can provide a reliable government with sufficiently competent ministers while within LDP there's no one who wish to challenge Abe today for the party leadership. As result, it looks like Abe will be re-elected unchallenged to continue lead LDP later this month and hence continue as Prime Minister if he wants. Some doubts have emerged about his health again from stressful debates pushing his defense laws through the Parliament, but guess modern medicine can overcome them once more.

With the new laws scheduled to pass through the parliament process by September 15, the pacifist movement has spread its opposition to the streets. Last Sunday's big rally outside the Diet building attracted 120, 000 participants - or 30,000 according to police - in probably the biggest political demonstration the strong opposition to the original US defense pact in 1960. Then the strong opposititon on streets forced that time's Prime Minister Abe's grandfather Nobosuke Kishi, to resign. Remarkably, however, this did not stop the agreement itself and now it is being reinforced by the grandson. This time the action does not look like making a big dent on PM himself either.

While the Sunday rally was a remarkable expression of Japanese people's concern for their unique pacifistic tradition and it is certainly a welcome development that people are waking up from their political apathy, it is good to remind Finnish readers who might have seen the commotion on their tv-screens that, related to Finnish conditions, the numbers were just 1200-5000 strong, not really out of ordinary in Helsinki. In comparison, the annual Asakusa Samba Parade on Saturday attracted 4-5 times as many people on the streets. Attending for the third time with my "escola", one of some 30 from around the country, it hit me that not even Mick Jagger could attract so many people watch him wriggling his hips. True, that in my case there were 3999 other dancers, most of them much more skillful and attractive, to watch.

Past weekend much tv-time was devoted also for the old Hotel Okura main building, whose wrecking started today to make place for a new tower to be ready by 2020. While the rooms probably were bland at today's standards, Okura lobby was such a classic piece of 60's design combining Japanese traditions with the best from the West that time that it created over 10,000 strong name petition list to preserve it. Located next to US Embassy, many famous people including US presidents, Hollywood celebrities and rock stars stayed there. For me, many personal memories remain of functions and conferences in its banquet rooms as well as drinks in its classic "Drum Bar". While waiting for the new Main Tower, the South Annex will happily continue to serve FCCJ's monthly luncheons alternating with Grand Hyatt, another favorite.

Timo Varhama  
Tokyo, 1 September, 2015   


Previous Columns

19 August 2015
"End Summer, Ceremonies and Holidays Over, Back to Work for All".

6 August 2015
"Hot Weather, Hot Air in Politics - From War Anniversary to Whisky in Space".

23 July 2015
Greece, China, EU, Japan: looking for the lost reality

23 June 2015
World No.1 City? The Difficulty of Passing New Laws, the Easiness of Spending a Lot

16 June 2015
"Only in Japan?" - Somethings, Yes, But Others Are Same All Over

4 June 2015
Security and Finances: Pensions, Companies, Banks, Olympics, FIFA

21 May 2015
Economy Back on Track, Record Profits at Big Companies

11 May 2015
Spring Events: Odaiba Rock, Shibuya Sex, Capitol Hill, White Hall and Red Square

22 April 2015
Elections, Elections - Finland, Japan, Around the World

30 March 2015
Sakura: beautiful, but just for a short, fleeting moment

16 March 2015
Better late than never - Japan moves slowly

2 March 2015
Three struck out, three more in doubt - Abe's ministers under attack again

19 February 2015
Spring, Sibelius, Chocolate, Budget and Big, Bad Putin

5 February 2015
Reform Work Starts - Energy, Farming and Food on Wish List

26 January 2015
Terror strikes, plenty work, sad memories wait

15 January 2015
Watching AKB, Eating Mochi, Spending JPY 96 Trillion - Japan Off to Better 2015 After So-So 2014



About the Columnist

The columnist is a Japan veteran among Finnish business, our Chamber ex-president and today Member of the Board of Trustees.
After running a major Finnish industry company's Japan business for over 20 years, he is now Senior Associate in a strategic consulting company.

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