Can Japan Rise From The Ashes?

"Never thought I'd see a pin like this."



This is probably my third article related to how Japan is losing to Korea, with the latest one written right before my lengthy distraction - yes, I was distracted.

It seems like a large number of Japanese companies admit that they are lagging behind their Korean counterpart, in particular, the Television Industry to which Samsung and LG are currently holding the heavyweight title. To say that the Japanese are completely out of the picture however would be too much of an understatement; they are still somewhere on top with their Advanced Robotics Industry, among other high tech things.

I think the bigger question in this case would be how long can South Korea maintain their position as a top producer and exporter of electronic goods? I recall having this interesting chat with the Assistant Trade Commissioner from Korea based here; we were talking about how Koreans work late and I thought that this could be a factor draining creativity and innovation to which he couldn't agree more. He also questioned Korea's how long can they sustain their top position. Personally, what Koreans have achieved so far can be attributed to their sense in reverse-engineering; for instance, have you tried comparing Samsung's Galaxy series to Apple's iPhone? Notice the similarities? I also question their status as a "developed" country; and wealth generation which does not distribute income equally.

Korea's ability to maintain their top position can be question through the multiple suits launched by both Samsung and Apple against each other (to which I think was overly stupid and childish). Why you ask? Well after the couple settled down, Apple now plans on purchasing memory and microprocessors from Japan and Taiwan, in an attempt to "reduce their dependance on Samsung" to which, is nothing more than a bunch of pure, unadulterated bullshit. It's clear that Apple was butthurt with the entire charade; so their relataliating by swapping suppliers. Now the question is; how would losing a major client such as Apple affect Samsung's overall direction? I'm pretty sure their future direction now is somewhat shaky to the least.

Clearly, only time will tell.

The Great Hiatus

"We will return shortly ... maybe after 2 months"



... Yeah. Procrastination and pretending to be busy at work was probably the reason.

Getting back;,here are two interesting stories.

So it seems like there's a growing number of Chinese Companies defaulting on their contracts; why you cunning bastards. Can't blame them since there's their economy has been going downhill since last year. Now that demand on their side is weakening the whole world is in panic mode; affecting countries like Australia. Could this mark the downfall of China's economy - therefore the world? Fuck no. I'm pretty sure its temporary. I had a good chat with a newly made acquaintance who thinks that the China's economy isn't really slowing down; the Chinese government is artificially cooling (with the relevant policies) the economy to make sure they don't grow 12" inches too long or to a point where inflation comes on their faces harder than a brick wall. In his words; Effective first, then Effeciency. So I guess the government is making tweaks to make sure growth is stable in the long run; hell any GDP growth of <5% should be better than any of the already developed countries.

On another note, I recall reading an article on South Korea being pressured to halt their imports of oil from Iran; although America agreed to allow them to continue all non-oil related transactions, EU is starting to throw a fit and rejected any exemption appeals by the Korean government. Not a big fucking deal to me anyway but I was drawed towards this particular line in one of the articles;

European insurers have a monopoly on shipping insurance, so it will be extremely difficult to find replacements

How come they have monopoly over shipping insurance; in particular, for Oil Shipments? I think that is a huge fucking question that needs to be answered; I'm demanding it to be answered. Could it be because of the fact that they have been in the industry so long? Is it because only they have the capital for it? I doubt it. This is definitely something worthwhile doing a bit more research on.

Feels good to be writting again.

Sustaining Japanese Exports

Good point; why dont they try to export their Sumo sports?

Well can they? In a recent article from Yomiuri, Japan posted their first Trade Deficit in 31 Years (since 1980); should we call this an achievement? Definitely, but not a positive one.

The deficit is a result of four consecutive events which occured in 2011; The Japanese Earthquake, The Flooding of Thailand, Appreciation of Yen and a Surge in LNG Imports to commenstruate the loss of power generated from the Fukushima Nuclear Plan. Now apart from Trade Deficit, another concern of theirs would be their dwindling Current Account Balance.

Ouch! Two hits in one year; that can't be pretty. Apparently the majority of the surplus in their Account Balance is driven from the interest payments received from U.S. Bonds in which the Japanese Government holds quite a nice sum. This is what happens when you get America to spend a lot, and East Asian countries to produce them; imbalance in the production and spending side of Capitalism. So when a major importer like America and EU get hit by recessions, they don't have anywhere to export their products. This trend can be seen happening in all high value (non commodity) export-dependant countries like South Korea as well; actually based on another article from Voxeu, Korea's economy looks much more volatile compared to Japan.

The graph basically depicts Import Contents of each main GDP Component; carefully look at their "Exports" column, and you'd be surprised to see that close to 40% of the products they produced contain imported contents (most probably from Japan or China). So what does this tell us? Simple. Either find new markets, or stimulate your domestic economy. Concerns are currently being raised in Japan; the appreciation of the Yen has led (more like forced) companies to move their manufacturing operations overseas, potentially hollowing out Japan's manufacturing industry. So what happens next? Good example is America; where the rich get richer and the poor get poorer.

Don't you just love the world that we live in?

Repurcussions on Denouncing FTAs

Sorry ... I don't speak Chinese, English please?

I was surprised to read an article saying that should the opposition party in Korea win the upcoming April 2012 elections, they might be inclined to repet the US-Korea FTA which was some at, uhm, sometime ago after (what I recall as) a long series of negotiations. To answer the question whether they should or should not write off their FTA, they must first ask themselves; what made them negotiate and sign an FTA with America in the first place?

I recall reading a discussion on the US-Korea FTA in one of my groups on LinkedIn. As far as I can remember, the argument was even though both parties opened up certain industries for mutual benefit, Korea loses grounds in their agriculture industry; where the evidence can be seen in the government's efforts to give support to their Farmers and Fisherman (also interesting; 15,000 farmers earn more than USD 100,000 annually). Now as much as I am all go for Free Trade Agreements, one thing I would disagree is creating a disadvantageous environment (unfair competition) for key industries, one of which is Agriculture. The reason being is, if you open yourself or create an environment where basic necessities such as food being open to foreign competition, what if the import supply gets cut off?

Now of course, this is quite a contentious issue and the government knows this and is trying to circumvent the issue by giving them subsidiaries. But would that be enough? We all know subsidies can help cushion certain impacts but also creates market distortions. So the question now for this particular issue is; are they making the right move?

Obviously no.

Trade Protectionism; Do They Actually Benefit Anyone?

Thats is, come closer, come closer

I've been rather intrigued, no, actually concerned. In the past month, I have been placing emphasis on reading policies set by other governments around the world on trade. Where some countries opt to free their markets further through FTA, others have been skewed more towards protectionist measures (based on Global Trade Alert). A paper done by Simon Evenett also questioned WTO's role in restraining protectionism; although I somewhat agree to the fact that WTO's role all this while seems to be focusing on liberalizing international markets, they should somehow place efforts in hastening their Trade Dispute Settlements, or create a clear guidance on the level of protectionism a country is allowed to take when attempting to protect national interests.

But another issue was also raised by Richard Baldwin is Murky Protectionism. What Baldwin discussed in his compilation paper was that certain countries (particularly developed ones) tend to create protectionist policies masquaraded as Green Policies under the guise of increasing quality standards or protecting the environment (under the pressure of their domestic contingencies). To be fair, their concerns on both national interests as well as increasing quality standards is justified however, what I believe is rather absurd is the timing as well as unnecessary clauses in their policies which would further increase costs to exporters and extend processing time (among others). Such policies would have a high probability result in companies passing the cost to consumers, further aggravating and dampening trade between nations.

In the globalized world we live in, vertical specialization has resulted regions, no, the world's production chain to be fully integrated. As explained briefly in his report, Richard Baldwin illustrated the supply chain for Hard Disk Drives, clearly showing how each part and componenet was derived from each of the ASEAN countries - from here we can infer that should one country implement a protectionist-skewed measure against any of the componenets, it would have drastic effect on other countries within the region due to the movement of parts and components. Putting all this aside, the main question still remains; do Trade Protectionist Policies actually benefit countries, companies, consumers or anyone in that matter?

Personally I don't.

The Chinese Government; Keeping the World in the Dark

Gotta love them pandas

I recently came across this 10 page article (if you print it out) about how the Chinese Government controls certain economic and political aspects of the country. As I read through two things started to happen; I become more and more curious, at the same time even more clueless about what they are doing - a total paradox. But keeping to the point, let me just elaborat on what they're doing as of now;

Now to put it in simple terms, the Chinese Government has a policy where, for transactions conducted in US Dollars, all the money has to be forwaded to their Central Bank, which is then to be exchanged with the Yuan Renmibi - this is apparently a must as they treat dollars as contrabands! Now what do they do with the money? They buy US Dollar denominatd government bonds. Now, if the buying of bonds were only limited to millions, I can understand, but apparently it runs in the billions (refer to chart below).

This is the prime reason why some governments are crying foul play; as this is the prime reason why their currency is undervaluated - to a point where the American Congress nearly went through the Exchange Control Act, and could be the reason why they've been targeted for Trade Protectionist Policies. If you look at their exchange rate, for a period of two years - there have been miniscule if not no major volatility against their exchange rate with the USD, even during the 08/09 financial crisis.

So what does this show? Clearly, a sign of government intervention. Many had hoped for the Chinese Government to change after their ascension into WTO - but apparently based on two articles from the Economist; much of their economic policies and political structure remains the same despite a significant amount of pressure to become "Westernize" and open up their market. This system apparently is much resented by the Chinese Government who prefers to have a stake (even a small one) in all if not the majority of the private entities running in China; for the sole purpose of control.

Now, in actuality, what the world is concerned about is their transparency - What do they plan on doing with the bond? There have been speculations that once reaching a certain threshold, they would do a firesale - but this would in turn hurt them as well as a healthy American economy would be essential to their Export-Driven economy, to which America is a big customer. So if this isn't the case, why don't they spend the money domestically? Why bother buy bonds when you can build infastructure? Well the answer to this is apparently as they build more and more manufacturing plants, major constructions shifts to public utilities would drive their inflation rate to the moon - and when that happens, a global rise in inflation would eventually come.

I believe that this is something long term - my experience which Chinese people, regardless of where they are born is that they have two distinct characteristics; the natural ability to make money and a very good long term vision. So whatever most pundits perdict in the moment is particularly off track - only the Chinese would know, and I'm pretty sure its something more which would develop within the following decades rather than years.  

In any case, keeping the world in the dark would only result in the Chinese Government open to scrutinization by the Western Media and Government. What I can see is definitely, a clash of ideologies from the Capitalist West, to the Communist / Socialist East. Within the coming decades, we would probably see a second Cold War; using not spies as weapons but rather dollars, purchasing power and economic influence.

Thats something new to look forward to.

Is Japan Changing?

But didn't the Americans already do that in WW2?

This morning, I suddenly recalled this article which I read on Choosun Ilbo - which pretty much explains on what we can learn from Japan from South Korea's perspective. Out of all the things being discussed and elaborated in the article, I found one to be most agreeable - Japan's inability to change and adapt to modern times, in essence, failure to ride the wave of globalization. Now yes, I know, how can say such a thing for a country whose manufacturing goods are all over the place? If you look closely, they're not anymore. You want to talk about TVs? Samsung is now the world's largest TV maker, and Hyundai overtook Toyota in America's market. They're still up there, but they're not as dominant as they were during the 1980s and 1990s. South Korea has started to take up their fair shair of the world, even their music industry is starting to shine brighter than Japan's J-Pop.

Now I can give hundreds of reasons why (too nationalistic, their attitude being less inclined to learn English compared to South Korea, and there's also the factor where they have such an advanced robotics industry, losing ground in the automotive and electronics industry may not seem to be such a big deal) they are falling behind against their Korean rivals - maybe I'll do another post on that later. But for now the question is, are they changing? Are they reacting positively to these signs? Seems like like they are.

Ex-CEO of Olympus - Michael Woodford

Let's start of with the Woodford Olympus Controversy - the first Non-Japanese to become the CEO of a Japanese corporation, only to be fired 6 months into the job for investigating what seemed to be a potential (okay, maybe the appropriate word would be apparent) coverup by the directors. For being a whistleblower, he was fired. But now since the issue went to headlines, and after much pressure from the public, he was invited to attend a Board Meeting this week, which he accepted. This is definitely fresh and different to how the old-school hard headed Japanese would normally handle things - cover up with your superiority in rank and lobby the media and politicians.

Hiroshi Mikitani - CEO of Rakuten

In another two cases, Yamada Denki, Japan's largest electronic retail chain decided that they will now sell more foreign brands in their stores in a response to an increasing demand and interest for Samsung and LG products. They recently opened a procurement office in China - something which Japanese companies would not normally do. The CEO of Rakuten, one of Japan's largest online retailer, shocked the media by giving a press conference in English - and in response to fears in losing their Jobs, more and more Japanese are taking English lessons to justify / exert their importance in their respective companies.

This is, without a doubt, signs of change - from their inclinedness to learn English, to the way they run companies. However, one key area which still requires improvements is their political system; they need a strong and visionary leader to take them out of this trap. These are good signs - they're probably 10 years behind South Korea now, but that does not mean that they won't be able to catch up. Knowing the level of rivalry between them, and the advantage that Japan has in certain industries, I'm very confident that Japan can pick themselves up again - maybe not to a point as high as where they were, but to the least, high enough to ride the tide of total globalization.

The only question is - how long will it take?

TPP : Japan is in the Bandwagon

Picture unrelated - was meant to be Japan kkk

So now we have Japan trying to join in talks for the Trans-Pacific Partnership thingy - an issue which has definitely left its Mr. Noda in a tough spot; receiving both support and protests from his own people. I have been reading much about this TPP every morning during my Asahi scans. It seems that as much as a number the public try to push Mr. Noda in joining the talks - it is apparent that other industries such as agriculture fear that liberalizing its barriers would result in them having to fight for their lives (even though they pretty much are fighting for their lives in their economy's current state). Here we have some the concerns in which other countries like America have on Japan joining the talks; in short they fear that Japan will be asking for more than they are willing to give.

If you were to ask me I think its high time that Japan starts to shift away from its export-minded economy. Domestic consumption (albeit near ZERO interest rate) is still not up to par as other developed countries. Much of the countries' income is based on manufactured-exports, where technically they should be more skewed towards high-income service based exports by now. This is probably one of the reason which I believe why they're still stuck in the same spot for what, the last 20 years? Actually, to be frank I think this might have something to do with their reluctance to adapt and learn this one language; English. Sure they've got the goods to sell, but if you want to sell a service, you'll need to speak a global language (although there has been reports that this might change in the future).

So what now Japan?

Resource-rich Countries; Cursed or Blessed?

True - at least, at the rate we're going.

In a blog post at one of my favorite blogs / author, a recent study was conducted to refute a research paper claiming that countries with natural resources tends to result in slower economic growth compared to those which are lacking in natural resources. The so called Resource Curse (not to be compared to Dutch Disease) claims that the abundance or availability of natural resources within a country would eventually lead to unfavorable economic outcomes compared to countries which are bare stripped. Since I have yet to find the time to read both papers (will probably write up a summary plus my own personal opinion into it), I'll start by analysing both the Resource Curse and Dutch Disease terms to see whether both of them are justified.

Resource Curse essentially states that countries rich in natural resource tend to grow much slower than countries without them. Based on my readings, the curse is meant to affect a country in several ways;

1. Ineffecient Government System - Revenues from natural resources tends to place the government in a complacent position, in addition to not needing to develop an effecient taxation system (therefore, the public will not scrutinize the government as they pay a miniscule amount of tax). Naturally, arguments over budget allocations would also ensue between each government departments and agencies resulting in a further ineffecient system; emphasizing on one's needs rather than the people.
2. Revenue Volatility - During peaks of commodity prices, both the government and private sector will attempt more aggressive and expansionary policies; borrowing excessively without any proper justifications or evaluations. This may result in bankruptcy or large amounts of debts due as a result of the illusion from the high price of natural resource.
3. Non-diverse Economy & Human Capital - Naturally, the country's economy and human capital would encircle around the natural resource due to the high revenue it which it brings in. There are also claims that this would eventually result in the country neglecting its education-infrastructure, as resource-extraction does not require a large number of highly skilled and talented workforce.

On the other hand, the Dutch Disease refers to the relationship between increase in dependance of natural resource exports resulting in a decline within the manufacturing sector. Essentially, the term refers to the shifts from the manufacturing sector, to both the natural resource sector (be it in the form of raw, manufactured goods or service related) in what is coined as both direct (manufactured) and indirect (services)deindustrialization. In order to minimize the effect, the revenues should be stored or invested abroad (through soverign wealth funds for example) and then revenues brought back over time in order to allow a more stable flow of income (something which I think Brunei is doing; rich, prosperous, and definitely resource dependant - they even have their currency pegged to the Singapore Dollar).

So.

What does all of this tell us? That at the end of the day, essentially (the way I see it) is just how you manage your resource. Now apparently the newer paper does not find any correlation or links between natural resource and economic growth (at least not negative; in fact they found some positive relationships). You can either go with a capitalistic approach (Netherlands, America) or a more socialist approach (Brunei) however at the end of the day, its the corruption-free and effecient management that truly matters. Despite America's criticism over Hugo Chaves' move to nationalize their state-owned oil company, if corruption still runs rampat; it would not pay its fair share on the toll. In any case, until I read both of the papers seperately, I can't really jump to a conclusion on this matter.

But I'm really curious as to which of the two I'll end up supporting.

Export-led Investments; Beneficial?

On the contrary; he's running because of knobheads like you

I found this interesting piece on my new favorite website on how Export-led Investments not only seems to raise living standards in any developing country but also upgrades export quality. Another outcome found by the paper was that there was a positive correlation between FDI and higher unit value of exports. Based on what I read from the paper, Export-led Investments carries the following plus points;

1. Boost exports of mediums killed sectors in developing countries. Apparently the bulk of investments done by companies are more than just low skilled manunfacturing, but more skewed towards medium skilled products (automotive parts, electronics and electricals etc). These form of investments are 14 times higher than low skilled manufacturing.
2. Results in upgrading within the sectors. Done through MNC's superiority - resulting in higher unit values of exports, where local companies can also learn from their operations. Productivity spillovers results in the abundance of higher quality inputs therefore benefiting indigenous producers of final goods.

However, export complexity / structure remains unchanged, and there are tendencies where FDI brought into more advanced / developed countries carries minimal impact on export quality. Now my problem is not that I don't believe this - I just still dont think that export-led investments are the way to go for any developing country wishing to catapult itself into a high-income nation, for instance, Malaysia.

Electrical & Electronics components plays a significant role in the country's exports - and although the foreign companies in Malaysia only amounts to half of the total players, they control over 90% of the exports. As a result, local indigenous players are being squeezed out. They can learn from the MNCs but they will never be as good as them as the MNCs will keep some of the secrets to themselves too. What Malaysia fails to see is in the long term - is that it doesnt help elevating Malaysia to high income status. To me, the matter of repatriation of profit done by these foreign MNCs would also result in a loss from Malaysia; we're pretty much being 'used' by these capitalistic people.

Now I can understand the nature; actually its beneficial to both sides but we could do better by actually learning from them rather than letting them use Malaysia as a temporary base for their operations. Without a strong global domestic company like we see in Korea and Japan, we will never be able to advance to a more developed economy. The key is specialization, protectionism and differentiation from our other Asian counterparts, not by blindly attracting FDI for short to mid term gains and attempting to go all rounder when developing our industrial base; there are no "jack of all trade" millionaires.

So its about damn time we wake up.

Antidumping Measures During Financial Crisis

I dont think its THAT free

Here we have an article from this new website I found on how South Korea uses antidumping measures when protecting its domestic market during financial crisises. I don't really feel like writing anything in depth until later on this week since I was too pre-occupied doing other things, hopefully I can catch up on my readings within the coming days.

As for today, its time to relax!

The Second Plaza Accord

Be smart; Why not have both?

Recently, America has been developing a bill called the Currency Exchange Control Act to penalize China for undervaluing its yuan - and the Chinese are not happy with it. Although a number of Senators agree on imposing the act, others on the other hand, are much more skeptical if not oppposed to it. The funny thing I find about this whole drama is that America claims that the undervalued Yuan (see how Chinese & Indian government undervalues their currency) has resulted in the loss of jobs, in addition to the widening trade deficit between US and China. Some are claiming that America is indirectly trying to push China into the same position it did to Japan through the signing of the Plaza Accord; resulting in a devastating deflationary spiral in which Japan has been suffering over the past 20 - 30 years.

Now to be frank, I couldn't agree more on how America is playing the dirty game again. They did it to Japan under the banner that it would reduce trade deficit but it is nothing more than just a political ploy. What I think the American government is trying to do is push the attention away from them by using external distractions. Despite all the calls on how Chinese yuan is undervalued, the new Big Mac Index suggested that the Chinese Yuan is not severely undervalued as it is claimed to be (although this itself has its own limitations). Another key point which was mentioned is that the passing of the bill may have more harm on America's exports to China than imports; fits the bill - neither benefiting  both parties.

Its funny how despite strong indications that the global economy is heading towards a double dip recession, we have countries like America (as well as Argentina and Brazil) trying to enforce trade protectionism policies, claiming that it would help put their economy back on tack where in fact, the risks of it backfiring is apparent. But like all of the things the American Government has been doing for the past 10 years; its nothing more than a political ploy. It seems that they're much more encapsulated in trying to find an external explanation to the public rather than taking the blame themselves, and rather than thinking about the American public they have been selfish; affecting the entire world at the same time.

I hope they're happy with what they're doing.