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2017.02.08

A Surprisingly Effective Method for Maintaining Peace and Economic Growth at the Same Time My Hope for Prime Minister Abe to Establish a Global Information-gathering Agency Following His Visit to Pearl Harbor

An article published in JBpress on December 20, 2016

  • Kiyoyuki SEGUCHI
  • Research Director
    Kiyoyuki SEGUCHI
  • [Expertise]
    Chinese Economy and Relations among Japan/China and the United States

Prime Minister Shinzo Abe will meet with U.S. president Barack Obama in Hawaii on December 26 and 27. The two will visit Pearl Harbor. Abe has achieved numerous historic accomplishments and has forged strong Japan-U.S. relations based on a close relationship of trust with Obama.

Some of Abe's accomplishments include becoming the first Japanese prime minister to address a joint session of the U.S. Congress, reviewing the Guidelines for Japan-U.S. Defense Cooperation, cooperating in the Trans-Pacific Partnership (TPP) negotiations, and improving relations between Japan and South Korea with Obama acting as a mediator.

However, what left the biggest impression on many Japanese people was most likely Obama's visit to Hiroshima.

In addition to returning Obama a favor for his Hiroshima trip, paying a visit to Pearl Harbor as Obama's presidency nears its end and wishing for world peace together is an appropriate ways for the two leaders to wrap up Obama's presidency. The occasion will mark its place in history and will be remembered by the people of the two nations for many years to come.



A Lesson from History: The Importance of the Ability to Gather Information


Japan and the United States have such a strong and close relationship that it is hard to believe that the two countries were once at war. There is a strong bond between the two countries across all levels of civil society in diplomacy, security, economy, culture, and sports.

A major factor that triggered the Pacific War, which was fought between Japan and the U.S. in 1941, was the Second Sino-Japanese War, which broke out in 1937.

At the time, two conflicting views existed: the Sino-Japanese War expansionism and anti-expansionism. In the end, expansionism could not be stopped, and the Sino-Japanese War broke out.

Regarding this dispute, it has been pointed out that those who were in favor of expansionism had little understanding of the force of Chinese nationalism, the Communist Party of China's strategy for a revolution, and China's socio-economic structure.

Japan carried out ill-planned strategies based on such false perceptions, turning the Sino-Japanese War into a hopeless mess. It then went to war with the Unites States, due to a variety of other factors, resulting in the acceptance of unconditional surrender of Japan by the U.S.

Various factors contributed to this outcome, including Japan's political, economic, and social circumstances, as well as its military structure. However, one of the main contributing factors that escalated the situation was Japan's inability to gather and analyze information on international affairs.

Japan neglected to gather information properly and carried out military operations without preparing for the worst case scenario. The country's conduct was based on a naive prognosis that a scenario which was in the country's best interest would come to fruition.

Japan, as a result, continued to engage in ill-planned, aggressive war tactics by taking advantage of a situation in which they were provoked by the enemy without fully recognizing that their conduct involved risks that would lead to disastrous circumstances if they went beyond a certain point. In consequence, the hopeless mess they had created continued to escalate. It is widely known that this was a trend that was seen not only in the Sino-Japanese War but also in the Pacific War with the United States.



Calling for the Establishment of an Agency that Specializes in Gathering Information on International Affairs


Prime Minister Abe will pay a visit to Pearl Harbor to wish for peace. That is wonderful. My hope is that his visit will build a strong foundation for taking the next step in maintaining long-term peace based on lessons learned from history.

One of the main contributing factors that led to Japan's past failures in national strategy was its wrong assessment of the situation due to the inability to gather information. As a way to express that we have learned from that mistake, what I would like to propose is to establish an information-gathering agency for gaining an accurate understanding of international affairs.

We need to establish such an agency to gain an understanding of movement in various countries with respect to politics, diplomacy, and security. But that alone is not enough.

It has been pointed out that Japan's wrong assessment of the situation, which led to the escalation of the Sino-Japanese War, was attributable to Japan's lack of knowledge of the force of Chinese nationalism, the Communist Party of China's strategy for revolution, and China's socio-economic structure.

Paving the way in learning from such past failures and understanding of the circumstances in different countries, including the socio-economic conditions in the world's leading nations, are crucial conditions for maintaining long-term peace.

Analyzing such information objectively in a matter of fact manner and putting in place policies to prepare for a variety of scenarios, while also giving careful consideration to scenarios that are not in the best interest of your country, will cultivate the ability to respond flexibly to unforeseen circumstances.

If we have a proper agency, we can expect the continuous development of human resources that are necessary in gathering and analyzing information, as well as for putting in place the policies such as those described above.

Maintaining peace and ensuring security are not the only objectives of gathering information. For a country like Japan, which does not possess any nuclear weapons or military forces for invading other countries, what is crucial in maintaining national strength is to maintain a globally competitive, strong economy. To achieve that, it is particularly important to gain an understanding of the economic conditions in various countries.

March 2015, when China was preparing the launch of the Asian Infrastructure Investment Bank (AIIB), major nations in Europe, as well as Asia and Oceania, announced that they would join the bank all at once, as if an avalanche had struck just before the deadline for joining, which was the end of March.

Within the government of each nation, there were those who were for the bank's launch and those who were opposed to it - exemplified by such disagreements between the department of finance and the foreign ministry. However, in the end, most of the nations decided to join the bank.

It is said that the circumstances surrounding the decision varied for each nation. What was the basis for each nation's decision, and how did they reach it when it came up with a policy for making the decision? As of March 2015, that information was not shared properly within the Japanese government and it is believed that the government did not have a full understanding of the internal circumstances in each country.

Even if the Japanese government had a full understanding of the circumstances, it still may have opted not to the join the AIIB.

However, isn't there a difference between making a decision after gaining a full understanding of the circumstances and making a decision without assessing the situation properly, even if the final decision for both scenarios is not to join? It is also possible that there may have been differences in how the situation would have been handled after the fact.



The Growing Impact of the Chinese Economy on the Japanese Economy and the Lack of Knowledge about It


According to the IMF (International Monetary Fund) World Economic Outlook, October 2016, China's GDP is estimated to be 2.4 times that of Japan in 2016 and will be 3 times as large by 2020.

Total unit sales for Nissan, Honda, and Toyota in China's domestic market reached just short of the 4 million mark this year. It is expected that the year-end total will be over and above 1 million more than last year's domestic unit sales in Japan for the three companies combined (2.77 million) .

There is a vigorous demand in China's domestic market for products and services with high added value provided by Japanese companies in product categories other than cars, including robots, IT, electric appliances and electronics, daily commodities, housing, and medical and nursing care. This trend is expected to continue.

Last year's total number of inbound tourists was 4.99 million. At the current rate, this year's total is expected to reach the 6.3 to 6.4 million range. While the bakugai (Chinese "explosive shopping" boom) in Tokyo's top department stores has subsided, inbound tourists are still significantly boosting demand through the purchase of goods in various regions across Japan, along with tourism, dining, and various other services.

As you can see, the Japanese and Chinese economies are becoming increasingly intertwined, and this trend toward economic integration, like it or not, cannot be stopped.

Despite such a huge magnitude of the impact that the Chinese economy has had on the Japanese economy, few people within the Japanese government or Japanese companies have even a general understanding of China's socio-economic conditions.

What are the issues that face China's central and local governments? What polices have they implemented to address those issues and how effective have they been? What do experts or the public think about the effectiveness of the policies? What judgements are the central and local governments making based on such circumstances?

In other words, how are China's central and local governments using the PDCA (plan, do, check, act) cycle to implement key policies on issues such as public finance, money and banking, the taxation system, industries, the environment, social security, medical care, education, and public welfare. The reality is that organizations or individuals who are able to provide solid answers to such questions are extremely few in number.

Japanese people, when it comes to their understanding of China, either know a lot or they know very little. There does not seem to be a middle ground. Many of the entrepreneurs who have a solid understanding of the Chinese economy are expanding their businesses with an emphasis on cooperation in development between Japan and the China.

I must say that the notion that Japan is way ahead of China in terms of technological capabilities or industrial competitiveness is naive.

It is true that the gap in technological capabilities was apparent until about ten years ago, but China is rapidly catching up with Japan in many different fields, including mobile phones, automobiles, rockets, IT, AI, and financial technology. China is now as advanced as Japan in some of these fields and even more advanced in others. Many business-persons are not well informed about this.

In the summer of 2012, the Senkaku Islands dispute re-surfaced. Since then, the structure of China's economy has continued to undergo rapid changes. What was relevant a few years ago has quickly become outdated.

Many Japanese business leaders are making business trips to China much less frequently than they used to. Because of that, fewer people know China's latest economic trends.

Japanese companies can also take advantage of major business opportunities in China's domestic market if they possess globally competitive technological capabilities. However, if the technology level is not quite up to par with the top companies in Europe, U.S., and South Korea, it will become extremely difficult to survive in China's fiercely competitive domestic market.

Only the companies that make every effort to provide products that meet China's domestic market needs and continue to possess the world's most advanced technology and level of service will achieve success in China.



The Importance of Gathering Information First Hand and Top-down Decision Making


Whether a company has an accurate understanding of the latest trends like those described above is vital in expanding their business to China. The company will not be able to access the information it needs from information provided by the Japanese media, which often presents a pessimistic bias.

Most of CEOs of companies that have achieved success in China make frequent trips to the country to get a first-hand look at the environment, think on their feet, make decisions quickly, and take action.

China's market is not one in which companies can be successful in a half-hearted attitude. China has an enormous market, which means that expanding one's business there will require a massive amount of capital and extremely skilled human resources.

On top of that, the market structure changes extremely rapidly, which means that companies are highly likely to miss out on major business opportunities if they rely on a bottom-up decision-making system led by those in executive-level positions or below. The market is such that the ability of CEOs to make top-down judgments and decisions promptly and appropriately will be tested.

This is a characteristic of China that applies to corporate management as well as political management. Structural changes happen quickly in China, and the changes are drastic, which means that the impact on Japan is enormous. Therefore, it is important for top executives to make frequent trips to China to gain a full understanding of those things.

Getting into the habit of steadily gathering information will complement such efforts. It will be difficult to gain an accurate understanding of the circumstances and make prompt and appropriate decisions if one hastily begins the information-gathering process after the drastic changes have begun.

Markets in not only China but in the other leading countries of the world want Japanese companies to make prompt and appropriate decisions without neglecting to make an effort to gather information on a regular basis. That is an essential precondition for Japan to remain globally competitive and is an effective method for maintaining long-term peace.

I hope that an information-gathering agency will be established sooner rather than later, particularly in an era when Shinzo Abe, who has achieved consecutive major historic accomplishments with respect to diplomacy, is our prime minister.



(This article was translated from the Japanese transcript of Mr. Seguchi's column published by JBpress on December 20, 2016.)

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