Asia & Middle East
Free Trade Zone between China, Japan and South Korea might become largest in the world
The Sunday May 13th summit of Chinese, Japanese and South Korean political leaders aiming to move forward to set up the largest Free Trade Zone worldwide between these countries mark another step of the further integration of Asias largest markets.
The impact of the project starting with proposed new regulations to protect mutual investment and copyright laws might become at least same significant as the planned fiscal integration of the Eurozone. Already now, Japan has lost ist role as a major producer of goods including high end consumer electronics to its neigbors due to the huge gap of local wages and market significance.
Despite the impressive size of the proposed free trade zone a long list of unsolved issues are probabaly still prolonging the process of its real implementation. The historical, political and socio-economic background of the three countries still shows tremendous differences. Those required a common approach to address the dark heritage of the Japanese invasion during WW II, to solve ongoing territorial conflicts in the South China Sea, an arrangement regarding the role of Taiwan, reliable cooperation regarding natural resources and energy as well as a new public political culture. Nevertheless pragmatic politics and economic pressure might accelarate the process more than expected by many observers.
Critical outlook on China puts property market and Eurozone crisis in focus
With a share of the property market frequently controversially discussed uncertainty on the economic outlook for China has become stronger with the beginning of 2012. Estimations of the property’s market role in the Chinese growth story of the recent two decades mention figures between 20% and 50% with no reliable or concrete data available form the state institute of statistics.
The unprecedented economic dynamic of China still has such a strong impact on the new world economic order that conservative preparedness for the burst of the housing bubble still has not become common. As before the 2000 burst of the dot com bubble assumptions have been changing with the changing environment that the digital revolution had brought up. With limited comparability the Chinese growth story has also altered perceptions and description patterns along its unprecedented process.
As a result even a cyclic down-cooling scenario for China usually doesn’t seem appropriate given the huge gap between Western standards regarding consumption and the development of the social systems.
But as up to now conservative and classical description models of economic cycles have always finally prevailed.
China is increasingly vulnerable in terms of social conditions
China, mostly described as the powerhouse of the world economy, is still one of the most vulnerable societies in the world with millions of impoverished migrant workers, a lacking social system and debt stricken regions as main threats. Usual statistics and common evaluation tools are not always suitable to show extreme gaps within the economic reality and the simmering conflicts of a nation consisting of a relatively small area of the highest population density worldwide and large areas where poverty ist still grim. Despite all the impressive steps foward in the last decades structural conditions are increasingly critical for social peace in China. The political system does not allow rapid and necessary adjustments. Free media coverage ist still prohibited, blocking public pressure to address corruption, exploitation of workers or the situation of impoverished farmers. Recent reports show mounting anger among those who do not benefit from the economic growth.
Legal conditions for foreign investors and companies in China are still unsafe
According to the EU chamber of commerce in Beijing the obstacles and restrictions for foreign investors and companies in China have not eased as expected. Critical points regarding conditions that are not complying with the WTO spirit and its regulations include the following:
- The limitation of foreign shares to a maximum 20% in Chinese banks and financial institutions keeps the banking sector in China closed.
- Foreign construction companies only get a license to work in China if they can prove that they have already worked in the country – as strategic contradiction that keeps the construction sector closed for new foreign companies.
- Companies in the communication and IT sector are forced to hand over all key software codes to the administration leaving no space for the respective companies to protect their business secrets and copyrights.
- Technically advanced companies are still forced to set up joint ventures with Chinese partners if they want to do business in China enforcing them to transfer their technologies.
- Regulations are introduced by the government in extremely short term with rules very often to be applied reactively. Regulations are mostly formulated vaguely so that local administrators can interpret them arbitrarily. 76 new regulations have been released only in the recent months.
- Foreign companies still have no fair access to public tendering and state contracts.
- Law enforcement regarding copyrights and product copying is still temporary and inefficient.
- Foreign investors are still not allowed to buy Chinese companies as full shareholders.
In opposite to former times many experts do not consider these restrictions and failures as a ‘development deficit’ anymore but instead as consciously arranged elements of an overall strategy to acquire foreign know how and technologies in exchange for market access. As a result foreign companies are forced to set up their own future competitors by comprehensive technology transfer. In addition to the restrictive monetary policies in China that prohibit Chinese companies to keep profits in foreign currencies in conjunction with the regulated RMB exchanged rates business conditions in China still include significant risks for foreign investors and companies.
The incomplete application of WTO rules also contributes to the growing trade imbalance between China and its western partners.
Fukushima nuclear disaster might have a long term effect on Japanese economic structure
With levels beyond 10 Sievert that were not measurable anymore by the testing equipment used at the broken reactor in Fukushima the risks for health and for the environment around the reactor are much higher than recently expected. It can’t be forseen which impact these new figures will have on agriculture, fishing and other sensitive industries in Japan even if the basic industrial recovery in Japan is well on track after the disaster.
