Essay252 Japan Should Aim to Become the World’s Second Greatest Economic Power Once Again

Seiji Fuji

The Chinese economy is approaching a major bend in the road

 On July 13, in the Sankei Shimbun newspaper’s column “Latitude and Longitude,” there was an article entitled, “A bend in the road for the Chinese bubble.” It read:
The Chinese economy is approaching a major bend in the road. The rapid growth focused on exports, public-works projects, and real estate investment has reached its limits. At the same time, government debt is rapidly proliferating due to overinvestment, and the nation’s financial risk is steeply climbing due to rampant “shadow banking.” People who experienced the collapse of the bubble in Japan when they were young are surely remembering that time as they look at China today.
In Japan as well, urban housing prices jumped suddenly during the real estate bubble from the middle of the 1980s. There was also a resort condominium boom in rural areas. Some people even calculated that one could purchase the entire United States’ territory with the sum total of the price of land inside the Yamanote Line. The entire country lost their reason in this “real estate fever.”
Conversely, the Chinese reforms and liberal political measures that were shifted into high gear in the beginning of the 1990s incorporated funding and expertise from Japan, Hong Kong, and Taiwan. The outfitting of industrial foundations, such as roads and railroads, took place, as well as exports that leveraged cheap manpower. Based on this, China became the world’s second greatest economic power.
However, now the work force has begun decreasing, wages are increasing, the renminbi is increasing in value, and competitive power has declined for exports.
Last month’s exports decreased by 3% compared to the same month of the previous year, and increasing numbers of multinational corporations are transferring their plants to overseas countries, such as the Association of Southeast Asian Nations (ASEAN). Due to the double-digit growth of the past 20 years, real estate in large cities such as Beijing and Shanghai has risen steeply to the level of New York and Tokyo. But the situation is growing darker, as the area of transactions has begun declining in recent years.
American and European hedge funds are also actively taking measures such as short selling Chinese stock via the Hong Kong Stock Exchange. If financial outflow from China was to gather momentum, and if the inflated real estate bubble were to pop, shock and disorder even greater than Japan’s bubble burst could take place inside and outside China. This may be the time for the international community to consider preparations against a global financial crisis stemming from China.
I think this article’s assertions are right on the mark.
After World War II, Japan’s economy grew due to special procurement for the Korean War, Vietnam War, and Cold War. That trend changed greatly at the end of the Cold War. The U.S. had gained victory in the Cold War over the Soviet Union by expending a great deal of blood, sweat, and money. So that it would not fall behind Japan ? which was enjoying economic prosperity by profiting while others fought ? the U.S. regarded Japan as a hypothetical enemy in a coming “economic war.” It took various steps to destroy the Japanese economy.
 One of these was the wave of “globalization.” Japan’s strength was its indirect financing (bank loans), which seemed infinite. The U.S. worked to restrict these bank loans through the Bank for International Settlements (BIS) regulations that demanded the capital adequacy ratio be raised to 8% or greater. Consequently, the Japanese economy ? which had been favorable ? was crushed, and the bubble economy collapsed. The Asian currency crisis occurred in other East Asian countries as well due to the short selling of currency by U.S. hedge funds. The wealth that had been amassed by profiting when others fought disappeared.
 Afterwards, the U.S. rapidly increased the number of subprime loans, which are mortgages with high interest rates given to people with bad credit. In this way housing prices were made to rise steeply, and a wave of prosperity was created. Many of these subprime loan credits were included in high-quality bonds, and they were sold to financial institutions throughout the world. Subprime loans were utilized by switching them to prime loans when housing costs had increased in value and the collateral value was increased. For this contrivance to work, it was imperative that housing prices continued soaring. Therefore, when real estate prices slowed down, subprime loans became uncollectable one after another, and the bonds containing them were transformed into bad debt. As financial institutions across the world fell into a panic, Lehman Brothers ? an investment bank ? went bankrupt, which led to the outbreak of the international financial crisis.


It was possible to predict the collapse of the bubble

 Japan’s nominal GDP has barely grown in the approximately 20 years since the collapse of the bubble. During that time the world’s nominal GDP has roughly doubled, while China’s has increased to about eight times. Development has blossomed, using fundraising schemes via real estate securitization, since around the year 2002. Real estate prices temporarily rose, focused on central Tokyo, in a so-called “fund bubble.” However, due to the bankruptcy of Lehman Brothers in 2008, Japan’s real estate prices dropped sharply. All emerging condominium developers had the bitter experience of business failure.
 In contrast, China used its low wages to amass wealth in the processing trade via the technologies and funds it had assembled from across the world. The high point of this was the Beijing Olympic Games held in 2008. However, the economy has gradually withered. Public demand was created through the Expo 2010 Shanghai, the 2011 Summer Universiade in Shenzhen, high-speed rail network construction, etc. In this way China held out. Moreover, the real estate bubble in China has continued due to shadow banking and an influx of funding. But it certainly cannot continue for much longer; the Chinese economy is approaching a bend in the road as the Sankei Shimbun column said.
 It was also possible to predict the collapse of the bubble in Japan. After seeing “Black Monday” ? the stock crash in 1987, the peak of the bubble ? I thought that land prices would fall drastically in the future. This was also due to the fact that land prices had reached a level four or five times greater than their proper price calculated with the capitalization method. Together with the timing of Black Monday I stopped all acquisition of new properties, and sold off unnecessary assets and rental buildings (such as apartments and condominiums) all at once. This was successful, and the APA Group benefitted enormously without suffering any impacts from the bubble burst.
Profit was postponed to the future through the aggregation of profit and loss, as well as a deficit caused by the amortization of aircraft investments via leveraged leases. Extraordinary income occurred from six years after. We used the extraordinary income returned to expand our hotels, and avoided taxes through the aggregation of profit and loss and a deficit from the batch amortization of hotel furnishings. When land prices bottomed out in 2002, we purchased the Head Office building in Akasaka, Tokyo. We went on the offensive once again and raised funds through real estate securitization. We rapidly worked on large-scale development projects, such as for high-rise hotels and condominiums, in Tokyo and Osaka.
 Afterwards, real estate prices rose steeply in 2007 due to the fund bubble. A problem concerning the APA Group, related to insufficient earthquake resistance, occurred. The APA Hotel in Kyoto was suddenly given an order to stop operations, saying that there were issues with the structural calculations by the office that had been given an order by the design company that we asked to take care of the designs. We thought it would be inexcusable to cause trouble to customers who had made reservations but weren’t able to stay there, so the president of APA Hotel held a press conference. Despite this, many media outlets warped the truth by saying that she had apologized for this insufficient earthquake resistance. The matter was reported on as an incident in which APA had lied about earthquake resistance.
 I immediately protested to the Japan Broadcasting Corporation (NHK) and other outlets. However, they judged that they had no choice but to use the company name in titles since incidents with famous companies draw a great deal of attention, even though they didn’t think APA had purposefully lied about the earthquake resistance. The impacts caused by the mass media reports were even greater than expected. We were compelled to repay all loans to banks from which we had received financing, including working capital for buildings under construction ? a total of 35 billion yen. We had no choice but to dispose of many assets, including properties where we intended to build. We also repaid all of the loans as required. For me, it was lucky that this timing was at the peak of the fund bubble. Because we cleared our accounts at this time we were able to acquire vast amounts of profit, and also to minimize the effects of real estate price depreciation after the bankruptcy of Lehman Brothers.


Japan must be sure of the impacts of China’s economic decline

 Because we repaid all of our loans for the condominium business, afterwards our cash flow became favorable just by selling the completed condominiums. In April of 2010 we began “Summit Five,” a medium-term plan spanning five years. As part of our “Summit Strategy” we built 50 hotels and 30 condominiums in the heart of Tokyo, carrying out business with the target of becoming the top company in central Tokyo. All buildings were purchased with cash, so we were able to acquire cheap buildings. Even after half of the five-year period has passed, we are favorably achieving our plan.
 After the inauguration of the second Shinzo Abe administration, asset inflation began as soon as Abe set out his policy featuring the extermination of deflation and an inflation target of 2% through “Abenomics.”
 We have received offers from seven or eight companies for high-priced buildings that had no buyers one year in the past. Land prices have already begun rising near train stations in the heart of Tokyo. I think that the five years before 2018 ? two years before the Tokyo Olympic Games ? will be a Golden Age of unceasing increases in value.
 After the collapse of the bubble, a general slump occurred in the Japanese economy. But it is regaining its natural strength through the cheap yen, high stock prices, and high land prices via Abenomics. Japan has many qualities that surpass those of other countries, including its diligent laborers, detailed services, and technologies. Japan should aim to become a tourism-focused country, taking the opportunity of the Tokyo Olympic Games to portray Tokyo as the most appealing city in Asia. At the same time, if Japan worked to become a country based on cutting-edge sciences and technologies, we would definitely be able to become the world’s second greatest economic power once again.
 China has achieved economic growth roughly equal to 10% over the past 20 years; this growth has served as a unifying force inside and outside the country. Now that this impetus is winding down, Japan must make sure it is not affected by the domestic conflicts that might be widespread in China. Power is needed to that end. In the past, China has tended to seek for external enemies to improve its domestic cohesive power. There are too many incidences of this to count, including the possession of East Turkistan and Tibet, the Sino-Soviet border conflict over Zhenbao Island, the border dispute between China and India, the Sino-Vietnamese War, etc.
 In recent years China has put forth effort to acquire marine interests. The American base has been closed in the Philippines. China has also captured Mischief Reef in the Spratly Islands, which the Philippines claimed as part of its territory, and erected buildings. As the Philippines and Vietnam are engaged in earnest confrontations with China, Japan repeatedly dealt with China with a weak attitude, such as by releasing the captain of a fishing boat that rammed into a Japan Coast Guard patrol boat. Consequently, China has begun talking about its so-called “core interests” in regards to the Senkaku Islands.


The U.S. put up barriers to holding a double election

 Due to the approval rating of the Liberal Democratic Party (LDP), Prime Minister Abe was thinking of holding a double election this summer, and of putting National Diet members in favor of constitutional change in two thirds of the seats in both houses. However, this was obstructed by barriers thrown up by the U.S. The worldwide media reported extensively on comments about comfort women made by Toru Hashimoto, who is nothing more than the head of a single city and the co-representative of a single party. In this way, the approval rating for the Japan Restoration Party fell to one quarter of what it was. If another House of Representatives election had been held, the number of seats held by Japan Restoration Party members would certainly have dropped sharply. In this way, the U.S. hindered a double election. The LDP’s victory was assured in the House of Councillors, but it would not have gained the two thirds of seats needed for constitutional reform.
 I am apprehensive that, in the future, the media will stir people up to gather forces who are against nuclear power, for protecting the constitution, and have pro-China views, centered on the opposition parties. One portion of the LDP might agree, a second conservative party might be formed, and a trend might be created of aiming for a two-party system once again.
 The U.S. does not want to destroy the framework of victorious and defeated nations from World War II, so it does not allow revisions of history. If Japan does not break free from the yoke of the Tokyo Trials historical view, Japan will always remain a partial “colony” of the U.S. If it is difficult to have forces in favor of constitutional change occupy two third of the seats, then the public opinion in favor of constitutional change ? which is currently 50% ? should be raised to two thirds. Afterwards, the current constitution should be annulled with the support of a majority of Diet members and based on this public opinion. We should then establish an independent constitution.
 I recently visited the Philippines on a joint APA Group study tour with the Shoheijuku and APA Corporate Club. There, I was reunited with my friend Jose de Venecia, Jr. I held a special dialogue with de Venecia, who was speaker of the Philippine House of Representatives and ruling party president at that time, 11 years ago in the November 2002 issue of Apple Town. He is also friendly with the Aquino family, and is a talented man who is a perfect kingmaker. When I re-read the content of our dialogue, it still applies fully today, such as the need to construct a security guarantee structure throughout all of Asia. The title of my essay in the same issue was, “The U.S. Army Heads Down the Path Towards Unipolar Domination.” It ended with the following text:
 It is essential to make efforts for peace and prosperity in Asia by constructing a national strategy; abolishing the current constitution; establishing a new, independent constitution; joining hands with Taiwan and Korea; creating a collective security structure; strengthening cooperation with the superpower of the U.S.; and accomplishing a soft landing for China ? a dictatorship ruled by the Communist Party ? to become a democratic nation.
 Looking back, I have consistently asserted my views by publishing essays in Apple Town for 21 years. Over the past five years I have held the “True Interpretations of Modern History” essay contest, and I have expanded the Shoheijuku school ? which was started in Tokyo two years ago ? to Kanazawa and Osaka. I am confident that these efforts have served as a driving force to create the current Abe administration.
 I was recently given a copy of The Invasion of MacArthur by Toshio Nishi, a professor at Stanford University’s Hoover Institution, which I read. It was a wonderful book based on primary sources. I would like to end my essay by summarizing this explosive book, which says that Douglas MacArthur’s occupation policies still bind Japan today.
 Japan’s traditional culture has been deeply cultivated due to its long history. These refined aesthetic tastes are worthy of pride across the world.
The American government spread rumors among the American people and throughout the world that war was started between Japan and the U.S. because Japan had invaded the Korean Peninsula and Asian continent. But if you look at a map of the world, it is evident which countries had advanced into Asia. Japan had not moved into the American or European continent. Japan had become a nuisance to the U.S. in Asia, so the U.S. made unreasonable demands to place Japan in a predicament. Japan had no way to survive except by fighting to defend itself. The U.S. drew Japan into a war it was assured of winning, and defeated Japan thoroughly. It killed many Japanese soldiers and citizens, who had used up all their strength. Even after the outcome of the war was decided, the U.S. dropped two atomic bombs on Japan to slaughter massive numbers of people. Underneath the occupation, the Supreme Commander for the Allied Powers (GHQ) used self-righteous words, saying it would change the insanely militaristic country of Japan into a democratic, peace-loving nation. But Japan, a country with a wonderful culture and long history, was forcefully Americanized through military power.
It was not difficult for the defeated Japan to be immobilized under the rule of the U.S. However, the U.S. was afraid that Japan would become an even stronger nation if the Japanese citizens recovered from the tragedy, overcame the humiliation of occupation, and successfully restored the country. Through the war, the U.S. had learned that the Japanese people were an ethnic group with a terrifying amount of pride. The U.S. thought that Japan would work for revenge if it became a strong country once again. To that end, it forced a new constitution ? the most important result of occupation ? in exchange for the emperor’s life. It used the word “peace” with the Japanese people that were in a state of mental numbness after the war defeat. Sweet words were used to draw out “patriotism” and “pride,” which was then strangled by MacArthur’s bare hands. The corpse of this was Article 9.
 I will continue devoting myself to fighting, with the aim of reviving Japan as a country worthy of pride.

11:50 a.m., July 19, 2013 (Friday)