COVER STORY • 1

Roundtable with Prof. Naoyuki Yoshino, Prof. Mariko Watanabe, Prof. Shujiro Urata & Masakazu
ToyodaK

ey Strategies for Raising Sustainabilityof Asian Economic Growth in the Ageof a Disrupted World Economy

By Japan SPOTLIGHT
Prof. Naoyuki Yoshino, professor emeritus at Keio University
Prof. Mariko Watanabe, professor at Gakushuin University
Prof. Shujiro Urata, professor emeritus at Waseda University
Moderator: Masakazu Toyoda, chairman & CEO of the Japan Economic Foundation (JEF)(Roundtable on Sept. 4, 2023)
ParticipantsProf. Naoyuki Yoshino

Prof. Mariko Watanabe

World Economic Outlook
Toyoda: The Covid pandemic that has damaged the world economy
and human life so deeply seems to be calming down today, andexpectations are high for the global economy to recover. But given
the rise in fuel and food prices as a result of the Ukraine war, major
economies’ tightening monetary policy to curb inflation and the
difficulties of the Chinese economy, most economists predict only
modest growth for the world economy. According to the IMF World
Economic Outlook published in July 2023, global growth is predicted
to be around 3% both in 2023 and 2024. Since its average annual
growth rate from 2000 until 2019 was 3.8%, this predicted growthindicates a considerable slowdown.
Meanwhile, expectations are focused on Asia. Looking at China,
the ASEAN5 (Indonesia, Malaysia, the Philippines, Thailand andSingapore) and India, high economic growth is to be seen in India,
China and ASEAN, in that order. Earlier this year, JEF completed
research in collaboration with ERIA on “Asia-wide industrial policy”
and METI published a White Paper on International Economy &https://www.jef.or.jp/journal/

Prof. Shujiro Urata

Masakazu Toyoda

Trade 2023 in June. On both research outcomes, I would like to raise
the following three issues for discussion.
First, on the issue of what the White Paper pointed out, namely,“the world is in transition to the age of disruption from the age ofharmony achieved by free trade”, what must Japan do as a nationthat has been pursuing trade liberalization?
Secondly, on the question of declining Chinese economic growth,
why is this happening and how serious is it?
And thirdly, what should Japan do to achieve resilience in global
supply chains against the background of rising geopolitical risks? Is
it reshoring or building up an Asia-wide supply chain throughstrengthened relations with ASEAN or India?
We have three distinguished Japanese economists for these
discussions. Prof. Naoyuki Yoshino is a professor emeritus at Keio
University, knowledgeable on the structural economic issues of the
global economy. Prof. Mariko Watanabe is a professor at Gakushuin
University, an expert on the Asian economy including China. And
Prof. Shujiro Urata is a professor emeritus at Waseda University, aleading economist in Japan on issues of the international economy
Japan SPOTLIGHT • November / December 2023

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including the WTO.
First, on the question of “transition to disruption”, the White Paper
pointed out that we are entering an age where geopolitical risks andeconomic security risks are prevalent. In general, its background is
the confrontation between the West and China, and also Russia, as
revealed by the Ukraine crisis. In addition, the Global South,
supporting neither of them, makes this situation more complex.
Prof. Yoshino, could you please express your view first on thecurrent world economy and the role of Japan?
Yoshino: I think this White Paper covers all the key issues. One is
the issue of restructuring of accumulated debt following a series offiscal stimulus steps to cope with the pandemic. Global climatechange, the rapid depreciation of the yen, whether temporary or
structural, the direction of FDI and domestic investment, SMEs andstart-ups, as well as the need to accept skilled foreign labor – all are
mentioned in this White Paper. It is a very comprehensive andextremely good paper.
Among these issues, I would like to mention inflation in Japan,caused by rising oil and food prices, and touch upon the role ofJapan in the world economy from my standpoint. Monetary policy inordinary times is not effective in curbing inflation caused by rising
import prices. This is because monetary policy in general is expected
to control aggregate demand but the current inflation comes fromthe shock to aggregate supply. The best policy to deal with this is toraise aggregate supply by boosting total factor productivity. One big
issue, in this regard, is why productivity growth or technologicalinnovation encouraging it has been stagnant this past decade.
In Japan, where we face the challenge of an aging society, I
believe we will need more labor participation by elderly people fromnow on. So we should promote innovation such as robots that can
assist these older people in their labor participation. With nations
such as South Korea, China, and Thailand in Asia and also theEuropean Union where societies are rapidly aging, these robots
would constitute a large export industry for Japan.
Secondly, I noted two points on my first visit to Southeast Asia in
1984 that indicated Japan’s supremacy in Asia. One was that, withfour distinct seasons each year, Japan has a more favorable climate
than any nation in Southeast Asia and this produces a greater
working efficiency. The other was that, having visited libraries inuniversities in Southeast Asia, I found there were more books inJapanese university libraries than in Southeast Asian ones, where I
found very few good books. So these things convinced me thatJapan would never be surpassed by any Asian nation.
However, at this moment, with well-developed air conditioning andthe Internet, all Asian people, if they understand English, can accessa wide range of references without visiting a library. They can study
or work almost anywhere in more comfortable circumstances, and I
4 Japan SPOTLIGHT • November / December 2023

think this is how Asian learning standards are rising. Also, there aremany people with English abilities in places such as Singapore andMalaysia. The key to winning the competition in Asia is how rapidly
people can understand English references, and it will be crucial, in
this light, for Japan to maintain its educational standards.
Next, I think the weak yen will continue in the long run as astructural phenomenon. This will favor Japanese exports, but
exports in quantity will not increase very much, since many Japanesefirms have already shifted their production bases overseas. In termsof imports, the weak yen triggers inflation in the nation, but forforeign tourists, the cost of Japanese goods will drop and so themerits of tourism in Japan would rise.
Finally, on the future of the Chinese economy, the strength of
China’s economy has come from controlled exchange rates to someextent, and that enabled China to sustain global export bases. But
with the gradual liberalization of capital transfers, it seems to begetting more difficult for China to control its exchange rate. I
mentioned in May 2019, in an article in a Hong Kong journal, that
Chinese real estate prices had reached a bubble in terms of Chinese
economic indicators. I mentioned the same thing in NHK WorldNews highlights. In response, many Chinese said that the Japanese
bubble economy was born after the end of the High Growth Era butthat Chinese real estate price rises were not the outcome of a bubble
economy as the Chinese economy was still in the midst of growth.
But I believe that excessive investment in real estate seriously
affects China’s local public finances. The reason is that Chinese local
governments with small tax revenues maintain their revenues by
selling land owned by the public sector. So Chinese local publicfinances are now facing a challenge.
Toyoda: The next question is for Prof. Watanabe. On the issue of
their relations with the Chinese economy, G7 leaders discussed
whether they should pursue decoupling or de-risking. Eventually theyagreed on de-risking as proposed by the European nations. The
White Paper made an analysis on this question with two scenarios.
The first one involved 100% tariffs set mutually and non-tariffbarriers, and that probably indicated decoupling, and the second one
showed a division of the economies like the US-China trade war,seeming to imply de-risking. It warns that the first case’s impact on
the world economy is considered to be a negative 7.9% and thesecond one’s is a negative 2.3%. I think it would like to say that theconfrontation between the United States and China would result in
no benefit to any country. However, if China attempts to reunite with
Taiwan by military force, I am afraid we will have to go in the
direction of decoupling. What do you think about the future of ChinaTaiwan relations and their economic impact?
Watanabe: If decoupling truly happens, there would undoubtedly besignificant economic damage to Chinese and the world economy. As
Prof. Yoshino mentioned, what the world economy is facing is
nothing but a supply-side shock. Decoupling of supply chains forpolitical interests would exacerbate this shock. So by looking at
China’s policy stance carefully and addressing its challenges
correctly, pursuing de-risking is needed. And the most crucial targetof de-risking must be to raise to the maximum the cost of enforcing
any change in the current situation through military force. The
greater the economic benefits of maintaining a peaceful status quo,
the bigger the lost benefits by military action would be, and theselost benefits would be the cost of military action.
In the case of Russia, it was originally reluctant to join
globalization through manufacturing and it adopted a development
strategy based on exporting commodities, and thus this opportunity
cost was low and it decided to launch a military invasion.
International trade rules have been constructed to manage andsecure the cost of divergence from globalization. So it is necessary
to use these rules at this moment. However, the existing rules are
not well prepared for dealing with authoritarian nations’ policies orbusiness customs different from the free and democratic nations andso it will be necessary to upgrade them.
We often see the “Taiwan Crisis” mentioned in the media now.
China and Taiwan have been claiming sovereignty over the island foralmost 70 years, during which time there has been permanent
military tension between them. This tension is the basis of the“crisis” and we should take good note that any Chinese action toreunite with Taiwan through military force could topple the global
economy, not just those of Taiwan and Japan. In such an event,many of the industries in Taiwan would move to the US, and I think it
would be Japan that would be in the biggest trouble. In order tomake this difficult to happen, I think it will be necessary to maximize
the costs to China of any military action through rules anddisciplines.
What are these points of discipline? The issues of state-owned
companies or industrial policies are often mentioned with regard to
China. I think we should set up international rules to tackle a type ofindustrial policy that allows some countries to monopolize profits
unilaterally. Additionally, we should have rules that ensure thegrowing benefits are commonly shared by all players. While the US
opposes this, I think Japan, the Global South or the EU can supportit.
Meanwhile, a more critical issue in current rule-making is that
there is no clear rule on how to define the exceptions to free-trade
rules for a reason of national security. Russia, for example, showed
no concern for rules when it launched its military invasion of
Ukraine.
The CPTPP, which China has formally applied to join, has anarticle on the national security exceptions that says an exception isendorsed only after a convincing explanation to the members is
accepted by them. On the other hand, the RCEP, of which China is amember, says that exceptions for national security can be left to any
member’s own interpretation, effectively meaning that, in the RCEP,
there is no rule on exceptions for national security.
Toyoda: The White Paper mentions that historical experience tells usthat every 20 years free trade and protectionism emerge in turn.
Prof. Urata, what do you think about this observation? If it is so, I
believe we should keep supporting free trade as much as possible
even though at this moment protectionism is temporarily dominating
the world. What do you think we should advise the Japanese
government to do with regard to policy? And could you also give
your view on the role of Japan in promoting the CPTPP or RCEP, oreven the restoration of the WTO dispute settlement mechanism?
Urata: I roughly agree with the idea that free trade and protectionism
emerge in turn every 20 years, but we need to clarify whether it isexactly 20 years or not. Looking at the history of the 20th century,
which began with free trade, World War I and the Great Depression
followed it and caused significant damage to the world economy, andthen protectionism took hold. This was then followed by World War
II. Drawing lessons from the negative impact of protectionism, theGeneral Agreement on Tariffs and Trade (GATT) was established andtrade liberalization began. This resulted in expanded global trade andrapid growth of the world economy. Even though there were somecountries that adopted protectionist policies, such as importsubstitution policies, in general trade liberalization was further
promoted during this period.
This trade liberalization trend was then drastically changed withthe global financial crisis in 2007. To counter the damage caused bythis crisis, nations took policies to protect their own economies andindustries. Now the US-China confrontation, the Covid pandemic andRussia’s military invasion of Ukraine have all followed and theuncertainty of the business and economic environment has
increased significantly. Many countries have been taking
protectionist policies to cope with this situation. This is largely what
has been happening recently.
To achieve stable growth of the world economy, expanded tradeand investment must play a key role. To achieve expanded trade andinvestment, it is crucial to minimize the uncertainty surrounding
them, and for this purpose it is important to build up a rules-based
trade and investment system and take full advantage of it.
On the question of the role of Japan in this regard, it is true thatJapan recently joined the Multi-Party Interim Appeal Arbitration
Arrangement (MPIA), an attempt to replace the WTO disputesettlement mechanism which has not been functioning for a while.
But Japan did not join this at the early stage when it was establishedJapan SPOTLIGHT • November / December 2023

5

by the EU, Canada, Australia and others. It was only in March 2023
that Japan joined it after many arguments. I believe that Japan
should have not only collaborated with the EU and others and joinedat the early stage but should also have achieved a leading role increating this mechanism.
Among the many challenges faced by the WTO, besides disputesettlement, is the delayed build-up of trade rules and tradeliberalization. There have been arguments about the creation ofplurilateral trade agreements in specific areas like digital trade,investment facilitation, and micro, small and medium-sizedenterprises (MSMEs), and I think Japan should be playing a role inleading these arguments. Furthermore, assuming that the CPTPP
and RCEP play a key role in trade liberalization and the creation of
trade rules, Japan should endeavor to help increase the members of
those FTAs.
On the question of China’s joining the CPTPP, Japan should bepositive in accepting its membership. Having said this, China’s
membership must be approved only if the requirements imposed by
the CPTPP are met by China; otherwise, it will be consideredpremature if the conditions are not fulfilled.

Current Chinese Economy Development
Toyoda: Our second issue for discussion is the current state of theChinese economy. Prof. Watanabe, it is often said these days that
China suffers from the “Japanese disease”, judging from its realestate recession, high youth unemployment, stagnant consumption
growth, and so on, all leading to deflation. What do you think about
this? What are the reasons for this stagnation and what is theoutlook for the future Chinese economy?
Watanabe: I visited China in July 2023 after a long absence. Many
people said the economy was malfunctioning, and many businessactivities had completely stopped due to the long lockdown from thepandemic. Around December 2022, the economy opened up again
but failed to achieve an explosive restoration. This was largely due tosmaller growth in domestic consumption as well as lower external
demand than expected, implying that the economy had not yet
recovered from the pandemic’s impact. But more fundamentally, I
think there has been a significant rise in uncertainty about domestic
policies and this has been a body blow to the economy.
The low GDP growth rate, high youth unemployment and thepossible bursting of the real estate bubble could be caused not onlyby the failure to reach a full restoration from the pandemic but also
by individual policy mistakes. Youth unemployment has increased
due to restrictive rules on digital companies.
Real estate works in China as a substitute for social security andpeople own real estate for survival. If people become unemployed,
6 Japan SPOTLIGHT • November / December 2023

their livelihood is less damaged if they own real estate. So everyone
is working with the aim of buying property and suffers from realestate prices declining, everyone ranging from the communist
party’s leaders to ordinary people. The ratio of loans in stock to total
GDP reached nearly 250%, exceeding the level in the Japanese
bubble economy. To deal with this, the central government has
provided limits to tighten credit for property purchases to avoid the
bubble bursting, and this policy has resulted in a great shock all
across the nation. It has not only damaged the revenues of realestate companies but has also negatively affected the banking
sector’s credit policies, as well as the steel industry as the main
supplier of construction materials.
The people’s confidence in the future and in government policies
has shrunk. I think we can say that this situation is a result of theless careful policies of those in power to deal with the bubble
economy. In addition, the US and European economies are not yet infull recovery, and so opening up the country will not lead to anincrease in exports. The US-China confrontation could be working
negatively for the economy, but more than that, the world economy
is not in good shape and will basically prevent Chinese exports fromgrowing quickly. I think this is why the Chinese economy isinevitably in bad shape now.
In 2024, the US and European economies will pick up to a certain
extent and Chinese exports will pick up accordingly, so the Chinese
economy should get better on the surface in 2024. But the more
fundamental issue is the rapidly falling trust of the people and theprivate sector which has promoted innovation in government
policies. The current Chinese leaders prioritized dealing with politicalstruggles among themselves over economic policies before thereplacement of the administration’s leading members was fullycompleted in 2022.
Getting into 2023, the Chinese leaders communicated with foreignsubsidiaries and private businesses in an effort to restore trust.
Digital companies with great power and the seeds of innovation
would have been the sources of success for the Chinese economy
and they may still work well to maintain the economy, but there isenormous distrust among the people toward the government. I think
this makes for a negative force against the economy.
Toyoda: According to the White Paper, the country that Japanesecompanies consider increasingly risky is China. Prof. Urata, do you
think rising geopolitical and economic security risks are a cause for
the Chinese economy’s stagnancy? And why do you think Indian
economic growth is higher than that of China or ASEAN, even though
it has not joined RCEP?
Urata: China’s economic problem has been largely caused by realestate depression, at least on the surface. But I believe that stagnant

inward FDI in China due to the US-China confrontation is anotherreason. A growing number of foreign companies have started
investing in ASEAN rather than in China because of the highgeopolitical risks.
On the question of India, its economy has been experiencing highgrowth and I think there are several reasons. From a short-term
perspective, recovery from the pandemic unleashed pent-up
demand, activating private consumption and eventually private
investment. This is the principal reason for current high economic
growth. From a longer-run perspective, the demographic situation
with a growing younger population, structural economic reforms anddigitalization bode well for the future. A rise in the ratio of theworking-age population to the total raises economic growth, and in
the case of India both the working-age population and the ratio to thetotal are increasing. According to a UN estimate, India’s working-age
population will peak in 2044 and the ratio to the total will peak in
2029, so in terms of demography India’s high growth will continue
for some while.
Incidentally, China’s working-age population peaked in 2011 andits ratio to the total peaked in 2007. So demography will play a keyrole in the economic growth of both India and China.
In India, a number of economic reforms have been implemented
by the administration of Prime Minister Narendra Modi. The mostimportant one was the introduction of a common tax on goods andservices all over the nation in 2017. Up until then, the tax on goods
and services had varied from state to state. This tax reform hashelped to greatly improve the business environment and shows that
economic system reform can encourage growth.
Digitalization is another factor behind India’s economic growth.
Modi implemented a “digital India” initiative – a policy to drive
digitalization of the Indian economy – and this resulted in turning
informal sectors with significant weight in the economy into formal
ones. In particular, financial digitalization has made rapid progress,
and that has encouraged a variety of business transactions to beformalized.
A specific example of this digitalization is the introduction of theUnited Payments Interface (UPI) which has dramatically activated theeconomy. UPI provides many private businesses with electronic
settlement services and promotes cashless transactions. It also
makes it possible to have immediate transfers among bank accounts
by smartphones. It makes it easy to pay for shopping with QR codes.
Personal consumption and private investment have both expandedwith the introduction of this system. The development and practiceof UPI has not been achieved yet on such a large scale in developed
nations, but India, a developing nation, has implemented this policy
to maximize the use of new technology. I think that such economic
policy outcomes have made the outlook for the Indian economy very
positive.

Toyoda: There seem to be a growing number of economists sayingthat Chinese GDP cannot overtake the US one, or even if that
happens it would be temporary. I think there are two possibilities:
one is that Chinese global hegemony is achieved 20 years from now,and the other is that Chinese hegemony is not achieved but the US
and its allies establish joint hegemony. This came to my mind inreading the White Paper’s observation that the ages of free trade andof protectionism alternate. Prof. Yoshino, what do you think about
these possibilities?
Yoshino: China has been growing with communism driving politics
and the market economy driving the economy. If the power ofcommunism becomes too great, the market economy will stagnate
under this political influence. Unless China achieves a balance
between the two, it could fail to achieve real high economic growth,though it could achieve growth to some extent. Russia’s case is, I
believe, a good example. In either China or Russia, if private
businesses cannot work well, they would move to other nations. So
it is possible that the liberalization of the market economy in China
could face a turning point under the current political system.
Another point to be noted is that the Chinese economy’s strength
comes from the government’s control over exchange rates. With thisgrip on capital movements, China can monitor the flows of funds
through all the financial institutions. This means that it can regulate
capital movements and continue to control exchange rates. This is
the source of China’s strength. So another key issue is whether
China can continue to control exchange rates while allowing capital
liberalization to a certain extent. If China’s exchange rate control
which also leads to control of exports and imports is gradually
weakened, it would weaken the Chinese economy as well. I think inthis light it may be difficult for China to continue to expand very
considerably. But I do think it will maintain the strength to transplantother nations’ industries or technologies to itself.
Finally on the question of real estate, there are three indicators
telling us whether the economy is facing a bubble and I think all
three show that in China a bubble economy is emerging. The first is
the ratio of loans for real estate construction business to the total.
This has been significantly increasing recently.
The second is an indicator calculated by dividing house prices byincome. Though some IT companies can afford to buy housing evenat high prices with their growing revenues, people on average
incomes cannot buy real estate, as this indicator is growing too
much.
The third one is the ratio of the rate of increase in loans for realestate construction to the GDP growth rate, and this too has been
rising these past few years in China.
An additional challenge stemming from all this is the impact on
local governments’ public finances. The fiscal situation of local
Japan SPOTLIGHT • November / December 2023

7

Chinese governments has been in good health in spite of their small
tax revenues because they can gain further revenues by selling theirowned real estate. From now on, however, they will need income
from the central government to cope with the depression in realestate. This would negatively affect the whole nation’s publicfinances.
With regard to India, I think it could achieve robust growth if allgoes well. First, digitalization is making progress all over the nation.
Until several years ago, broadband networks were only available inlarge cities, but now the government is trying to introduce them tolocal regions.
Second, their local economies have started growing little by little
with such digitalization, realizing sales and promotion of a variety ofgoods and services through the Internet. And third, there are Indian
Institutes of Technology (IITs) in each region. These have produced
extremely talented engineers. There is an increasing number of highskilled human resources in India, and in this light, I think it would berather difficult for China to achieve total hegemony.

Asia-Wide Industrial Policy
Toyoda: There is a debate today about Asia-wide industrial policy orpolicies to strengthen the resilience of supply chains. According to
the White Paper, Japanese companies consider ASEAN5 or ASEAN6
the most important venues for their FDI and their expectation about
India is also rising. Meanwhile, their expectation about China seems
to be decreasing. At JEF, we have been collaborating with ERIA inworking on research on “Asia-wide industrial policy” since 2022 andfound these nations engaged in “Digitalization”, “Supporting startups” and “Decarbonization of the economy” extremely ambitious,and their policies would be useful for Japan to learn as well. Prof.
Urata, can we expect ASEAN or India to be a good partner for Japan,
and can they be considered a crucial part of a stable supply chain forJapan? What should Japan do to strengthen the resilience of supply
chains?
Urata: It is certainly true that India is becoming increasingly popular
as a destination for Japanese companies’ FDI. According to a survey
by the Japan Bank for International Cooperation (JBIC) of Japanesecompanies in summer 2022, the largest number of firms chose India
as the most promising destination for their FDI over the next three
years, while China was the second largest. The third was the US.
This means that although its attractiveness is less than before, China
is still considered one of the most promising destinations forJapanese FDI.
Among the top 10 nations in this survey, five ASEAN countries
were included. Vietnam was fourth, Thailand was fifth, Indonesia
sixth, Malaysia seventh and the Philippines eighth. We can see from
8 Japan SPOTLIGHT • November / December 2023

this survey that India and ASEAN are attractive venues for Japanesecompanies, and the main reason is their market’s growth potential.
Having participated in JEF-ERIA joint research as well, what
impressed me most was that ASEAN and India have made enormous
efforts to promote a digital economy. Digitalization of the financial
sector is also making progress in ASEAN. In starting up businesses,
they progressively use a digitalized financial sector for their funding.
Traditional financial institutions have not been very well developed inthese countries, and this has facilitated the creation of a new
business system and environment, contrary to what is commonly
believed.
It is also true that many ASEAN nations such as its founding
members like Indonesia, Malaysia, the Philippines, Singapore,
Thailand and one of the latecomers, Vietnam, have been integrated
into not only Japanese companies’ supply chains but also those ofmany other nations around the world. Unlike these ASEAN nations,India is not sufficiently involved in supply chains. One of the reasonsis that it still continues with protectionist policies. These delays inopening up trade while attracting FDI make for inconsistent policies,
and seem to make it difficult for India to be integrated into supply
chains.
To enhance the resilience of supply chains, I think technologicalsupport from Japanese subsidiaries for the host country’s
companies to improve their competency or human resource
development would be very important. The Japanese government’s
official development assistance (ODA) would also be helpful inachieving this objective.
Toyoda: What do you think about the future potential of ASEAN5 or
ASEAN6 and India in addition to China, Prof. Yoshino, as a former
president of the ADB Research Institute? India is not a member ofthe RCEP, so could this be negative for India’s competitiveness?
Yoshino: The Indian economy’s connection with the rest of the Asia
is becoming much stronger. In particular, relations between
Singapore and India have been greatly strengthened. There are threemain ethnic groups in Singapore – Indians, Malays and Chinese –and the Indian group is contributing to stronger ASEAN-India
relations. The people in this Indians group are competent inmathematics and are becoming prominent in the IT sector.
In the area of trade, since ancient times in Africa, Indians havebeen working on intermediary trade and this tradition is still
contributing to a variety of relations among Asia, Africa and India.
I believe that the keys to achieving closer relations between Japanand India or ASEAN in the future are in areas like SME finance,
infrastructure and telecommunications. Japanese SME finance orstart-up finance could be used in this regard. In particular, inselecting finance for SMEs in developing nations like India, the Credit

Risk Database (CRD) Association collects data and calculates theprobability of bankruptcy based on it and uses it to selectdestinations for finance. This business model of financing SMEs withhigh growth potential based on data analysis using a scoring model
supported by daily business data has been used uniquely by Japan.
The CRD Association has concluded an agreement with thePhilippines and now the Philippines has also started a scoring model
for financing SMEs. This Japanese method of SME data analysis
could be a kind of know-how for use across Asia, including India andSoutheast Asia.
On start-up finance, what we call crowd funding has begun inVietnam, the Philippines and Mongolia. Funding availability for startup businesses in the banking sector is particularly limited, so
encouraging their growth with crowd funding instead in local areas
would be one possible funding method to be used in India and
ASEAN.
Toyoda: India, ASEAN5 or ASEAN6 are nations of the Global Southand could strengthen their political influence in the world as a groupby maintaining neutrality in the confrontations between the US,
Europe and China, Russia. Prof. Watanabe, what do you think would
be the international political or economic implications of Japanesecompanies’ developing supply chains among Asian Global Southnations? Could Japan work as a bridge between the Global Southand the US and Europe?
Watanabe: For the past two decades, Japan has expanded its supply
chains of several industries such as textiles and electronics acrosscountries, creating jobs and benefiting both Japan and the hostnations. This success was due to stable trade rules, including
consistent tariffs and transaction regulations, even when production
moved overseas. For example, the electronics sector enjoys zero
tariffs. These trade practices have been highly beneficial for the
Global South, and extensive data analysis supports this. As theEuropean Union and Japan hold significant negotiating leverageagainst China and the US, they can enhance trade and investment
rules to ensure stability amid growing geopolitical risks. This canbenefit the Global South and is one way Japan can support Asian
economic growth.
It is also important for Japan to support the Global South nations
by making their industrial structure more progressive with higher
value-added. Specifically, with the rise of technology focusing on
digitalization, Japan should support these nations in this transition.
Additionally, policies should be implemented to promote a data
market after the initial push for digital technology. Currently, data is
dominated by platform giants like Google and Microsoft. By
establishing a data market, small and medium-sized enterprises(SMEs) can access the data they need. The World Development

Report 2021 by the World Bank emphasized the significance of dataand its governing institutions for everyone’s better livelihood. The
report highlighted the nature of data as goods, and that its value isrealized only through use, making it hard to treat like typical market
goods. This uniqueness, combined with its non-standardized nature,suggests that establishing a data market is challenging.
However, China is attempting just that. A major focus of China’s
14th Five-Year Economic Policy Plan in 2021 was to develop a data
market. The Chinese Communist Party aims to disrupt datamonopolies held by tech giants like Alibaba and Tencent, enabling
SMEs to access this data. Their approach involves setting data
standards and evaluating data based on these standards, hoping this
could lead to manageable pricing. If successful, China’s standards
might become the global norm for data transactions.
Introducing a workable set-up for a data market would greatly
benefit ASEAN SMEs, using these standards as a valuable reference.
Therefore, as digitalization surges, we need a policy framework
guiding its rules. This would be advantageous for both Japan and the
Global South.
Toyoda: Wouldn’t encouraging data distribution contradict
protection of private information? Developed nations, in particular
Japan, tend to be very concerned about privacy protection, which
does seem to discourage data distribution.
Watanabe: In China, the framework for the protection of personal
data is now well-established. The effectiveness of this system hinges
on the enforcement of various laws. Transferring data from China toanother country requires strict adherence to privacy protection, withlegal penalties for non-compliance. The Chinese public’s awarenessof this issue has significantly increased, making it nearly impossible
to conduct data transactions without privacy safeguards. In my
opinion, the overall structure of privacy protection in China iscomparable to that of developed countries now, except for the
inappropriately wide range of potential state intervention. This
exception would become a focus of tension between someauthoritarian countries including China and countries underdemocracy and constitutions.

Final Remarks
Toyoda: Could all of you please give us your final remarks on themain theme of raising the Asian economy’s sustainability indevelopment? If possible, any remarks on the CPTPP would beappreciated.
Yoshino: Japanese companies or research institutes should now
purchase a wide range of data on finance for their analysis. They
Japan SPOTLIGHT • November / December 2023

9

have to buy software for analysis from other countries. Japan seems
to be considerably behind the rest of the world in the area of dataand software for analysis. However, as I have said, in the area offinance for SMEs I believe that we Japanese can support India and
ASEAN in the analytical methods for a host country’s business data.
The aging population in Asia provides another main stream of
economic development. South Korea, Thailand and Vietnam are all
moving towards aging societies, as well as Japan. If Japan canpromote development of robots and other tools to help elderly
people continue to work, these products would become a large
Japanese exporting industry to India and ASEAN.
Japan can also continue to support India and ASEAN in
accommodation of telecommunication infrastructures. It is only
Japan that provides training for the engineers working on
maintenance and repair of these infrastructures in addition to
support for their construction. High-quality infrastructuredevelopment, particularly in the field of nationwide
telecommunication networks, would make it possible for India and
ASEAN to achieve sustainable growth. With Japan’s support for
telecommunications, farmers could sell their food products throughthe Internet and with developed transportation infrastructures thesmooth movement of goods and people could be achieved. So I
believe that people living in local areas in India and ASEAN will
become richer and this would lead to political stability and enable
governments to achieve long-term economic policies.
Watanabe: Japan should confidently voice its concerns to China.
While smaller countries might not be able to do so, Japan has thecapacity to both challenge and address unilateral actions byauthoritarian nations that act non-cooperatively. It’s vital for Japan to
defend and enhance the international order. Japan should nothesitate to invest time and effort into this crucial role. The EU andJapan stand in a similar position in terms of relations with China andthe US. Europeans are more experienced in the prevailing rules, but
their knowledge about China is perhaps limited and they are not as
close as Japan to the geopolitics of Asia. So I think Japan has to act
to maintain a rules-based international order while considering
effective ways to speak to China.
Both the EU and Japan have comparable stances concerning theirrelations with China and the US. While Europeans might have a
deeper understanding of the prevailing rules, their knowledge about
China and proximity to Asian geopolitics might not match Japan’s.
Therefore, Japan should lead in upholding a rules-based international
order and find effective ways to communicate with China.
Regarding the treated wastewater from the Fukushima nuclear
plant, China appears to be using it as a tool for economic coercion.
Japan should explicitly state that China isn’t adhering to the rules inthis matter. China is responsible to show the scientific evidence on
10 Japan SPOTLIGHT • November / December 2023

the (potential) contamination of marine products if it would ban on
importing Japanese marine products. Japan should swiftly address
this infringement. By outlining what’'s permissible underinternational standards, Japan needs to demonstrate its commitment
to voicing concerns about such issues consistently.
Urata: India-Japan relations are not very well developed compared to
ASEAN-Japan. In order to make relations with both India and ASEAN
mutually beneficial, Japan must help these nations, mostly in “themiddle-income trap”, to become high-income nations with enhanced
competitiveness or productivity. Specifically, they need humanresource development and improvement of institutions such as legal
and education systems. Japan can contribute to their development inthis regard. Japan should do it with like-minded nations such as the
US, Australia, Singapore and European countries.
On the issue of human resource development, we should increase
the number of students coming from India to Japan, since there are
only around 500 currently, compared to many more from Nepal.
There are also few students from Japan going to India. I think thatdeepening the relations between Indian and Japanese universities
would contribute to the further progress of the bilateral relations.
On the question of FTAs, the RCEP and CPTPP have now been
ratified by all the member countries and are functioning. I think it
important to monitor them to see whether each member nation’scommitments are being fully implemented and the accepted rules arebeing followed. To achieve these objectives, FTAs’ secretariats play
an effective role. I would like Japan to take more positive action toestablish these secretariats as a country that made a great
contribution to the conclusion of the agreements. The economic
benefits of these FTAs will increase as the number of member
nations grows, and Japan should play an active role in expanding
their membership.
Toyoda: Japan’s relations with ASEAN and India are very important,as well as relations with China. We should spare no effort to create aworld that benefits Japan and all Asian nations.

Written and translated by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT,
with the cooperation of Tape Rewrite Co.