Asia is all business while the West figures what to do

Philippine President Rodrigo Duterte (R) and Japanese Prime Minister Shinzo Abe (L) raise a toast during a state dinner at the Malacanang Presidential Palace in Manila on January 12, 2017.
Francis R. Malasig | AFP | Getty Images
Philippine President Rodrigo Duterte (R) and Japanese Prime Minister Shinzo Abe (L) raise a toast during a state dinner at the Malacanang Presidential Palace in Manila on January 12, 2017.

It was a sight to behold: A scion of one of Japan's distinguished political families, and the country's current prime minister, having a breakfast last Friday of bean soup and rice cakes in Davao at a modest private residence, mosquito nets and all, of the Filipino president.

That was a strong sign of bonding, after a state dinner the previous evening at the Malacañang presidential palace in Manila, where President Rodrigo Duterte told the Prime Minister Shinzo Abe that "Japan is a friend closer than a brother. That means that Japan is a friend unlike any other."

Japan indeed is an old friend; it remains the largest provider of aid to Manila, one of the biggest sources of (Filipino) worker remittances and a destination of $2 billion of Japan's foreign direct investments in the first nine months of last year. That is nearly a 50 percent increase compared with Japanese direct investments in the Philippines for all of 2015.

Mr. Abe also came with another package of almost $9 billion in aid and investments.

Japan needs Asia to grow

Apart from Japan's readiness to help its Asian neighbor, these investments make sense for a country that has to recycle some $200 billion in trade surpluses accumulated in the course of last year. That is the way Japan will expand its export markets in the fastest growing (7.1 percent in the third quarter of last year) East Asian economy, with more than 100 million consumers and an average annual population growth of 2 percent.

At the moment, Japan is refocusing on Asia. The next Asian stops on Mr. Abe's tour are Indonesia and Vietnam, also fast-growing markets with strong consumer demand from a young and rapidly growing population.

This strategy should help Japan to reinforce its traditional export-driven economic growth at the time when sluggish economies and restrictive trade policies in Europe and in the United States are limiting the sales potential of Japanese industries. But a major effort will be needed to reverse Japan's shrinking shares of Asian business.

Japan's exports to Asia -- representing 52 percent of the total – are not doing well. In the first 11 months of last year, they fell at an annual rate of 10 percent, after a sluggish 2.1 percent increase in 2015 as a whole. That is depressing the rest of the economic activity, in spite of huge supplies of free money, because the Japanese growth model does not work with falling exports. Rising overseas sales are necessary to drive business investments, employment growth, labor compensations and consumer spending. Without that, the economy is stagnating, as was the case with a 0.6 percent growth in the first three quarters of this year.

Those in and outside Japan egging Tokyo to compete with China should be supporting Mr. Abe's apparent intent to latch on to China, and the rest of Asia, to pull that beautiful Rising Sun Archipelago out of its secular stagnation.

Efforts in that direction are under way. Last Wednesday (January 11), trade officials from China, Japan and South Korea met in Beijing for the 11th negotiating round on the way to a trilateral free-trade agreement. That process was launched in November 2012, and the three countries' leaders pledged in November 2015 to accelerate the conclusion of the world's largest trade deal representing 23 percent of the global economy.

It remains to be seen how much the political obstacles of hostile inter-Korean relations, contested territorial claims, the legacy of occupations, military confrontations and allegedly unrecognized and unsanctioned war crimes will slow this process.

The ten countries of the ASEAN (Association of Southeast Asian Nations – 630 million people, with an estimated GDP of $2.4 trillion and an average annual economic growth of 5 percent) also seem eager to broaden their integration with China, Japan and South Korea much beyond the present ASEAN + 3 trade arrangement.

EU must grow up – or die

All this is in sharp contrast with the unraveling European Union (EU). The UK is gone, and the main political platforms in Italy and France are based on ideas of either following the British exit or degrading the union by curtailing the "shared sovereignty" in the management of political, economic and social affairs. The Visegrad Group (Poland, Hungary, The Czech Republic and Slovakia) also wants to pick and choose from an "à la carte" EU political menu.

Hugely benefitting from nearly two-thirds of its EU exports, Germany would like a closer union (on its own terms), but it is facing a possibility of big political changes in next September's elections and increasingly reluctant partners to follow the German leadership.

And then Berlin seems deeply upset by Mr. Trump's "America First" policies. The Germans fear that he will take a hard look at Washington's systematic $74 billion trade deficit with Germany, and that he will insist that European friends contribute their fair share to the Atlantic alliance. Pondering over all these irritants, a German center-right pro-government daily wrote on January 8 that maybe things won't be too bad because, after all, Mr. Trump could remember that his ancestors hailed from Kallstadt in the wine region of Rheinland-Palatinate.

Germans may be worrying too much, though, because Mr. Trump will have his hands full fighting his dissenters in Washington who want to rule the world with an economy growing at a dismal rate of 1.5 percent (in the first nine months of last year), and sitting on the ticking time-bombs of $500 billion in annual trade deficits that are boosting America's foreign debt ($7.8 trillion at the end of the third quarter of last year), and on budget deficits of 4.4 percent of GDP that are driving public sector liabilities to $20 trillion – and counting.

Let's hope that Mr. Trump will find enough public support to establish an effective control of our runaway domestic and foreign debt, and that he will keep his focus on jobs, incomes, education, healthcare, infrastructure and the rest of public services.

Investment strategy

An Asian friend (not a Chinese or Japanese citizen) and a prominent university professor told me recently, over a bowl of noodles and a delicious tea, what Westerners should do: "Please leave us alone. We shall find our own way of solving Asian problems." The statement came with a grin and a disarmingly non-confrontational manner typical of the local culture.

That reminded me of an ASEAN official telling a Western diplomat urging sanctions and exclusion of a junta-ruled Myanmar: "We don't do sanctions …" President Duterte also went to Beijing to seek dialog on territorial problems. And while writing this, a flash came over the newswires that the Chinese and the Vietnamese issued a communiqué in Beijing pledging to manage their territorial claims through negotiations "to safeguard peace and stability in the South China Sea."

Can a similar Sino-Japanese dialog be far behind?

Walking out of that air-conditioned noodle restaurant in a steaming heat, I could see how the people were toiling in places where I could not function for more than five minutes. A thought also occurred of construction sites in some Western countries being closed down whenever it rained, or when temperatures fell below zero. What a world of difference …

Asia is the fastest-growing segment of the world economy, and a place of high savings that will readily finance the region's impressive economic and social development.

That's enough for me to think of Asia as the prime investment destination.

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