The Daily Yomiuri

Economist ed: Abe must mend ties with China

John Micklethwait, editor in chief of The Economist magazine, has called on new Prime Minister Shinzo Abe to address Japan's strained relationship with China.

The current Japan-China relationship is often described as "diplomatically cool, economically hot." But Micklethwait believes that if Japan fails to make a concerted effort to mend ties with China, the two nations' economic ties could also be damaged in the long run.

"On the economic side, [China] has been opening up, and you see huge numbers of Japanese companies having a large presence there," he explained in a recent exclusive interview with The Daily Yomiuri. "The problem is, if you do that on one hand, and you stir up Japanaphobic political undercurrents on the other, I think at some time these things will clash."

British-born Micklethwait, 43, assumed his post in March, succeeding Bill Emmott, who headed the magazine for 13 years.

Back in the mid-1990s Micklethwait coauthored "The Witch Doctors," with his colleague Adrian Wooldridge. In the book, published in 1996, Micklethwait wrote, "Japan's overregulated economy discourages innovation and imposes high costs on businesses." But he said things have drastically changed in the past decade.

In his view, many of the favorable changes can be attributed to policies pursued by Junichiro Koizumi, who has just stepped down after 5 1/2 years as prime minister.

"The resurgence of Japanese companies, and also the data, the stock market, these are all generally telling a story that is a credit to Koizumi," Micklethwait said, praising the structural reforms carried out by the last administration.

While Koizumi's critics maintain that his policies are to blame for widening social inequality in Japan, Micklethwait shrugged off such concerns.

"We as a paper never opposed inequality," he said. "If the bottom people don't go up as much as the top, that is sad, but it is not as bad as the alternative, which is usually everybody staying down low."

Koizumi was merely "unleashing globalization, [and] blaming him too much, even in Japan, would be a mistake," Micklethwait said.

One of the few negatives of the Koizumi legacy that Micklethwait pointed to are the strained relationships with China and South Korea, due largely to Koizumi's repeated visits to Yasukuni Shrine in Tokyo, where Class-A war criminals are enshrined along with the nation's war dead.

Peter David, The Economist's foreign editor who was also present at the interview, echoed Micklethwait's view on the diplomatic situation. "If Mr. Abe were to make an early visit to China with a view to reconciliation, and stop visiting the shrine, then it is a very hopeful moment," he said.

Another troubling problem Abe inherited from his predecessor is the nation's mounting budget deficit, with combined long-term central and local government debt standing at ¥770 trillion.

Abe may therefore be forced to make the difficult decision to sacrifice a measure of popularity by raising the consumption tax rate some time during his term in office.

Though Abe hopes to achieve an increase in tax revenue simply by sustaining the current trend of economic growth, Micklethwait has doubts about the viability of this plan.

"In other countries, people who have tried to pull that off have found it very difficult...You usually can't do both," he said.

But as Micklethwait sees it, the odds are in favor of Abe being able to implement his own policies, while continuing the reforms that Koizumi—whom Micklethwait calls a "maverick"—started from scratch.

"A revolution is sometimes best pushed forward by someone who is seen to be wholly part of that system to begin with. Abe is closer to [the Liberal Democratic Party system] than Koizumi was," Micklethwait said.

While the new lineup of ministers chosen by Abe suggested he is "more appreciative of the factions [within the LDP]," Micklethwait said, "Abe could turn out to be someone, like [former Russian President Mikhail] Gorbachev, who comes from inside and changes things."