A comparison of 3 Modern Asian Economies: China, Japan, and South Korea.

Luis Felipe Martinez EscobarID: 250607045

3317BProfessor: J.D. Han

How do they compare?

• Asia has being admired for their rapid economic growth in countries like China, Japan, and South Korea. But how do these countries compare with each other geographically, income per capital, ratio of manufacturing jobs to agriculture jobs, efficiency, trade, corruption, human capital, and government reforms to improve the economy?• Are they still dependent on the U.S consumer?• How is the balance of power shifting in Asia?• Can we see any visible effects of Neo-Confucianism in Asia?

• China • Japan

Geographically China is much different than Japan and South Korea. Japan is island with a lot of mountains with few resources, while China is resource rich nation in agriculture and minerals. For the first time in many centuries China’s borders are relatively safe. One very important thing to notice is that Japan and South Korea are much smaller than China.

• South Korea

http://i.imgur.com/oCs7Vkb.png

In this graph China is the blue line, Japan is yellow line, and South Korea is the green line. GDP per capital degrease during the financial crises of 1997-1998, but China did not suffer. At the time South Korea relied to much foreign loans and international investors, Japan was also affected. Notice that China did not get affected by the financial crises. This is because China was not expose to international capital the same way as other Asian countries. As you can see GDP per capital is still only a third of Japan’s.

In this graph we can see that Japan as early as the 1960’s had started a movement from agriculture to manufacturing, and the ratio continues to raise. For South Korea by the 1980 we started having information and there was already more people in manufacturing than in agriculture. China is known as the factory of the world, however as this ratio points out, China still has more people working in agriculture than in manufacturing. This shows that China still has a long way to go compare to Japan and South Korea in shifting the working population from agriculture to manufacturing.

http://www.rieti.go.jp/en/papers/contribution/kwan/data/10_table.gif

Here we compare the periods in which China, Japan, and South Korea have experience their highest growth rate in GDP. We can see that Japan’s and South Korea’s Marginal Capital Coefficient is the same 3.2. And for China’s Marginal Capital Coefficient is 3.9 and later it increase to 5. China maintain almost the same GDP growth rate and it did it by increasing the investment in the economy. This demonstrates that China is less efficient than Japan and South Korea but it maintain the high growth rate for a longer period of time.

Imports and Exports

• China

• Top 5 exports: Computers (9.9%), broadcasting Equipment (5.2%), telephones (4.3%), Office Machine Parts (2.2%), and Integrated Circuits (2.0%)

• Top 5 imports: Crude Petroleum (14%), integrated Circuits (7.6%), Iron Ore (5.3%), Gold (3.6%), and Cars (2.9%)

• Top 5 Export destinations: United States (19%), Hong Kong (11%), Japan (8.3%), Germany (4.4%), and South Korea (3.7%)

• Top 5 Import origins: Japan (10%), South Korea (9.3%), Other Asia (8.1%), United States (8.0%), and Germany (6.0%)

• Trade Surplus with the U.S 284.357 billion dollars

• China has improve the quality of it exports and is now staring compete with other more advance economies in industries that had not develop 10 years ago. China is caching up fast with other Asian countries.

• Japan, South Korea, and China are dependent on the U.S. dollar to be able to buy oil and oil related products.

• It use to be that the U.S. was the biggest trading partner of Japan and South Korea, however now this is no longer the case. China is both Japan and South Koreas biggest trading partner.

• In Asia there is a significant shift in the balance of powers. Both Japan and South Korea are allies of the U.S. But now China is those countries biggest trading partner.

• China’s growth has allow Japan to come out two decades of no growth.

http://atlas.media.mit.edu/profile/country/chn/ http://atlas.media.mit.edu/profile/country/twn/

Imports and Exports

• Japan

• Top 5 Exports: Cars (13%), Vehicle Parts (5.3%), Integrated Circuits (2.4%), Industrial Printers (2.2%), and Machinery Having Individual Functions (1.7%)

• Top 5 imports: Crude Petroleum (17%), Petroleum Gas (10%), Refined Petroleum (3.5%), Coal Briquettes (3.1%) and Computer (2.6%)

• Top 5 Export destinations: China (19%), United States (18%), South Korea (7.8%), Thailand (5.4%), and Other Asia (4.7%)

• Top 5 Import origins: China (22%), United States (8.5%), Australia (6.2%), Saudi Arabia (6%), and South Korea (4.9%)

• Trade Surplus with the U.S 73.050 billion dollars

• South Korea

• Top 5 Exports: Refined Petroleum (9.2%), Integrated Circuits (8.7%), Cars (7.6%), Passenger and Cargo Ships (5.2%), and LCDs (4.3%)

• Top 5 imports: Crude Petroleum (20%), Petroleum Gas (6.3%), Integrated Circuits (5.1%), Refined Petroleum (4.7%), and Coal Briquettes (2.8%)

• Top 5 Export destinations: China (23%), United States (11%), Japan (6.9%), Hong Kong (4.8%), and Singapore (4.6%)

• Top 5 Import origins: China (16%), Japan (13%), United States (8.4%), Saudi Arabia (7%), and Qatar (4.6%)

• Trade Surplus with the U.S 21.4 billion dollars

http://atlas.media.mit.edu/profile/country/jpn/ http://atlas.media.mit.edu/profile/country/kor/

CorruptionThe Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s score indicates the perceived level of public sector

corruption on a scale of 0 - 100, where 0 means that a country is perceived as highly corrupt and 100 means it is perceived as very clean. A country's rank indicates its position relative to the other

countries and territories included in the index. This year's index includes 177 countries and territories.

• China: Ranks 100 with an score of 36, 40 in 2013, and it scored 39 in 2012. (worst)

• Japan: Ranks 15 with an score of 76 in 2014, 74 in 2013, and it scored 74 in 2012. (same)

• South Korea: Ranks 43 with a Score of 55, 55 in 2013, and it score 56 in 2012. (worst)• Japan and Korea narrowed internal

income gaps but in China income became polarized during high growth.

https://www.transparency.org/cpi2013/results

Education-Pisa Rankings 2013The Programme for International Student Assessment (PISA) is a worldwide study by the Organisation for Economic Co-operation and Development (OECD) in member and non-member nations of 15-year-old school pupils' scholastic performance on mathematics, science, and reading. It was first performed in 2000 and then repeated every three years. It is done with a view to improving education policies and outcomes.

http://www.businessinsider.com/pisa-rankings-2013-12

As we can see in the Pisa rankings some Chinese cities now rank at the top in education in 3 subject of math, reading, and science. And we can also see that other Asian’s countries have also done well in Pisa. Note how much better Asian countries do in contrast with the OECD average.What’s so important about this test?Multinationals are interested on hiring the top talent around the world. Asian countries are making themselves more attractive to business and becoming more comparative.

Japan

• During the 1940’s Japan had a regime that emphasize: Production first, suppression of competition, social policies to reduce friction. These systems were impose to execute total war. This system continue after the war, which work well for a period of high GDP growth rate, but not with coping with change. The system change to Liberal Democratic Party in 1955, and help power until now. This party secure votes by subsidizing agriculture and building rural infrastructure. Other parties were too weak. Japan in the 1960’s reform: direct income tax for redistribution of wealth, rural-urban labor migration, Small-Medium Enterprises support, and fiscal policy in favor of rural areas (public investment agro subsidy). The household Gini coefficient decrease from 0.31 in 1963 to 0.25 in 1970.

South Korea reforms

• Around the 1970 Saemaul (New Village) movement for invigorating and improving rural life and production; regional income gaps were smaller and even narrowed. The Gini coefficient decrease from 0.16 in 1971 to 0.06 in 1991. Park’s authoritarian rule (1961-79) had a GDP growth rate of 9.2%. In the 1980 a system of close government-business ties with directed credit, import restriction, which imported raw material and technology, at the expense of consumer goods. South Korea used seed of money obtain from Korea-Japan agreement, a loan from West Germany, and special procurement boom from Middle East Asia to invest and sponsor specific industries. The Asian financial crisis of 1997-1998 help exposed long standing weakness in South Koreas model: like high debt/equity ratios, massive foreign borrowing, and undisciplined financial sector.

China reforms

• China is view as the world engine growth. Chinese demand account for 44, 66 % of exports growth for Japan and Taiwan, China’s trade deficit with the rest of East Asia has helped revive the economies of Japan and Southeast Asia. In class we talk about the U.S was the main trading partner for most economies in east Asia a long time ago, but in recent year the economic model and the balance of power has shifted for the U.S. to China. This has not happened by luck. China has introduce a series of reforms to promote economic growth.

• Agriculture: Deng Xiaoping implemented the household responsibility system and agricultural output increased by 8.2% and Food prices fell nearly 50% and agricultural incomes rose. Later the adoption of cash crops this further increase agriculture production and free up some worker to move from agriculture to industry.

• Industry: With the introduction of dual-pricing system and greater autonomy for enterprise lead productivity increases (1980)

• In the 1990’s Large-scale privatizations reduce state owned enterprises share of the economy. From 81% in 1980 to 15% in 2005. Compared to other East Asian industrial output China exceeded Japan, is behind South Korea and Taiwan.

• Trade and foreign investment: The open door policy in 1978 allowing foreign investment to flow into China.• China decrease trade barriers falling from 56% to 15%. The WTO

continues to work with China in order to make trade fair.• The creation of Special Economic Zones exempt from taxes and

regulations in the early 1980’s attracted foreign investment.• In the 1990’s the financial sector was liberalized to allow Foreign Direct

Investment to come in.• The Banking system in China is mainly control four powerful state own

banks• Herman Kahn explained the rise of Asian economic power saying

the Confucian ethic was playing a "similar but more spectacular role in the modernization of East Asia than the Protestant ethic played in Europe.

Reforms similarities

• All 3 countries had a period of very strict government control over the economy.• All 3 countries had acknowledge the importance of peace in the region.• All 3 countries had agricultural reforms, follow by investment on key

industries, follow by opening up of the economy, and develop and export model.• All 3 countries need and used seed of money to develop key industries • In China the growth has lead to more inequality and corruption, however

Neo-Confucianism ethics have help Japan and South Korea deal with development a little bit better, there is hope for China adopt this code of ethics and reduce inequality and corruption.

Concluding remark

• China is still far away from caching up with Japan and South Korea in the standard of living, income, improvement in corruption, and urbanization. But it has learn a lot from the success of Japan and South Korea. The Chinese government is in the middle of a transition period in were it will become more western like. China is far away from becoming as efficient as Japan and South Korea, but is growing more rapidly and is already the world second economy. In addition Shanghai-China is already number one in education world wide, which will attract more foreign investment.

• By comparing the reforms in China, Japan, and South Korea we have being able to see the similarities in the economic reforms.

• We can see how the balance of power in Asia has shifted from the U.S. being most dominant force and trading partner for Japan, South Korea, and China. To now China taking the role as the main regional power in Asia economically.

• So is Asia still a reliant in the U.S. consumer? I would say yes, because even as china is now main trading partner of Japan and South Korea. China still exports most products to the U.S. and since the U.S. dollar is still needed in order to buy oil and oil related products, then I can say this relationship of Asia and the U.S. will continue for some time.

Resources

• http://en.wikipedia.org/wiki/Chinese_economic_reform• http://en.wikipedia.org/wiki/Economy_of_Japan• http://en.wikipedia.org/wiki/Economy_of_South_Korea• Books: • governance and politics of china- Tony Saich 2nd edition• Politics in modern Japan-J.A.A Stockwin fourth edition• Korea Democracy in Transition-HeeMin Kim