Abstract
Look at Asia’s two most powerful and influential countries – China and Japan – and you find what seem to be more contrasts than similarities. Japan still has its Emperor, and its Shinto tradition is still all-pervasive, but at the same time it has an enthusiastically-contested democratic system with high levels of open political comment. China, in contrast is ruled from top to bottom by the Party with only vestigial democratic institutions. True, the Japanese economy has appeared to be stagnant since the 1990s but there is still a highly competitive business environment and massive underlying industrial strength. In China, business has been to a large extent turned over to private enterprise and freed from official micromanagement. While this has resulted in three decades of economic growth that has been swift and massive, Chinese business is a morass of corruption and cronyism. Looked at purely in terms of current economic performance China might seem to be a greater success than Japan, but in terms of social justice there is little comparison. Chinese development has been achieved by ruthless exploitation of the population’s lack of rights across a spectrum including elementary justice in the courts, landholding, and health care. Crucially, freedom of speech and access to information is rigorously curtailed. In contrast, both Japan’s difficulties and successes are a product of a national commitment to social justice and sound national investment. But it is worth moving beyond the current contrasts and asking about the long term prospects offered by the two systems.
Two stories from mid-2015 suggest some possible answers. In June the Chinese stock market crashed with three trillion dollars of losses to investors. Massive crashes are far from an exclusively Chinese experience, occurring as they have globally or locally throughout all those centuries in which there has been a market in company stocks. What is significant is the Chinese government’s response. The government had previously talked up investment, relaxed trading rules and encouraged the buying of shares on credit, but now this was not mentioned. Trading in the stocks of more than half of the listed companies was officially suspended and in as far as there was any explanation, investor irrationality was blamed. In fact, a reasonable explanation of the whole disaster is that the Chinese business environment does not have the transparency that is an indispensable requirement for intelligent investment and secure economic growth. Contrast this with the announcement in July that Japan’s Nikkei corporation had acquired the Financial Times newspaper from its British owners. Nikkei is a media company with strong elements of book and magazine publishing, broadcast and digital media, and database services. Its reputation for sober and factual financial reporting in its newspaper Nihon Keizai Shimbun matches the qualities of its new acquisition. Nikkei obviously intends to build its global reach, especially in the form of digital subscriptions, and the nature of this particular deal suggests that high quality financial information will continue to be the keystone of its content output.
To return to the question of China and Japan’s long term prospects; the marked contrast between the two countries in terms of access to financial information is extremely significant. Chinese investors and overseas investors in Chinese stocks are dependent on information controlled by a government that exercises the strictest possible controls on information flows, and arrests and incarcerates not merely critics but those who ask difficult questions and circulate embarrassing reports. If you talk to Chinese colleagues and acquaintances they will invariably express faith in their government. Well, they would, wouldn’t they? Given the levels of government surveillance they’re afraid to say anything critical. Japan in contrast now has two of the world’s most trusted and reliable financial newspapers at the summit of an investment system that offers good levels of transparency throughout. Which would give you most confidence in the future?