On Feb 24, Japan’s Nikkei Stock Average closed at an all-time high of 39,098, surpassing its historic high of 38,915 points, set 34 years ago on Dec. 29, 1989. The figure has become a sign of economic optimism, indicating that Japan has decisively broken free from its “lost decades,” the prolonged period of economic stagnation following the bursting of the Japanese asset price bubble beginning in 1990.
The Japanese stock market boom is in stark contrast to the current struggles of China’s stock market. The new year got off to a tumultuous start for Chinese stocks, with Newsweek proclaiming on Jan. 16, “China’s Stock Market is in Free Fall.” By early February, exchanges in Hong Kong and Shanghai had lost more than $1 trillion in market value, and the Shanghai Composite had dropped to a five-year low.
Meanwhile, Chinese Communist Party (CCP) propaganda tried to revive confidence in the economy, with state media Xinhua News saying on March 5 that the Chinese economy had shown “solidity and resilience in 2023” and touting the country’s “robust domestic market.”
On NTD’s Chinese language program “Pinnacle View,” analysts compared the Japanese and Chinese markets recently. Lee Jun, a Chinese independent TV producer based in the United States, noted that Japan’s economic recovery did not begin recently. It has been percolating since the time of former Prime Minister Shinzo Abe, he said. The late Mr. Abe’s policies were aimed at stimulating Japan’s economy and led to a gradual warm-up of its stock market and real estate market, he said.
In 2013, the Nikkei Stock Average was only at around 8,000 points. Now, it has surged to over 39,000 points, surpassing the high point set 34 years ago. This marks a significant economic achievement. Mr. Lee noted that property prices in Japan are also recovering.
Taiwanese researcher and macroeconomist Wu Jialong said on the “Pinnacle View” program that Japan’s era of deflation is coming to an end, with inflation rates stabilizing above 2 percent. However, Japan is now experiencing import-driven inflation, rather than inflation driven by domestic demand. The financial sector, such as the stock market and real estate market, may perform strongly, but domestic demand is still not strong enough. “Japan continues to maintain its loose monetary policy, hoping to buy time for domestic consumption, investment, and employment,” Mr. Wu said. “Thus, the Bank of Japan has been hesitant to normalize its monetary policy. If the Bank of Japan normalizes monetary policy, the [Japanese] yen will appreciate, which can counter import-driven inflation.”
Mr. Wu said on the program that when the yen appreciated, Japanese companies had to move overseas to areas with lower wages to reduce costs. He explained that Japan’s export industry, essentially in the automobile sector, devised a method of reducing costs. Some parts were manufactured in the Philippines, others in Indonesia, and others in Malaysia. Finally, all parts were shipped to Thailand for assembly into cars for sale. Mr. Wu believes that in the past, it was reasonable for the United States to pressure the yen to appreciate—primarily through trade disputes—because the U.S. trade imbalance was severe.
Mr. Wu said he believes that Japan’s bubble economy three decades ago was not caused by pressure from the United States but rather by Japan’s mishandling of its monetary policy. According to Mr. Wu, Japan has overcome the middle-income trap and possesses strong research and development capabilities. Today’s Japan is a highly developed and highly innovative country. By contrast, China now finds itself in the middle-income trap—an economic development in which a country becomes entrenched at a certain level—according to the IMF’s projection for GDP growth in 2025 and 2026. Mr. Wu said that the reason for this is China’s failure to understand how to move from imitation to independent innovation.
Mr. Wu listed three fundamental differences between Japan’s economic success and China’s failure to “catch up.” First, he said, investing in people is key—and should take priority over investments in construction, infrastructure, or other areas. Investments in education, healthcare, and the social safety net constitute an investment in a nation’s people, which will lead to productivity and innovation in the workplace. Individual liberty is another key to success. This includes freedom of the press, freedom of speech, and freedom of thought and belief. Without personal freedom, no economy will be able to promote innovation. Third, private property rights and intellectual property rights must be protected. Without such protections, there is a lack of incentive for technological innovation.
Mr. Wu said China’s inability to achieve independent innovation lies in the regime’s political system, China’s lack of freedom and rule of law.