How Japan Became Irrelevant, And How China Took Its Place, In One Chart

Tyler Durden's picture

While Asia in general may be slowing now that China's epic debt creation machine is starting to break down, when it comes to trends within Asia not everyone is equal. And nowhere is this more visible than when comparing Japan, that dynamo of Asia in the 1980s and 1990s, and China, that other "New Normal" dynamo which carried the world across the Great Depression chasm. For the best representation of Japan's epic fall from economic relevance and, inversely, China's superpower ascendancy, here is one chart showing how vastly more relevant to Asia China now is compared to Japan just under 20 years ago.

From the WSJ:

In the latest Regional Economic Outlook for Asia and Pacific, the IMF compared how much 11 export-dependent Asian economies depended on Japan and China, first in 1995 and then in 2012. In the mid-90s, all 11 relied more on Japan than China as an export market. Less than two decades later, 10 of those countries were more dependent on China, most by wide margins. The one exception: Indonesia, which still sold somewhat more to Japan.


The numbers reflect both Japan’s dramatic decline in importance over nearly 20 years of stagnation, and China’s rapid rise.


The data was part of a broader study looking at how economies in the region are becoming more integrated . “China is at the core of this, both as an assembly hub, and, increasingly, as a source of final demand,” said Romaine Duval, an IMF economist specializing in Asia, in an interview. “By contrast, Japan’s role, which was very crucial in the 1990s, is declining very rapidly.”


The data are a reminder of the constraints on U.S.-Japan efforts to contain China’s influence, and to build an Asian economic bloc that may exclude China, notably through the Trans-Pacific Partnership trade pact currently under negotiation.

As for Japan's resulting inferiority complex:

Japanese officials say that regional influence goes beyond the size of a country’s economy. They argue that Japan — in partnership with the U.S. — offers a model of free-market democracy that other countries in the region aspire to emulate. China offers money, but no model, they assert. And China’s territorial ambitions give Japan shared cause with smaller neighbors.

Sure, Japan can pretend it is still relevant. And everyone can pretend to believe it.

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LawsofPhysics's picture

China bought a lot of treasuries in the past, now they are buying real shit with all those paper promises.  Good for them.  I suggest you do the same (if you have any).

Gringo Viejo's picture

Japan.....Uncle Sam's Ichiban Boy no more.

PartysOver's picture

Insert bad sushi smell joke here.

I have many but they would be very offensive.

Oh regional Indian's picture

Right now Japan is being cut adrift or at least beign brought back up into War Partner mode. A whole new set of Axes and Allies.

But when the Yen is cut loose...that unwind will be something to behold.

One thing from the ground here in India, Japan has made many more "real" investments in plant and machinery and got India all tangled in Development Bank loans.

China just sells us stuff like Huwawei and their Telecom Equipment, to snoop snoop and all manner of plastic shit to kill India's small scale industries.

Everything here (so import, which should have been shown also to truly balance the picture painted above) is from China and Japan. Cheap shit from China, Expensive shit from Japan.


Meanwhile India's are getting better at answering phones everyday and seemingly LOVE their serfdom and back-office boy world. Love it with a vengence. Wear it badly.


Never One Roach's picture

"The one exception: Indonesia, which still sold somewhat more to Japan."


'cause Indonesia is the global leader in producing lead jockey underwear.  There's a reason for everything.

TeamDepends's picture

Real shit as in gold, which has just gone vertical.

Dr. Engali's picture

Labor and corrupt bloated institutions incapable of reform.

LawsofPhysics's picture

Indeed.  But I digress, were you talking about China or America, I am confused...

Dr. Engali's picture

Actually I'm talking about Japan's higeher labor cost and bloated institutions, but the U.S.S.A.'s work as well. As far as labor goes, we will catch down with China soon enough.

LawsofPhysics's picture

Yes, a world that works for chinese wages is the corporate oligarch's wet dream and this has been the plan all along.

We'll see if the monetary system and supply lines hold out long enough.  My guess is no.

intric8's picture

which brings up the topic of global wage arbitrage. It will be hard for countries to compete wage-wise with the chinese on the manufacturing side, and with india and the philippines on the customer support side.

Japan has a pretty unique problem in this regard. Companies there are pressed to cut costs, but refuse to outsource customer support to japanese speaking but non-japanese workers. So what do they do? They set up call centers in other countries but hire only japanese to staff them. They insist on service quality, which they feel is impossible to deliver if left to other races regardless of their command of the language. This is their cultural best practice under the circumstances. How such an arangement saves a company money i cant be sure.

the countries rising costs coupled with its demographic decline presents massive profitability challenges. If the japs dont start fucking like jack rabbits soon, they'll be confronted with a largely imaginary labor force and have no choice but to outsource to other countries even on the cs side. Its a great time to learn japanese as a second language.

LawsofPhysics's picture

The resources and commodites still have to come from somewhere and as Russia is reminding everyone now; when fraud is the status quo, possession is the law.

Totentänzerlied's picture

"fucking like jack rabbits soon"

So that all the kids can enjoy the dwindling energy supplies/rising energy costs (and all of Japan's other wonderful structural and systemic problems)? Breeding above replacement rates - the magic cure-all prescription of the past one to two centuries - was ultimately nothing but Keynesianism applied to human population rather than money supply.

gcjohns1971's picture

Regulations are more expensive than labor in the US and Japan.

When you calculate for regulatory based increases in labor costs that do not go into direct employee compensation the difference is even more stark.

The difference in labor costs are more than made up (for now) in increased capital availability.  It is the red tape that stops productivity - which is exactly what red tape is meant to do.

Seasmoke's picture

I see the USA has been exporting a lot ......

Dr. Engali's picture

They are only including the regional countries. But in general yes, the U.S.S.A.'s major export is weapons of financial mass destruction.

LouRukeyser's picture

The Boeing plant down the street is busy exporting lots of Apaches too.

NoWayJose's picture

This is not the 'why' it is only a result. The 'why' is the same as the US - instead of exporting finished products to a huge Chinese market, Japan 'exported' its manufacturing and technology to China. The chart just reflects that Japan no longer 'makes' as much stuff even if the name on the box is a 'Japanese' company.

Vlad Tepid's picture

The difference from the US being that most stores carry Made in Japan if you want to buy it....It's just 3x as much, but at least the consumer has a choice.

Smegley Wanxalot's picture

"Japanese officials ... argue that Japan — in partnership with the U.S. — offers a model of free-market democracy that other countries in the region aspire to emulate. China offers money, but no model, they assert."


Free market?  Democracy? . . . . . WHERE?

Yes, "we offer this wonderful 'model' but no money and only a means to a corrupt, rigged, fucked up existence.  Here, follow our model and get eaten alive."

AdvancingTime's picture

Japan is a country in serious decline. The only real question is how long this can go on. Japan is the most indebted developed country in the world and its future prospects are dim and getting worse. The effect of a lower yen on exports is beginning to wane. When the yen drops faster than the Japaneses stock market rises it will no longer protect the wealth of those invested within its borders. 

It is only a matter of time before the yen becomes worthless and as inflation begins to take root it will place upward pressure on Japanese bond yields and raise the cost of government to service its massive debt.It appears domestic investors have already started venturing overseas for higher yielding assets. When this turns in to a tsunami of  money fleeing Japan it will constitute the end of the line for those holding both JGBs and the yen. More on this subject below,


Government needs you to pay taxes's picture

Japan's solution set should include importing 'diversity' in the form of 30 million young MS-13 newbies, or perhaps 30 million inner city yoots from US cities like Gary, Detroit, Chicongo, Compton, and Houston.  This sure would fix their population aging/decline problem, not to mention provide an army of able-bodied workers.

Kobe Beef's picture

It would certainly fix their "functioning public school system" and "low crime and incarceration rate" problems too.

Vlad Tepid's picture

Correction:  Japan is an ECONOMY in serious decline.  The country will do just fine once it flushes out the trash QE policies that have been strangling the economy.  All that it takes for a country to go from decline to prosperity is take it's medicine - Poland and Iceland are great examples...Japan, so far, not so much.

Frozen's picture

The waiting line for radiated junkpiles is thinning.  Speaking of the devil, where are the coria TEPCO?

youngman's picture

I remember in the 1980s that we were worried that Japan was going to buy up all of the USA...we were talking about passing laws so they could not...

suteibu's picture

Plaza Accord.  That marked the beginning of Japan's decline.

williambanzai7's picture

This is the end result.

Let's do something interesting and discuss why it it is that Germany has managed to do so well in comparison to Japan following WWII. 

There are many reasons...

LawsofPhysics's picture

Before we do, can someone tell me how much of the Japanese population is Jewish?

williambanzai7's picture

Nil. Those that are there are primarily in the pearl trade.

williambanzai7's picture

1. They have a drunk Central Bank that is happy to push the print button.

Youri Carma's picture

Exports from China or Japan?

JackT's picture

Looks like a reduction of exports across the board.

forwardho's picture

"Japan can pretend it is still relevant. And everyone can pretend to believe it."

Just like the whole world has to pretend that the U.S. has a majic machine that prints endless, infinite debt.

There is no 17 trillion debt since a "debt" implys a repayment at some future date, which clearly cannot happen. By universal agreement the nations of the world buy into this fantasy in order to continue to employ their populations making products.

In theory, this universal fantasy could continue ad infinitum, since the alternative is complete societal disintegration. A rational mind can see that a system based on infinate growth/debt is doomed by the restraints implied by reality.



Vlad Tepid's picture

This just shows that all the cheap crap that was being made around Asia in 1995 is now being made in China - and sent to Japan...The export figures from China to Japan would show that.

caustixoid's picture

"Irrelevant" is a big harsh.  If the 3rd largest economy in the world is "irrelevant" does that mean there are only two relevant economies in the world?