579 Abe "contain China" pitch to India. India alarm at China ports in Pakistan, Sri Lanka, Bangladesh

Abe "contain China" pitch to India. India alarm at China ports in
Pakistan, Sri Lanka, Bangladesh

Newletter published on 12-02-2013

(1) Abe "contain China" pitch to India, south Pacific (Dec 2012)
(2) Japan needs its own military, without American protection - Yoko Mada
(3) India alarm at China "string of pearls" strategy: ports in Pakistan
(Gwadar), Sri Lanka, Bangladesh
(4) Paul Krugman confirms Japan Stagnation is a myth - Eamonn Fingleton
(5) The Japan Story, by Paul Krugman
(6) Dreamliner 35% made in Japan, 30% in US - Eamonn Fingleton
(7) Boeing transferred technology to Japan, to gain the Japanese market

(1) Abe "contain China" pitch to India, south Pacific (Dec 2012)

http://www.project-syndicate.org/commentary/a-strategic-alliance-for-japan-and-india-by-shinzo-abe

Asia’s Democratic Security Diamond

Shinzo Abe

Dec. 27, 2012

TOKYO – In the summer of 2007, addressing the Central Hall of the Indian
Parliament as Japan’s prime minister, I spoke of the “Confluence of the
Two Seas” – a phrase that I drew from the title of a book written by the
Mughal prince Dara Shikoh in 1655 – to the applause and stomping
approval of the assembled lawmakers. In the five years since then, I
have become even more strongly convinced that what I said was correct.

Peace, stability, and freedom of navigation in the Pacific Ocean are
inseparable from peace, stability, and freedom of navigation in the
Indian Ocean. Developments affecting each are more closely connected
than ever. Japan, as one of the oldest sea-faring democracies in Asia,
should play a greater role in preserving the common good in both regions.

Yet, increasingly, the South China Sea seems set to become a “Lake
Beijing,” which analysts say will be to China what the Sea of Okhotsk
was to Soviet Russia: a sea deep enough for the People’s Liberation
Army’s navy to base their nuclear-powered attack submarines, capable of
launching missiles with nuclear warheads. Soon, the PLA Navy’s newly
built aircraft carrier will be a common sight – more than sufficient to
scare China’s neighbors.

That is why Japan must not yield to the Chinese government’s daily
exercises in coercion around the Senkaku Islands in the East China Sea.
True, only Chinese law-enforcement vessels with light weaponry, not PLA
Navy ships, have entered Japan’s contiguous and territorial waters. But
this “gentler” touch should fool no one. By making these boats’ presence
appear ordinary, China seeks to establish its jurisdiction in the waters
surrounding the islands as a fait accompli.

If Japan were to yield, the South China Sea would become even more
fortified. Freedom of navigation, vital for trading countries such as
Japan and South Korea, would be seriously hindered. The naval assets of
the United States, in addition to those of Japan, would find it
difficult to enter the entire area, though the majority of the two China
seas is international water.

Anxious that such a development could arise, I spoke in India of the
need for the Indian and Japanese governments to join together to
shoulder more responsibility as guardians of navigational freedom across
the Pacific and Indian oceans. I must confess that I failed to
anticipate that China’s naval and territorial expansion would advance at
the pace that it has since 2007.

The ongoing disputes in the East China Sea and the South China Sea mean
that Japan’s top foreign-policy priority must be to expand the country’s
strategic horizons. Japan is a mature maritime democracy, and its choice
of close partners should reflect that fact. I envisage a strategy
whereby Australia, India, Japan, and the US state of Hawaii form a
diamond to safeguard the maritime commons stretching from the Indian
Ocean region to the western Pacific. I am prepared to invest, to the
greatest possible extent, Japan’s capabilities in this security diamond.

My opponents in the Democratic Party of Japan deserve credit for
continuing along the path that I laid out in 2007; that is to say, they
have sought to strengthen ties with Australia and India.

Of the two countries, India – a resident power in East Asia, with the
Andaman and Nicobar Islands sitting at the western end of the Strait of
Malacca (through which some 40% of world trade passes) – deserves
greater emphasis. Japan is now engaged in regular bilateral
service-to-service military dialogues with India, and has embarked on
official trilateral talks that include the US. And India’s government
has shown its political savvy by forging an agreement to provide Japan
with rare earth minerals – a vital component in many manufacturing
processes – after China chose to use its supplies of rare earths as a
diplomatic stick.

I would also invite Britain and France to stage a comeback in terms of
participating in strengthening Asia’s security. The sea-faring
democracies in Japan’s part of the world would be much better off with
their renewed presence. The United Kingdom still finds value in the Five
Power Defense Arrangements with Malaysia, Singapore, Australia, and New
Zealand. I want Japan to join this group, gather annually for talks with
its members, and participate with them in small-sized military drills.
Meanwhile, France’s Pacific Fleet in Tahiti operates on a minimal budget
but could well punch above its weight.

That said, nothing is more important for Japan than to reinvest in its
alliance with the US. In a period of American strategic rebalancing
toward the Asia-Pacific region, the US needs Japan as much as Japan
needs the US. Immediately after Japan’s earthquake, tsunami, and nuclear
disaster in 2011, the US military provided for Japan the largest
peacetime humanitarian relief operation ever mounted – powerful evidence
that the 60-year bond that the treaty allies have nurtured is real.
Deprived of its time-honored ties with America, Japan could play only a
reduced regional and global role.

I, for one, admit that Japan’s relationship with its biggest neighbor,
China, is vital to the well-being of many Japanese. Yet, to improve
Sino-Japanese relations, Japan must first anchor its ties on the other
side of the Pacific; for, at the end of the day, Japan’s diplomacy must
always be rooted in democracy, the rule of law, and respect for human
rights. These universal values have guided Japan’s postwar development.
I firmly believe that, in 2013 and beyond, the Asia-Pacific region’s
future prosperity should rest on them as well.

Shinzo Abe is Prime Minister of Japan and President of the Liberal
Democratic Party. He wrote this article in mid November, before Japan’s
elections.

Commented (see below)

(2) Japan needs its own military, without American protection - Yoko Mada

http://www.project-syndicate.org/commentary/a-strategic-alliance-for-japan-and-india-by-shinzo-abe

Comments on Abe article (same URL)

Yoshimichi Moriyama

Yoko is pehaps not very right as she said, "Japan actually doesn't want
America's protection any more."

The U.S.-Japanese security ties are based on the fact and on the
recognition of the two countires that they share basic social and
political values and that they are firmly commited to the protection,
preservation and promotion of these values in East Asia.

Commented

Yoko Mada @randomyoko

That part, I was referring to post war regime that Japan is still under,
which we need to abandon.

Why would we want to stick to the system which is not efficient - The
President of America always have to make a decision when there is a need
for their help?

First of all, which government can't protect its own country? OH JAPAN!

Japan having their own military is a must. As this man from India has
written below, it'd be better for other countries that are on Japanese
side as well. "Cooperation" with the States is what's needed, not their
control. You might think Japanese military force can't be that strong so
fast, but I know we have the technology already - the only problem is
the procedure. Also, I went to listen to Mr. Tamogami's speech yesterday
and he made it clear that Chinese military force isn't a threat. We are
rather in "information war," which has implanted that thought in us.
They do have military power, though, as this article is suggesting.

My point is, Japan needs to get independent, and lead the rest of the
Asian countries with our technology and order, hopefully with a help of
America.
And I agree with this article, to create a security diamond.

Commented

Yoko Mada @randomyoko

Japan actually doesn't want America's protection anymore - or haven't
all along. A lot of us had believed from the education and the system
GHQ had created that America "protects" us, but lately the citizens here
have been awakening that it was the way to make sure we won't be any
threat to the States any longer. Now the U.S has shifted their eyes to
China rather than Japan as you probably know but that is how it is.

GHQ probably didn't think that it would last for 67 years but it has. We
don't rely on America's protection as it seems, and rather, we have been
trying to have a "military" instead of "self-defense force" which
doesn't let us to have preemptive attacks, and not only that, if SDF
kill someone even for using the right of self-defense, they can be
"guilty." Of course, we do not want this system because we can't protect
our own country. Plus, we pay for US bases. We are not allowed to have
anything threatening like nuclear weapons etc because of the rules to
begin with. That's why countries like China and Korea think that we
won't do anything and they can do whatever the want.

But Except that, I agree with your geo-political view. I think the
globalization should be about those who wanna get together getting
together and leave the old fashioned nations alone.

Commented

captainjohann Samuhanand @captainjohann

As an Indian, I find this sudden love for India rather simplistic. Japan
is part of G8. Even during apartheid era it wanted to be part of white
nations. It could not understand India's need for nuclear weapons when
China has ongoing territorial dispute with it. China invaded India and
defeated it in 1962 when Soviet union and USA were eye ball. I do not
think USA will fight a war with China to save Japan. I can understand
Japan's abhorrence for nukes due to history. But now it is surrounded by
nuclear China and North korea. It has to go nuclear to ensure its own
security.That will give India a sense of belonging to a strong nation
mentally also and not weighed down by history.

Commented

Yoko Mada @randomyoko

You are very right.
We have nuclear weapons to NOT use them - we have it for our security.
Japan has been very vulnerable and it's a miracle that the country has
stayed fine for the past 67 years.

I heard our Prime Minister has made a wonderful speech in India. I
haven't listened to it yet but I hope India will welcome - as far as I
can see, you guys seem to like it? Japan loves India! I really hope our
countries will be close to each other and be a good team :)

Commented

Moctar Aboubacar

This is a scary and dangerous article.

The first half of this is textbook rationalization: you paint a
terrifying picture of what will happen if Japan does not 'stand strong'
against Chinese claims on those islands, but at no point is the issue of
legitimacy raised. At no point do you say why Japan's claim to that
territory is more legitimate than China's. And in doing that you're
telling your reader that in the end, it's not really important, that it
should go to Japan because China is too strong and threatening a power
in the region. That is not reason, it is rationalization.

Worse still, in the second half of this text you reverse your previous
logic by arguing for strengthened military alliances with Europe and the
US for Japan.

What you are saying to a European or American ruler is essentially:
"Scared of the Chinese? Well, then pick our side in this standoff!"

The Cold War ended a long time ago, Mr. Abe

Commented

66%

Yoko Mada @randomyoko

This article isn't scary, what's scary is that China has been trying to
have a fait accompli in order to take over the place later, although the
island apparently is Japanese. If you search "Glorious Japan Forever" on
YouTube on this issue, the video should satisfy you on that fact.

If you have learned a bit about the history of China, which is 1600
years of occupation after fighting with each other one after another,
you must realize that they're the type of country who do not care much
about the rules based on the historical incidents or whatsoever and they
just come get whatever they want.

You might think of the country as a country but a lot of the papers and
books even, they were preserved by Japan, not China. Why? Because
whenever there was a new government established, it ended soon after,
and they destroyed everything.

They have strengthened their military power as you should probably know,
but the thing is that they did that using JAPANESE money called ODA,
which was meant for having a peace with them. Japan has tried. Japanese
citizens are even angry for how the Japanese politicians back then did
whatever they could have done to establish peace with them regardless of
Chinese propaganda, which made them spend so much money as a result.

A lot of people misunderstand China. Yes, they have developed a lot over
the past few decades economically, but that doesn't mean that they have
developed mentally as well. By mentally, I mean the manner of following
rules and so on as a country that can work with each other
internationally. It's a cultural difference that we cannot easily overcome.

To reinforce that, yesterday, some citizens have stood up for themselves
since the government made the news company revise one of their articles
as the government had pressured the company and that resulted in
infringing on their freedom of speech. This is what "Communism" brings.

This article is only suggesting that we should all bond internationally
so that we can stop China from being a baby with loaded guns in their
hands.

(3) India alarm at China "string of pearls" strategy: ports in Pakistan
(Gwadar), Sri Lanka, Bangladesh

http://m.timesofindia.com/india/India-irked-as-China-gets-Pakistans-strategic-Gwadar-port/articleshow/18299006.cms

India irked as China gets Pakistan's strategic Gwadar port

Feb 2, 2013, 02.53AM IST TNN [ Indrani Bagchi ]

NEW DELHI: Pakistan's cabinet formally agreed to hand over the operation
of its strategically located Gwadar port to China on Wednesday. This
puts in place China's famed "string of pearls" strategy which may have
significant implications for India.

On Wednesday, the Pakistan cabinet, in one of its last decisions,
transferred the operations responsibility of the Gwadar port from
Singapore's PSA (Port of Singapore Authority) International to China's
Overseas Port Holdings. This had been agreed some time ago as PSA
International and Pakistani navy fell out over land transfers, security
issues and lack of infrastructure. PSA had asked to withdraw from the
contract and Pakistan had agreed.

In 2011, the Pakistani defence minister had announced in Beijing that
Islamabad would transfer ownership to a Chinese company. China had
demurred then, but despite the worsening security situation in
Balochistan, the Chinese have apparently agreed to take it over.

China has already encountered opposition from Baloch people, who have
objected to the Chinese taking over their traditional lands. And as the
transition in Afghanistan draws near, that region, specially Quetta,
which apparently houses top Taliban leaders, is likely to see more violence.

Gwadar was built by China but during its operation by PSA, it barely
attracted any commercial traffic. There is also a lot of port
development that remains to be built. Pakistan expects China to complete
that construction in record time, given its past performance.

More than that, Pakistan expects China to turn Gwadar into a naval base.
However, China has its work cut out. A container terminal, rail and road
links from the port across Balochistan would need to be built, before
China can take advantage of the port itself.

For China, Gwadar could also be a conduit for energy flows into
northwestern China, by transporting oil and gas from the port through
pipelines that traverse Balochistan and the federal agencies to feed
into China's Xinjiang province. As China's oil imports increase, it
would prefer to insulate its energy flows from the turbulent waters of
the Straits of Malacca and the South China Sea.

Indian ships among others patrol the former as an anti-piracy measure.
In the latter, China is involved in a territorial dispute with Vietnam
and Philippines among others. In a conflict, it would be easy to shut
off China's energy supplies. But not if they can be routed through
Gwadar where Pakistan Navy can also add to the security.

According to recent figures, over 60% of China's imported oil travels
through the Straits of Hormuz. Having Gwadar under its command would
change the security dynamics for China.

As China moves into the Indian Ocean, Gwadar port would be ideal as a
staging ground for Chinese ships. China already has a steady presence in
Sri Lanka's Hambantota port, it is wooing Maldives, though no port
presence is planned yet. China is also building a port in Chittagong,
Bangladesh, as well as Sonadiya, near Cox's Bazar.

From the security point of view, India could find itself considerably
constrained. It's not for nothing that India has ramped up its relations
with Oman, though there is no security presence there yet. India has
been pushing to develop the Iranian port of Chahbahar, but that remains
a long-term project.

(4) Paul Krugman confirms Japan Stagnation is a myth - Eamonn Fingleton

http://www.forbes.com/sites/eamonnfingleton/2013/02/06/paul-krugman-says-it-again-japans-stagnation-is-a-myth/

2/06/2013 @ 11:40AM

Paul Krugman Says It Again: Japan's Stagnation Is A Myth

Eamonn Fingleton

Paul Krugman has taken another look at the Japanese economy and
pronounces it no basket case. I am happy to second that motion. Having
lived in Tokyo solidly for 27 years, I know that during the decades of
Japan’s alleged stagnation, living standards have actually improved
faster in Japan than they have in the United States. But even someone of
Krugman’s caliber will have a hard time convincing the wrong-way
Corrigans of the American economics profession. They desperately want to
believe the Japan-as-basket-case story. Otherwise their precious
theories would fall apart — and what a terrible tragedy that would be.

As Krugman points out, basket-case proponents overlook Japan’s unusual
demographics. If you consider simply Japan’s work age population, real
income per-capita actually rose by 1.2 percent a year all through the
period of the basket-case story’s greatest currency. “That’s actually
not bad,” says Krugman. “You can argue that demographically adjusted,
the whole tale of Japanese stagnation is a myth.”

Not only is he right in dismissing the basket case story but if you look
at the aggregates that matter to Japanese policymakers, it is clear
that Japan has done far better than the United States over the last two
decades. For a start Japan has increased its net overseas assets by
nearly $3 trillion — at a time when the United States’s net overseas
LIABILITIES ballooned by $8 trillion. Underlying this contrasting
trajectory is the fact that Japan ranks with Germany as the only major
advanced nations with super-strong current account surpluses (the
current account is the widest measure of trade and excludes the effects
of rampant transfer pricing, which have disguised the strength of
Japan’s visible trade in recent years).

Almost everywhere you look in the details of the Japan story you find
that the basket case story could not be further from the truth. Just
look at Japanese corporations. Virtually without exception they have
continued to boost their revenues — and maintained their employment
levels — in the face of a constantly rising yen. The Japanese car
industry, for instance, has continued to make extraordinary gains.
Toyota boasted sales in its latest fiscal year to $259.5 billion, more
than three times its 1989 total of $84.1 billion. And this in a year
when output was greatly curtailed by the earthquake. Nissan meanwhile
clocked $119.0 billion, also more than triple 1989. Similarly the rest
of the Japanese auto industry has gone from strength to strength. The
same cannot be said for Detroit. Ford Motor’s sales last year totaled
$133.3 billion, up a mere 44 percent on $92.4 billion in 1989. General
Motors’s sales were $150.3 billion, up just 24 percent on $121.1 billion
in 1989. Not only have the Detroit companies retreated in the face of
Japanese advances in the American domestic market but their European
subsidiaries have also long been ceding share, as have such European
players as Peugeot-Citroen, Volvo, Jaguar, and, of course, Renault.

Moreover the official growth numbers Krugman is working with actually
greatly understate Japan’s true performance. This is because in recent
years the Japanese Finance Ministry has taken to using the most
conservative possible methods to calculate growth. Why? Because the
basket case story is a great boon in fending off pressure for the
opening of Japan’s still largely closed markets. It also keeps hot money
out of the yen and shields Tokyo from lobbying by foreign foundations
and governments seeking everything from educational grants to foreign aid.

As for Japan’s demographics, these are conventionally presented as
obvious evidence of Japan’s “malaise.” They are actually the opposite.
The reason Japan’s demographics are aging so fast is because the
Japanese health service has achieved extraordinary success in boosting
the Japanese people’s life expectancy. It should be remembered that in
the late 1940s Japanese life expectancy at birth was eleven years
shorter than in the United States. Now it is four years longer.
Meanwhile the Japanese government went from promoting very large
families in the 1930s to small families from the late 1940s onwards.

As Krugman points out, a recent article by Robert Samuelson in the
Washington Post greatly garbles the Japan story. For my money,
Samuelson’s biggest problem is his choice of sources.

Comments

Anon 1 day ago

you make some cogent points.

just a couple of observations… when comparing the sales figures for u.s.
vs. japanese car companies, are you using the same exchange rate for the
1989 sales data as you use to calculate the present sales data? also, it
should have been pointed out that gm is far smaller now than even as
recently as 2007 (for obvious reasons).
also, the tone of the article is a bit odd, as you seem to imply that
all the reasoned economists since about 1990 have some ax to grind by
advocating the ‘basket case’ theory. that’s fairly ridiculous, as
economists were simply evaluating the data as it was happening beginning
around 1990 and the japanese economy entered into a vastly different
period and trajectory (or are you dismissing that reality as well??). to
imply some great conspiracy on the part of virtually the entire economic
establishment with regard to japan’s economic state over the last two
decades is absurd.

again, i think the points you made are clear and valid, but there’s
something about the overall conclusions that seem overdone: basically
you’re dismissing the entirety of economic evaluations of japan for more
than two decades, a complete 180. does that really seem rational? that
you two individuals have suddenly discovered the ‘truth’ about such a
widely discussed issue whereas literally everyone else for 20+ years has
been completely wrong? not so sure about that.

Eamonn Fingleton, Contributor 1 day ago

A reply to Anon:

You ask about the exchange rates for translating the Japanese car
companies’ performance. I used the standard methodology, which is the
exchange rates in the relevant years. This is the way foreign
corporations are expected to render their numbers in official SEC
filings. If you think my numbers are wrong, please let me know what your
numbers are.

As for what is going on in Japan, are you interested in quality of
observation or just quantity? The vast majority of American commentators
and economists who talk about Japan as a basket case know nothing about
the country. Most have never even been to the country and virtually none
has studied its economy. By contrast Paul Krugman knows Japan well and
has tried to make sense of its highly contradictory economic numbers.
The securities industry in Tokyo promotes the basket case story because
it is under the thumb of the Finance Ministry, which is an authoritarian
agency that sees trade diplomacy advantages in minimizing Japan’s
successes. The few foreign firms that are permitted a small piece of the
Tokyo market have virtually never been known to challenge the Finance
Ministry. When did you last hear the Tokyo analysts of Goldman Sachs or
Morgan Stanley point out how much better the Japanese auto companies’
sales have done in the last two decades than Detroit?

Anon 1 day ago

and another thought just occurred to me.
in order to illustrate your points, you cherry picked one industry, and
its primary corporate components (autos). pretty dramatic numbers.
well, how about using another sector, in fact one which japan was once
seen as dominating worldwide… tech.
how about comparing apple and hp in 1989 vs. today? sales, market cap,
profitability, market share, etc. compare all that with sony,
matsuhita(panasonic), jvc. the comparison would be equally dramatic, but
in the opposite way from your example.
i suppose the more i think about it, your analysis is good, but simplistic.
one of the concepts that underpins the ‘basket case’ theory is that the
stagnation in japan over two decades drastically reduced what might have
been.

Reply

Eamonn Fingleton, Contributor 1 day ago

A further reply to Anon:
If you think Japan is underperforming in electronics you are
misinformed. Yes, some of the consumer products companies are doing
badly, but Japan now utterly dominates the producers’ goods end of the
business. Though it receives virtually no attention in the American
press, the manufacture of producers’ goods is generally far more capital
intensive and knowhow intensive than the design and assembly of final
products. It is not an exaggeration to say that without such advanced
Japanese producers’ goods companies as ShinEtsu, Murata, and Kyocera,
today’s world of high technology would not exist. The United States in
its best days dominated the making of producers’ goods not only for the
electronics industry but most other industries and this was the mainstay
of its erstwhile world beating trade performance. Now leadership in most
producers’ goods has passed to Japan, and America’s trade has collapsed.
Japan’s leadership in producers’ goods is the main reason why Japan,
with a workforce little more than one-third of America’s, sells more
than 50 percent more to China than the United States does. See the CIA
Factbook.

Anon 1 day ago

as a reply to both your’s.
i asked about the exchange rate to discern whether that might have
skewed the financial data that you presented when comparing the u.s. and
japanese auto companies. how would the comparison have been if a
constant exchange rate were used, for example the present day rate?
as for the issue of quantity over quality… i’m interested in a rational
evaluation of the data using both as much as possible. i have to say,
i’m a bit surprised at the way you dismissively treat virtually ALL
economists who have written about this issue for 20+ years. as i said,
it’s hard to imagine some concerted effort due to willful ignorance on
the part of many established people, especially going back to the period
around 1990 when things changed for japan quite dramatically. do you
really think it’s reasonable to utterly dismiss out of hand everyone
else and say they all ‘know nothing’ about japan? wow.

as i indicated in my first comment, i found your article cogent. i just
think if the ‘basket case view’ is overdone then so too is the
absolutist, diametrically opposite view. i just think there’s a lot of
data one can go through before making a pronouncement.

as for my example of the electronics industry… you chose to focus on one
industry, and the biggest players in that industry. you then sought to
compare their sales figures as a way to demonstrate your point. i did
exactly the same thing. i chose a specific industry, chose the largest
players in that space, and compared the sales/profits/market share in
exactly the same way. and my comparison, and conclusion, was, and is, valid.
you took my example and proceeded to expand the sector into a
contributing sector. you have a valid point as well with that. but in no
way does in diminish what i stated. again, i did exactly what you did to
‘prove’ your over-arching point.

i’m well aware of the sector you chose and it’s productive efficacy. how
about comparing that sector, with all its current viability, to the same
sector in japan in 1989. wouldn’t you find that that has been eroded by
the entry/expansion of china and south korea into that space? do you
have that data? i’m sure you will find the status of the companies you
mentioned are not as strong now vis-a-vis china/so. korea.
again, i’m not disputing relevant facts, and i’m a fan of mr. krugman. i
just think there’s more to it than a simple conclusion as in the
article. i also find it somewhat amusing that you seem to have entered
into a united states-as-basket-case scenario. ironic.

Terri McGee 1 day ago

The Schaeffler Company is a world renowned auto parts manufacturer and
according to CTO Prof. Peter Gutzmer: This allows us to master
increasingly complex technologies and ever-shortening innovation cycles,
and thus to offer key components for efficient future mobility.”

(5) The Japan Story, by Paul Krugman
http://krugman.blogs.nytimes.com/2013/02/05/the-japan-story/

February 5, 2013, 10:12 am

The Japan Story

by Paul Krugman

Dean Baker is annoyed at Robert Samuelson, not for the first time, and
with reason. The idea of invoking Japan, of all places, to justify fears
that stimulus leads to inflation or asset bubbles is just bizarre. And
while there is much shaking of heads about Japanese debt, the
ill-effects if any of that debt are by no means obvious.

But what remains true is that Japan has run budget deficits for many
years while delivering what appears on the surface to be very
disappointing economic performance. What’s the story there?

My answer would run in two parts.

First, you should never make comments on Japanese growth or lack thereof
without taking demography into account. Japan has low fertility and low
immigration; this has translated into a dramatically aging population
and a declining working-age population. So what does Japan’s performance
look like if you calculate real GDP per working-age adult? (In the
picture below I define working-age as 15-64; this is one case in which
you DO NOT WANT to look at FRED, which defines working age as 16+ and
therefore takes no account of aging).

I’ve used a log scale, so you can view vertical distances as percentage
changes. If we look at growth from the early 1990s to the business cycle
peak in 2007, we have growth of about 1.2% per year. That’s actually not
bad; you can argue that demographically adjusted, the whole tale of
Japanese stagnation is a myth.

What is true is that there were two long periods of depressed output
relative to trend, one in the mid-1990s and another, much worse, between
1997 and 2007. And one other thing: Japanese monetary policy was still
up against the zero lower bound in 2007, leaving it no room to counter
the Great Recession, and hence leaving Japan open to a deep slump when
exports plunged.

So how do we think about this problem? Here’s my take. Japan has pretty
much spent the past 20 years in a liquidity trap; as I’ve been
explaining for years, one way to understand such traps is that they
happen when, even at a zero real interest rate, the amount that people
would want to save at full employment exceeds the amount they would be
willing to invest, also at full employment:

Why is Japan in this situation? A debt overhang from the 1980s bubble
surely started the process; but surely it’s reasonable to suggest that
the demography also contributes, since a declining working-age
population depresses the demand for investment.

What you need in this situation is a negative real interest rate — which
means that you need some expected inflation, because nominal rates face
the zero lower bound.

But Japanese policy has never sought to achieve this. Deficit spending
has put part, but only part, of the excess desired private saving to
work; this has mitigated the slump, but not produced a booming economy,
except perhaps briefly circa 2007. And the Bank of Japan has always
pulled back on monetary policy when the economy looks better, instead of
doing what it should, which is to keep the pedal to the metal until the
inflation rate is solidly into positive territory.

The point is that as an analytical matter, Japan’s experience is
perfectly consistent with an IS-LM type story, with nothing in there to
suggest that fiscal stimulus has somehow backfired; stimulus has done
exactly what you’d expect given its limited size and the refusal to take
the opportunity to break out of the liquidity trap.

What Abenomics seems to be is an attempt, finally, to do what should
have been done long ago: combine temporary fiscal stimulus with a real
effort to move inflation up.

Oh, and what about the US relevance? We are, for the time being, in the
same situation diagrammed above. What I think you can argue is that
because we don’t share Japan’s demographic challenge, our liquidity trap
is probably temporary, the product of an episode of deleveraging. So in
our case fiscal stimulus is much more likely to serve as a bridge to a
revived era of normal macroeconomics. That said, I welcome efforts by
the Fed to modestly raise inflation expectations, and would like to see
more.

So, is Japan a cautionary tale? Yes, but not the tale everyone tells.
Its performance isn’t that bad given the shortage of Japanese; and it’s
a tale of fiscal and monetary policy that have been too cautious, not of
stimulus that failed.

(6) Dreamliner 35% made in Japan, 30% in US - Eamonn Fingleton

http://www.forbes.com/sites/eamonnfingleton/2013/01/26/the-untold-story-of-the-boeing-787-finally-hits-the-fan/

1/26/2013 @ 12:26PM

The Boeing 787: The Truth Finally Hits the Fan

Eamonn Fingleton

Congratulations to James B. Stewart on a superb New York Times article
yesterday on Boeing’s 787 crisis. As he has pointed out, fully 35
percent of the manufactured content of the 787, the troubled, if
superbly advanced, new Boeing jetliner, is being sourced from Japan.
This reflects a highly organized, subsidy-drenched effort by the
Japanese industrial system to succeed the United States as the world
leader in aerospace. All in all, 70 percent of the 787 is being
manufactured outside the United States, up from less than 2 percent for
the 747 in the late 1960s. A reasonable guess — if one that Stewart
stops short of suggesting — is that Boeing is going the way of Zenith,
Xerox, General Motors, and other erstwhile American industrial titans
that have had their clocks cleaned in East Asia.

For 99 percent of the New York Times’s readers Stewart’s report was new
news but actually most of his information has been in the public domain
for nearly a decade. If you doubt this, click here for “Boeing,
Boeing,….Gone,” an article I wrote in 2005. My article actually went
further than Stewart’s in that it pointed out that, as part of the deal,
Boeing transferred its priceless wing and wingbox secrets — its crown
jewels — to Japan. The deal was concluded by an already compromised and
subsequently disgraced Boeing CEO Harry Stonecipher. It was approved by
the George W. Bush administration.

All this does not diminish Stewart’s achievement: New York-based and a
long way from the action, he has done a Pulitzer-level job in
disinterring troubling facts that officials and executives on both sides
of the Pacific have worked hard to bury. He has also confounded a
pattern of self-censorship among Tokyo-based foreign correspondents.
Although informed Tokyo-based economic observers have understood all
along that Boeing’s deal with Japan was a Faustian bargain, they have
also understood that it was unhelpful for their careers to say so (Tokyo
has never been a free-speech zone, least of all in recent times when it
has become so easy for Japan’s authoritarian bureaucrats to marginalize
“troublemakers”). Tokyo-based foreign correspondents have instead
promoted approved themes, notably the myth that Japan has become the
basket case of the industrial world. This theme, which I debunked in an
article in the New York Times Sunday Review last year, helps the Tokyo
authorities fend off American pressure for the opening of Japan’s still
closed markets and keeps hot money out of the yen.

Back to Boeing. It subsumes almost all the then independent companies
that put Neil Armstrong on the moon in 1969. It is the last remnant of
an American manufacturing base that once powered the most successful
exporting nation in history. How come Boeing’s hollowing out has taken
so long to reach the New York Times? Welcome to the information age. It
is an age in which information moves at the speed of light — except when
it doesn’t.

(7) Boeing transferred technology to Japan, to gain the Japanese market

http://www.nytimes.com/2013/01/26/business/selection-of-the-boeing-787s-battery-maker-raises-questions.html

COMMON SENSE

Japan’s Role in Making Batteries for Boeing

By JAMES B. STEWART

Published: January 25, 2013

As the search for the cause of smoldering batteries in Boeing’s grounded
787 Dreamliner continues, investigators and Congressional oversight
committees may want to look into a related and potentially sensitive
issue: how was the Japanese company GS Yuasa chosen to manufacture the
innovative but now suspect lithium-ion batteries on the 787?

No one has claimed that GS Yuasa was chosen for the 787 on anything but
merit. But Boeing has long been dogged by suspicions that in return for
its awarding major contracts to Japanese companies, which also receive
subsidies from Japan’s government, the country’s airlines buy Boeing
aircraft almost exclusively.

Such arrangements are banned by the World Trade Organization Agreement
on Trade in Civil Aircraft, signed by the United States and Japan, which
requires that aircraft purchases be made solely on the basis of
“commercial and technological” factors and that procurement contracts
should be entered into only on the basis of “competitive price, quality
and delivery.” The agreement is intended to ensure that purchase
decisions are based “strictly on technical and commercial factors,”
according to the United States trade representative.

“The world has made tremendous progress” at eliminating political
influence from the sale of aircraft and components, Richard L.
Aboulafia, an aerospace and aviation analyst for the Teal Group, a
consulting firm in Washington, told me this week. “And then, there’s
Japan. All the normal ways of doing things are upended.” Is there a quid
pro quo? “Yes, absolutely. But no one will talk about it, and no one can
prove it,” he said.

A former Boeing executive confirmed this when we spoke this week. After
asking not to be named because of the diplomatic fragility of the topic,
he said: “Let me put it this way: we knew the Japanese market would be
Boeing’s in return for our selecting these Japanese partners. It was a
silent understanding, and there was nothing in writing.” He added that
Boeing’s Japanese suppliers had received low-interest loans from the
Japanese government repayable only out of future profits.

Although the Japanese airlines and suppliers are independent companies,
“in Japan there’s a unique relationship between the airlines, the
suppliers and the government,” according to the former Boeing official.
“It’s cultural. The officials all went to the same schools and have
close personal relationships. The government supported the airlines and
the industries and they developed together. The government has enormous
influence. They all work together.”

As a Boeing vice president and former Boeing Japan president, Nicole
Piasecki, told the company magazine in 2008: “These aren’t just
relationships with people in business. The Japanese government is a
powerful and important part of all economic activity and industrial
development. So part of relationship building is negotiating these two
important spheres of influence in Japan and understanding it’s all tied
together.”

Mr. Aboulafia agreed that Japan was unique. “This is the way things used
to be in the days before free trade,” he said. “Japan is the last
unreconstructed believer in industrial policy writ large.”

The Japanese External Trade Organization referred questions to the
Japanese Ministry of Economy, Trade and Industry, which had no immediate
comment.

In response to my questions, Boeing declined to address the specific
choice of GS Yuasa for the 787 batteries, but said, “In general,
internal and external suppliers of the 787 program were selected based
on their ability to do the work with the high quality, affordability and
reliability that customers expect from Boeing and that Boeing demands of
its partners.” Boeing added that “GS Yuasa provides the batteries under
subcontract to Thales,” the French company responsible for the 787’s
electrical systems, but confirmed that Boeing approved the choice and
that all subcontractors had to meet Boeing’s quality standards.

Nonetheless, there’s circumstantial evidence to support suspicions that
quality and price may not be the only factors affecting the choice of
Boeing’s Japanese partners. Japan’s market for commercial aircraft is
dominated by Boeing to a degree unrivaled by any other country. Over the
last decade, Boeing supplied over 80 percent of the aircraft ordered by
Japanese customers. The nation’s flagship airline, Japan Airlines, has
never ordered a plane from Airbus, Boeing’s rival. The Japanese carrier
All Nippon Airways flew the 787’s maiden commercial flight and has
placed an initial order for 50 aircraft. Boeing said that over the last
50 years, Japanese carriers had ordered 900 Boeing aircraft, making
Japan one of its top markets by dollar volume.

Airbus has struggled to gain traction in the Japanese market. Evidently
taking a page from the Boeing playbook, it said it invested an estimated
$4.6 billion with Japanese suppliers for its jumbo A380. But $4.6
billion is a drop in the bucket compared with Boeing’s spending over the
decades. Airbus has since booked four orders for the A380 from the
low-cost Japanese carrier Skymark Airlines. Airbus has long accused the
Japanese government of engaging in improper subsidies to Boeing; an
Airbus executive called the 787 the most heavily subsidized civil
aircraft in history.

China hasn’t signed the Agreement on Trade in Civil Aircraft, and
aviation analysts have been watching closely to see if it will follow
Japan’s lead or embrace a free trade approach. Airbus has invested more
heavily than Boeing in China, where Airbus built its first assembly line
outside of Europe. But so far, its market share in the rapidly growing
Chinese market has remained about the same as Boeing’s. China is also
trying to develop its own domestic aircraft industry to compete with
Boeing and Airbus.

Boeing patronage has certainly brought benefits to Japan. Its three
giant “heavy” industries — Mitsubishi, Kawasaki and Fuji — have been
significant partners with Boeing since the development of the 767.
According to Boeing, they supply major components of the 767 and 777
airframes and were closely involved in the 777’s design. The company
said its Japanese partners designed and developed 35 percent of the 787
airframe structure, including the main wing box, which is the first time
Boeing has ever entrusted such a critical design component to another
company. Under their agreements with Boeing, they produce components
almost exclusively for Boeing. Mitsubishi is now manufacturing its own
regional jet thanks in part to what it learned from working with Boeing.

Boeing said that more than 65 Japanese companies were suppliers for both
commercial and military products. Boeing said it directly or indirectly
employed 22,000 people in Japan, or 42 percent of the country’s
aerospace work force. Boeing also has close ties to Japan’s Defense
Ministry, and the company said the two had “a long history of working
together to meet Japan’s defense needs.” Mitsubishi built the F-4E
Phantom fighter jet and Kawasaki manufactures the CH-47 Chinook
helicopter, both under license from Boeing.

Besides pursuing aviation and aerospace, Japan announced last July, as
part of its “Rebirth of Japan” strategy, that battery technology would
be one of its top areas for development and investment. GS Yuasa makes
no secret of the fact that its money-losing lithium-ion battery
operation has received subsidies from the Japanese Ministry of Economy,
Trade and Industry, most recently 318.7 billion yen (or about $3.5
billion) to begin mass production of lithium-ion batteries for hybrid
electric vehicles. (Japan is hardly the only country subsidizing the
battery industry. A123 Systems, a manufacturer of lithium-ion batteries
based in Massachusetts, filed for bankruptcy last year despite a $249
million grant from the Energy Department.)

Landing the 787 contract was a huge boost for GS Yuasa and for Japan’s
efforts in aviation technology. Though not well known outside of Japan,
the company describes itself as Japan’s leading manufacturer of
batteries and said it had supplied lithium-ion batteries for over 50
satellites “without anomaly or failure.” Still, this was its first
effort in commercial aviation. “I had never heard of Yuasa in the
aviation context,” Mr. Aboulafia said. GS Yuasa has since been chosen to
supply lithium-ion batteries for the International Space Station.
Although Pratt & Whitney nominally chose the company, Boeing is the
prime contractor on the space station.

There were better-known and more experienced suppliers of lithium-ion
batteries for aviation uses when GS Yuasa was chosen, including the Saft
Group of France, Mr. Aboulafia said. Saft describes itself as “the
premier battery supplier to the aviation industry,” and Airbus is using
Saft lithium-ion batteries for its new A350 aircraft.

GS Yuasa may well have been the best choice for the 787. Still, all of
this raises the question of whether GS Yuasa was chosen to design and
manufacture the 787 batteries solely on the criteria of “price, quality
and delivery” called for by the World Trade Organization agreement, or
whether other political and commercial interests played a role. The
latter “sounds all too plausible to me,” Mr. Aboulafia said. “That
doesn’t mean they’re incompetent. The Japanese respect engineering
expertise. You can’t argue that the Japanese heavy industries shouldn’t
have played a role in the design and development of the 787. So far,
their work has been very good.”

And any questions about GS Yuasa may be premature. Although the
batteries are suspected in the fires that grounded the 787 fleet, no one
yet knows for sure. Both Thales, the French company responsible for the
broader electrical system, and Securaplane, an American subsidiary of
the British engineering firm Meggitt that makes the battery chargers,
are also being investigated.

But whatever the outcome, experts said that with so many lives at stake,
the design and manufacture of new aircraft should be based solely on
legitimate issues of cost and quality, and the selection process for
suppliers should be transparent and untainted by other commercial or
political concerns.

“The greatest enemy of good aircraft is people who interfere with the
freedom to shop for the highest quality,” Mr. Aboulafia said.