Japan has a GDP roughly four times China's, but it is a country which looked at from the perspective of the other side of the Yellow Sea and the longer term, is in big trouble.
China Eye visited Japan recently and came away convinced that China will completely overwhelm Japan. The basic reason? Flexibility.
Social, political, economic, psychological flexibility. China and Chinese society have it. Japan and Japanese society don't. Some evidence:
1. English language ability: depressingly low in Japan, in spite of the outward international sophistication of Japanese society. In Tokyo, it is really difficult to find anyone who speaks English, and the study of English is not considered a mainstream career requirement. In China? Getting easier all the time – everyone is learning English.
2. Mobile phone non-connectivity: why is Japan the only place in the world where phones from outside do not work? It is a terrible and accurate measure of the extent to which Japan is out of touch and out of step.
3. Refusal to say sorry to China and Korea: if there is one easy way for Japan to just completely remake its relationship with the world, face up to the past, deal with its insularity and fear of the outside, it is to say to China, and Korea: "Look, we are really sorry for what happened. We were wrong and we apologize." Will it happen? I asked the question of several people in Japan, and the answer is: no, not in the foreseeable future. The result is that during the key period where China is growing strong, a whole generation of increasingly opinionated and proud Chinese people take a fundamentally negative attitude towards Japan. This is not in Japan's long-term interests.
5. Lack of direction/life purpose among Japanese people: particularly men. This is a subjective view, but I sense more vitality, more ambition, more drive and LIFE in the average Chinese person than their Japanese counterpart.
6. World view. Chinese people get it – China is now a part of the world.
Japanese people don't get it – Japan is still trying to fend off the rest of the world.
Japan is powerful, has a huge economy and masses of cash. It has the ability to produce better gadgets than anywhere else on the face of the planet. But as the old cliche has it, it lacks a fundamental creativity, which China shows signs of having more of. And then there is the flexibility.
Would it have been better if General MacArthur had pulled the Japanese emperor off the throne in 1945, rather than leaving him as a symbol of continuity? Would the shock of republicanism have helped Japanese people move on? Does China's current vitality in some way derive from the shock of change administered in 1949? Maybe.
The Shanghai property market continues to head up, raising all sorts of concerns about whether or not it is now into bubble territory. One sign usually is a disconnect between purchase prices and rental values, and for years now, there has been effectively no relationship between the two in Shanghai – sale values go up, rentals go down.
It feels unhealthy and unsustainable. And so it would be in most cities around the world at most times. But Shanghai in this era at least, I will argue here, is different.
My impression is that the "buy to let" market is not the main proportion of sales in the Shanghai market. The biggest categories are "buy for investment" and "buy to live in."
"Buy for investment" is the reason behind many purchases by Shanghai people, wealthy Chinese people from other parts of the country, and from outsiders – foreigners, Taiwanese, Hong Kongers, etc. Everyone sees Shanghai's position in the world heading upwards. It appears likely to overtake Hong Kong by many measures before too long (the "financial center" element awaits the free convertibility of the renminbi). Shanghai appears fated to be one day the New York of Asia. Even Tokyo in the end, for reasons just discussed, will fall behind ascendant Shanghai. Property values will rise over the medium-and longer-term to meet that mark.
"Buy to live in" is of course the main factor in the wider property market. And the power of this factor should not be downplayed. The determination of Shanghai's masses to become middle class will eventually change China in all ways, and they are a long way from where they want to be.
Both these factors are long-term, but only became significant in the past five years. So there is a lot of upside potential on both. Which to me makes the illogic of the "buy to let" equation less destabilizing than it would be in a normal market. Buying Shanghai real estate for investment is a risk, of course, regardless of the direction of the overall market. The risk comes from the nature and situation of the specific place you buy.
The quality of property management, changes in the neighborhood, government decisions on highways and so on.
These are the risks, but the average good apartment in Shanghai bought at a reasonable price in early 2005 is likely to appreciate in value significantly over the next five to 10 years.