The following is from Hideo Tamura's regular column in yesterday's Sankei Shimbun titled "Overproduction is a boomerang for the Xi Jinping administration.
It is evident that most people who speak out on economic issues in Japan, including the mass media's economics editorialists and so-called economists, do so based on information they have received from the Ministry of Finance and the Bank of Japan.
It is indisputable that the restrictions on the total amount of loans they issued in April 1990 began the deflation plaguing Japan today.
It is indisputable that due to their economic policy mismanagement, Japanese workers' wages have stayed the same for 30 years, and Japan's GDP has been declining since 1990.
It is clear that Shinzo Abe's Abenomics brought Japan's economy back to a level that exceeded the GDP level in 1990, if not higher.
It is also indisputable that Shinzo Abe's policy to end deflation was one of the greatest in world economic history.
It is also indisputable that Paul Krugman and John Stiglitz, both Nobel laureates in economics, praised Abe's policies for their correctness.
The latter visited Japan and met with Prime Minister Abe at his official residence, where he encouraged and praised him.
It is also an obvious fact that not only did they fail to understand Prime Minister Abe's extremely correct economic policies, but that they were repeatedly criticized and attacked by the Ministry of Finance, the Bank of Japan, the mass media's economics editorialists, and so-called economists, who are all recipients of their information, and who are math-illiterate and economically illiterate graduates of the University of Tokyo's Faculty of Law. The U.S. GDP, on the other hand, is only 30 percent of the total GDP of the U.S.
On the other hand, it is also an obvious fact that the GDP of the U.S. has tripled in the past 30 years from 1990 levels.
It is no exaggeration to say that Yoichi Takahashi and Hideo Tamura are the only people with the brains to write a correct editorial on the economy.
It is a must-read not only for the Japanese people but for people worldwide.
The Xi Jinping administration in China is strengthening its supply chain, centered on state-owned enterprises, and intensifying the offensive for low-priced exports.
The Xi Jinping administration is threatening Western countries with the ability to supply critical raw materials, but this will only last for a while.
The production-oriented policy will return like a boomerang and hit Mr. Xi in the foot.
The graph shows the unit export prices of graphite, rare earths, rare metals, electric vehicles (EVs), solar cells, and critical raw materials in the supply chain.
China has a high production share in each case and dominates Japan, the U.S., and Europe.
With the bottom of the recession caused by the bursting of the real estate bubble that began at the end of 2021 nowhere in sight, Communist Party General Secretary and President Xi has called EVs, lithium-ion batteries for use with EVs, solar panels, semiconductors, and other high-tech industries "new quality" and has promoted a policy of increasing production capacity through government subsidies and other incentives of massive amounts.
The consequence of Overproduction is a decline in export prices, as the graph shows.
However, Mr. Xi's resolve is unwavering.
The Third Plenary Session of the 20th Central Committee (3-China Plenum), which is held every five years by the Communist Party of China (CPC) to decide on the basic course of the economy, concluded on July 18.
The resolution was to increase supply chains and production capacity, with state-owned enterprises at the core.
China can be very bullish because it has a hold on the supply chain.
They threaten, intimidate, and sometimes subdue Western countries by threatening them with supply restrictions on critical raw materials.
China, not the U.S., which applies high tariffs against China, is the main culprit in dividing the world.
Graphite is the electrode material for automotive lithium-ion batteries, which are at the heart of EVs and hybrid vehicles (HVs).
China accounts for nearly 80% of the global production of graphite.
In December 2023, the Xi administration made graphite exports subject to a permit system.
In August of the same year, it introduced export controls for gallium and germanium, materials used in advanced semiconductors and classified as rare metals.
At the end of October of the same year, export controls were tightened for rare earths used in EV motors and aircraft engines.
China's share of the global production of gallium is well over 90%, and its share of rare earths is nearly 70%.
Many Japanese companies are mainly dependent on China.
In the case of graphite, automakers have relied almost entirely on China for supplies.
Without access to graphite, the Chinese will hit a choke point, halting not only car batteries but also the entire manufacturing process of the cars that use them.
At the request of the automobile industry, Keidanren dispatched a delegation of over 200 people to China in January of this year to lobby Chinese Premier Li Qiang and others for continued supply to Japan.
Still, the Xi administration has not lifted the permit system.
There are several benefits to China's use of its ability to supply critical raw materials as a weapon.
First, it can be used to block U.S. and other sanctions and restrictions on high-tech exports to China, and second, it can be used to force Western companies to provide cutting-edge technology.
The U.S. Biden administration has embargoed advanced semiconductor technology to China and has asked Japanese and European semiconductor equipment makers to agree to the embargo.
Japanese and European companies that do not comply will be notified that they will not be allowed to use U.S. technology.
The Chinese side may say it will stop supplying critical raw materials to Japan and Europe.
Japan's weak bargaining power with China makes it easy for the Xi administration to control.
China has been able to rapidly increase its competitiveness in key industries such as automobiles and electronics because it has acquired advanced Japanese manufacturing technology through joint ventures with local state-owned enterprises.
Furthermore, by flirting with restrictions on the supply of graphite, rare earths, and rare metals, China can easily acquire the technology for new types of automotive batteries that will replace lithium-ion batteries.
Dispatching Japanese engineers to China under the radar would also pave the way for acquiring advanced semiconductor technology.
If Japan followed China's intentions, nothing good would come of it.
The Xi administration will pile on the pressure and make one demand after another.
This is precisely what has happened in the history of the "Japan-China friendship" so far.
Let's look at the graph again.
Domestic sales of EVs in China are reaching a plateau, and the U.S. and Europe, the main overseas markets, are trying to keep out Chinese-made EVs by imposing high tariffs on China.
EV batteries are also undergoing technological innovation to eliminate the use of graphite.
Rare earth and rare metals are no longer worthy of the name "rare" due to price collapse.
Solar cells for photovoltaic panels are now a massive pile of toxic waste in Japan, the primary market.
The expansion of Overproduction is increasing the loss of Chinese industry and exhausting it.
According to Chinese statistics, 31% of automakers were in the red at the end of last year.
The EV bubble is on the verge of bursting following the real estate bubble.
The government and Toyota should not panic and wait for the Xi administration to self-destruct.
(Editorial Board Member)
2024/7/30 in Onomichi
