It's common knowledge in the business arena that eastern nations are developing at a rapid and wild pace. Countries like China and Japan have experience a tremendous amount of development in the past few decades and the growth has been steady, making them formidable opponent and allies on the world stage. But on closer examination one knows that growth is not the singular reason to invest in a given country. One needs to look at the entire climate of the country in order to assess if that's a viable option, examining each factor of the country's make up and dynamics. This paper will attempt to do exactly that, comparing the viability of China vs. Japan in terms of the factors which will directly influence the soundness of foreign investment.
China's Political and Economic Climate
"Thirty years ago, China was one of the world's poorest countries, with 80% of its population having a daily income of less than one dollar per day and an adult literacy rate of one-third" (Zimmerman, 2010). This was a result of living under the ideas of Chairman Mao where communist values prevailed. These values focused upon totalitarianism, egalitarianism and poverty with no legal system in China as late as the 1970s and a paltry amount of laws and regulations when compared to developed countries; in fact, there were no private businesses (Zimmerman, 2010). All of this changed when Deng Xiaoping came to power in 1978 after the Mao Zedong died, setting into motion reforms which privatized agriculture and industry, loosening the controls on prices, welcoming foreign investors in a massive attempt to decentralize all economic and political decision-making (Zimmerman, 2010). "Thereafter, the country's average annual growth rate increased to approximately 8 to 10% per year, and in several peak years, the economy grew by 13%. Today, literacy is 93.3% compared with 20% in 1950, consumption has increased exponentially, and the poverty rate has declined to roughly 10% of the population (from over 60% in 1978)" (Zimmerman, 2010). The aggressive and strategic changes made by Deng Xiaoping helped attract foreign investment which had a huge impact in sparring the economic growth and development. While this is indeed a fact, this doesn't necessarily mean that the political climate is still welcoming for foreign investment or still ideal for foreign investment.
In fact, in recent times, China has received a great deal of bad press regarding their political climate. For example, just last year, "U.S. Ambassador to China Gary Locke has told National Public Radio (NPR) in the U.S. that the political situation in China is "very, very delicate" and the country's human rights record had worsened" (Harjani, 2012)… Locke said there is growing frustration among the Chinese people over the "operations of government, corruption, lack of transparency" and he referenced China's "Jasmine Revolution" last February, which was modeled on the pro-democracy demonstrations seen across the Middle East" (Harjani, 2012). While other members of the U.S. government have chided Harjani for his candidness and for the such a negatively focused remark, others can't help but agree that corruption and the bureaucratic actions of the government are a massive problem in China today and which are souring the entire political climate.
The soured political climate is connected to the economic slowdown. China's economic slowdown is of course connected to the financial turmoil in both China and the United States which resulted in a weak domestic investment growth. However, part of this issue is enmeshed in the fact that exports and investment make up 30 to 40% of China's GDP and the economy is particularly at risk to dwindling external demand and the build-up of non-performing loans as a result of overspending on fixed assets (Pei, 2012). But even that is not a complete picture. "But China's vulnerability to these factors, as serious as they are, is symptomatic of deeper institutional problems" (Pei, 2012). Such a sentiment is perhaps the most accurate appraisal of China to date. One of the biggest reasons responsible for China's macroeconomic imbalance is the overt and unhealthy dependence on exports for development as that's a flagrant indication of a weak demand within the country. China's poor political and economic institutions play a large role in why there's such a need for exports: the heavy export dependence is an accurate snapshot of how trying it is to do business in China. "Official corruption, insecure property rights, stifling regulatory restraints, weak payment discipline, poor logistics and distribution, widespread counterfeiting, and vulnerability to other forms of intellectual-property theft: all of these obstacles increase transaction costs and make it difficult for entrepreneurs to thrive in domestic markets" (Pei, 2012). Thus, the political climate is having a clear and indelible impact on doing business in China and the economic viability of the nation as a whole.
Japan's Political and Economic Climate
Technically speaking, Japan is behind China in GDP size (Remak, 2010). Even so, Japan is still going through a time of great change, as marked by a decreasing birthrate, an elderly population which is growing, the globalization of corporate activity, and the advancement and growing use of all information technologies (alibaba.com, 2010). Even so, Japan (like much of the rest of the world) is dealing with a marked sluggishness with its economy. "Buoyed by a recovery in corporate earnings, capital investment in the private sector is on a sustained uptrend. In addition, the recovery in share prices has dispelled much of the uncertainty about the financial situation, and that should have a positive effect on capital investment and consumer spending" (alibaba.com, 2010). The real GDP growth of Japan's fiscal year is at 2%, but many experts feel that if the American economy starts to experience even more bolstered economic recovery, Japan should be expected to experience a growth also at that rate (alibaba.com, 2010). There has also been a marked appreciation of the yen, which will hopefully be continued to be restored to exchange rates for the general sake of the entire nation (alibaba.com, 2010).
The Japanese economy has recovered with in a consistent fashion, but not in a manner which could be considered "sound and steady." "That is because the social and economic systems that underpinned Japan's postwar period of rapid economic growth have ceased to function effectively amid changes such as the declining birthrate, the aging of society, globalization, and the pervasive spread of information technologies" (alibaba.com, 2010). For growth to continue adequately the political climate needs to see both government and private industry work in conjunction to help change the nation's socioeconomic systems so that the new economy has a greater level of autonomy (alibaba.com, 2010). There are three overwhelming ways in which this can be achieved: the first would be by fortifying the competitive base that is absolutely vital for Japanese firms to excel in order to properly deal with global competition (alibaba.com, 2010). Secondly, there needs to be greater freedom in the private sector, so that companies feel like they can adequately exercise their creativity and innovation so that the nation can break away from such a bureaucratic society; finally, sweeping away the anxiety about the future is also a priority as this is something which riddles the Japanese people with fear and anxiety.
China: Infrastructure and Natural Resources
While China's current infrastructure might not present the picture of stability to the rest of the world, it is currently working hard to correct this, hemorrhaging a wealth of money into the country at large. "As the competitive advantage of low-cost, export-oriented manufacturing in China's coastal industrial hubs wanes, Beijing will rely more heavily on the cities along the western and central stretches of the Yangtze River to drive the development of a supplemental industrial base throughout the country's interior" (Forbes, 2013). China is trying to find a secure way to manage the migration of industrial movement from the coast to the interior of the country, while anticipating the social, political and economic issues such a move will make (Forbes, 2013). These changes are a fundamental necessity for stable and sustainable growth founded on a higher domestic consumption model and something which is founded in the need to create long-term security for the nation as a whole (Forbes, 2013). Moreover, the central government of China has long had an increased focus on expanding the inland waterway port as these are much smaller when compared to the costal ones (Forbes, 2013). However, the only thing that might deter prospective investors is the fact that, "…of the major Yangtze ports for which the National Bureau of Statistics provides freight traffic data, only three (at Chongqing, Yueyang and Wuhu) showed significant growth in throughput between 2007 and 2011. Wuhan, the flagship of new port investment on the Yangtze as well as nationally, actually saw declines in both the number of berths and freight throughout during that period" (Forbes, 2013). Analysts remark that this discrepancy is likely to be a result of the fact that China uses current construction projects in order to shape future realities.…