[SCMP Column] Quality Japan

June 08, 2018

Japan’s economists are calling it “the True Dawn”: a glimmer of real hope that after two decades of zombie growth, Japan might at last be stirring back to life.

You could put it down to the inevitable springtime optimism that coincides with the sakura blossoming season – which came to Tokyo on March 22-23 this year, the earliest on record, and was therefore all but finished when I flew into Narita last weekend.

But I think there is more to it than the extravagant explosion of cherry blossoms across Tokyo’s parks. There is something significant happening.

When I last looked in any detail at Japan’s prospects, I sensed an existentially challenged community. Not only had economic growth stalled since 1990, but rapid ageing signalled the prospect of demographic decline, with the country’s working population shrinking sharply, and the total population slumping from 127m today to around 70m by 2060. The security of life-time employment were evaporating, and high costs created a sense of uncertain future competitiveness. Anomic youngsters were recoiling into computer games and cosplay.

The country’s century-long assumption that it was Asia’s “Number One” was being challenged even at home by the awesome growth of China. The alliance networks flowing back to the US were looking frail and worn – all the more so since Donald Trump arrived in office with his “America First” mantra.

But a week smelling the sakura-scented air in Tokyo over the past week hints of a new competitiveness, with traditional strengths being reburnished, and one-time weaknesses suddenly being reconfigured as strengths.

A sense that something was afoot emerged about 18 months ago when Japanese officials at APEC meetings began talking of the need for “quality infrastructure”, rather than just infrastructure. At first, I thought it was just a petulant rebuttal of China’s ambitious Belt and Road infrastructure-building initiative – a kind of “Yes, China can build you high speed railways and ports and roads and bridges, but they will be cheap and cheerful, and if you want true quality, you will do better to rely on us”.

Even now, I feel a sense of this, but there is at the same time real substance that businesses in Japan believe can define a newly competitive future. When Mitsubishi Heavy Industries briefed us on the 53-year life of the Shinkansen high speed rail system, the very first point they made was that since services began in 1964, there have been zero fatalities. Four hundred trains running every day at 320kph, with a punctuality of less than 1 minute system-wide, and not a single fatal accident.

A sense of a “Quality Japan” brand is emerging that combines not just unmatched quality and safety but a deeply embedded engineering technology that combines flawless minimalist Japanese style with Artificial Intelligence and other digital technologies.

You can sense this in the integrated planning processes at work as the Tokyo government works with business to revitalise the 120-hectare Marunouchi district around Tokyo Station at the heart of the city next to the Imperial Palace. Tokyo is a city that is almost uniquely built around the train – 760km of railway line and 660 stations (compared with 221km in Hong Kong and 87 stations) – keeping cars to a minimum, enabling extensive pedestrianisation, and delivering immensely energy-efficient transport to its 38m population. Here is a quality not just driven by aesthetics, but underpinned by deep-seated imperative to address earthquake risks and justifying significant investment in overall safety and disaster-prevention.

In many ways the logic is simple: if you are going to provide engineering techniques that protect against earthquakes, then this for sure makes you more costly – and therefore potentially uncompetitive. If you can’t compete on cost, then it has to be on the basis of high levels of efficiency and productivity that on a “total life cycle” basis makes quality affordable despite the high nominal cost. The same logic surely applies in Germany too.

A similar effort to transform a problem into an opportunity applies to the country’s burgeoning elderly population. No country has spent more on robots and digital technologies to tackle impending contraction of its working-age population, and more will be done. Instead of letting the demographic transformation create a mountainous and unsustainable burden on society, digital technologies are being put to work to enable the over 50s, over 60s and over 70s to stay well connected, and usefully in work.

Most recent data certainly suggests that some spring has returned to the step of Japanese economy. After a decade from 2000 during which growth flat-lined at around 0.6 per cent, it has averaged more than 1 per cent since 2012, with growth last year at 1.7 per cent, and forecast this year to be at least 1.4 per cent.

Hosting the World Cup Rugby Sevens next year, and the Olympics in 2020, is expected to bring stimulus, and a significant boost in international interest. For a country that has always been infamously introspective, the “Quality Japan” concept seems to have been boosting tourism on a unprecedented scale, along with its hard-earned reputation for safety and reliability. From just 8.4m visitors in 2012, Japan last year greeted almost 29m with annual growth around 20 per cent.

But scratch behind these numbers and an important new reality emerges: 80 per cent of Japan’s foreign visitors come from just four economies – Hong Kong, Taiwan, South Korea and China (China’s middle classes last year accounted for almost 26 per cent of Japan’s visitors, around 7.3m). That says there is huge room for growth, but it also says Japan still needs to reconcile itself to its main existential challenge – the rise of China as Asia’s pre-eminent power, and the need to build deep and constructive links.

The US might have been Japan’s primary economic driver from the end of World War 2, but that is changing. China can for sure deliver “scale”, but it will for some time still be Japan that delivers “quality”. Consciously capturing and capitalising on this could provide strong and long term foundations for future competitiveness. I don’t think it is just the cherry blossom season that is bringing a new sense of optimism.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entirely his own.

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