1. Important issues on post-COVID-19 economic recovery
At last, the time has come for Japan to start COVID-19 vaccinations after North America, Europe, and China. It is expected that COVID-19 infections will gradually die down in the future, although much is dependent on the vaccine efficacy against highly contagious mutations.
If that is the case, countries will begin focusing on measures for post-COVID-19 economic recovery.
Just days ago, I participated in an online conference hosted by a French think tank. The main theme of the conference was rebuilding of the French economy in the post-COVID-19 world.
While the very objective of the discussion was the French economy, the central issue was a theme common to major industrial countries: the implementation of short, medium, and long-term economic policies.
What I specifically thought would exactly apply to Japan in implementing post-COVID-19 economic policies are the following three points.
The first is not to extend the short-term emergency economic package, which includes cash benefits, implemented as temporary relief to cushion the COVID-19 shock to the economy.
Secondly, zombie companies with low competitiveness that should have withdrawn from the market have been rescued by COVID-19 financial support measures. These zombie companies must be urged to withdraw from the market as the economy normalizes.
The third point is to utilize the qualitative changes brought to economic society by COVID-19, such as working from home becoming more common, active use of web conferencing, improvements in the environment, in the future transformation of corporate management.
Major directions of this transformation are greening and digitalization.
2. Rebuilding the Japanese economy
With regard to the first point made above, Japan’s financial support has reached the level of approximately 40% of the GDP, which is the highest level among major industrial countries along with Italy and Germany.
While the Japanese government can be said to have generously supported the nation’s economy, it has also brought about the adverse consequences of large budget deficits.
Additionally, included in the adverse consequences is the big burden of having to urge zombie companies that have survived on account of relief measures to withdraw from the market, as indicated in the second point.
The withdrawal of zombie companies from the market will contribute to streamlining macroscopic resource allocation but, on the other hand, will bring about adverse effects of increased unemployment.
The problem of unemployment is not only caused by corporate bankruptcies and closures. Similar problems arise when surviving companies reduce or withdraw operations from individual sectors.
In relation to the third point, as qualitative changes are brought to economic society and workstyle by COVID-19, some businesses have become unnecessary, while others need to be strengthened and expanded.
In some cases, this may mean company-based withdrawal from the market or new entry into the market; in other cases, it may mean companies’ business restructuring in certain sectors or development of new businesses and marketing reinforcement.
As for greening and digitalization, which are expected to become new business areas, the Japanese government has taken up “realizing digitalization and green society” as one of the priority measures to promote structural changes and a virtuous economic cycle for the post-corona era in the Comprehensive Economic Measures to Secure People’s Lives and Livelihoods toward Relief and Hope package approved by the Suga Cabinet on December 8, 2020.
In the content, measures are listed for digitalization of administration, promotion of the spread of My Number cards, further promotion of ICT in education and medical care, regulatory reform necessary for such promotion, development of new technologies for carbon neutrality, changing the lifestyles of people to realize a green society, etc.
As stated above, we can see that Japan and France share almost the same issues in the framework of implementing economic policies for post-COVID-19 economic recovery.
These issues should be considered common to the major industrial countries of Japan, the US, and Europe.
3.Utilization of the Chinese market, a decisive factor for recovery of the Japanese economy
The above-mentioned three issues must certainly be implemented in the indicated direction, but their implementation is not so easy when considering the actual setting for policy practice.
If the government stops the short-term financial support measures, there will arise the risk of many bankruptcies and unemployment, driving companies that are not zombies out of the market or making companies reduce or withdraw operations from sectors in which they are essentially competitive.
Furthermore, even if corporate management were to transform towards digitalization and greening in line with the economic society’s qualitative changes, there is no guarantee of continued increase in corporate revenue and stable management.
In the first place, we must be prepared that there may be no sure way to avoid such risks amid the unprecedented adverse conditions of the COVID-19 pandemic, considering the actual severe macroeconomic environment and corporate management environment we are facing.
However, there are hopeful ways of resolving the situation by endeavoring to cultivate new markets. One such opportunity is the strengthening and expansion of strategies to cultivate the Chinese market.
China’s domestic economy has almost recovered to normal, achieving a real GDP growth rate of +6.5% in the 2020 fourth quarter to the same level of growth rate as before the breakout of COVID-19.
The actual GDP growth rate for the full year of 2020 reached +2.3%, emphasizing recovery, while those of major industrial countries such as the US (-3.5% (preliminary figure)), EU (-6.8%), and Japan (-4.8%) marked significant negative growth across the board.
In the situation after the bankruptcy of Lehman Brothers in the autumn of 2008, it is said that China’s implementation of huge economic packages saved the world economy from an economic crisis. The Chinese economy today is about three times larger than it was at that time.
This time, although the Chinese government is discreet in taking fiscal actions, placing emphasis on keeping a lid on fiscal and monetary risks, the scale of the economic-stimulus packages already implemented by China exceeds those taken after the bankruptcy of the Lehman Brothers.
As such, Japanese companies in China point out the recurrence of the situation in which China saved the world economy after the Lehman Brothers collapse.
When we consider corporate management aiming for post-COVID-19 transformation, there are limitations to achieving results by cultivating the Japanese market, which is one third that of the Chinese market, given that Japan’s real growth rate will be around 1% despite promotion of digitalization and greening in Japan.
If we target the Chinese domestic market in taking on the challenge of digitalization and greening, the market scale and growth rate would be overwhelmingly greater.
Of course, for companies that have not yet entered into the Chinese market, the hurdle and risks would be high for market newcomers.
It would not be wise for these companies that do not have world-class technologies and the preparedness to continue endeavoring despite failures to make the challenge.
However, a great number of Japanese companies have already been successful in China, among which are included many leading companies.
If these companies’ revenues of China business increase, it will lead to expanding capital investment and employment in Japan.
And if these have the effect of supporting the Japanese economy, workers who have become unemployed owing to the withdrawal of zombie companies and restructuring of unprofitable operations may be absorbed, enabling a smooth process in reducing the emergency economic relief measures.
4.Long-term benefits of tackling the Chinese market
In addition to the above-mentioned short-term benefits of the Chinese market in a post-COVID-19 world, there are also attractive long-term benefits.
Some Japanese companies actively send young employees to China, if they give their preference, to have them experience working in China. China has a huge market that continues to rapidly change and expand.
Japanese business persons working in China will experience a strong performance that they have never seen in the Japanese market, gain a great sense of fulfillment, and be motivated to take further initiatives.
These experiences foster positive mindsets.
Competent young employees can gain important experiences in refining qualities that are expected of future corporate managers by feeling the joy of cultivating new markets, overcoming difficulties through free thinking amid cross-cultural exchange, etc.
In fact, young employees who have improved their abilities through such experiences have become noticeable. This is the energy of an expanding market.
At the moment, China is the only place where Japanese companies can have a firsthand feeling of such energy. The markets of leading industrialized countries are mature and refined but lack rapid change and expansion.
In other developing nations, income levels are still low, and their market needs have not reached the level of high quality in which Japan is strong.
In contrast, Japanese companies can compete with the quality of products they sell in Japan in various areas of the Chinese market. As for the IT industry, China’s technology level exceeds that of Japan in some areas, and the level of digitalization of overall economic society in China has surpassed that of Japan.
Consequently, if we are to aim for transformation towards digitalization in a post-COVID-19 world, the Chinese market will be the perfect place for taking on the challenge.
As mentioned above, China has by far achieved economic recovery in the world. Furthermore, the improved Japan-China relationship since 2018 is further boosted by deteriorating US-China relations.
Taking this opportunity, Japanese companies in China have begun to devise new strategies to cultivate the Chinese market.
Some of these strategies are the establishment of research and development centers in China, new construction of plants and expansion of production lines for increased production of successful-selling products, speeding up of China business by having authority transferred to companies in China in line with the new establishment of a research and development base, and alliances with emerging Chinese companies to cultivate China’s domestic market.
It is no exaggeration to say that the rebuilding of the Japanese economy depends on Japanese companies that are successful in China.
I greatly hope that Japanese companies tackling the Chinese market will further accelerate their activities.