Japan's New Identity

In the close-knit world of Indonesian business, Japan's Sanyo Electric Co. has long hoped to establish itself as an insider. Its 25-year effort reached a high point in February with the opening of a new refrigerator plant in West Java. The factory will employ 170 workers and will put together 200,000 fridges every year--with more than 50% local content.

As the yen reaches record levels against the U.S. dollar, Sanyo needs friends in places like Indonesia because Asian nations are becoming not only important manufacturing centers but also hot markets. "The growing economic power is in this area, not the U.S. or Europe," says Koji Miyagawa, president-director of Sanyo Industries Indonesia. "And the culture here is closer to Japan's."

People like Miyagawa are part of an important shift in the way many Japanese are viewing the world. After years of dependence on the U.S. both for its markets and military protection, Japan is turning to Asia and decrying subservience to Washington. From South Korea to China to Southeast Asia, Asians now buy more Japanese exports than the U.S. does, becoming the largest source of Japan's trade surplus. And Japanese manufacturers are plowing the cash earned from exports into new Asian manufacturing sites. Indeed, the superyen both nudges corporate Japan into Asia and makes such investment alluringly cheap (charts, page 110).

In short, Japan is hitching its future to Asia as growth in the West--and in its own economy--flags. The economic shift has been quietly under way for years but now seems to be passing crucial cultural and political thresholds. Japanese politicians, for example, have picked up on the drift, attempting to heal war wounds and forge stronger political alliances with Asia. The most extreme among them call for an alliance to oppose a U.S. government that pressures Asians on everything from trade policy to human rights.

One such leader is maverick Liberal-Democratic Party figure Shintaro Ishihara, co-author of the late-1980s anti-American screed, The Japan That Can Say No. Last year, Ishihara followed up with

The Asia That Can Say No, written with Malaysian Prime Minister Mahathir Mohamad--one of America's fiercest critics in the region.

The two urge Japan to turn its back on the U.S. and return to its Asian roots. After 50 years of "unnatural" membership in the Western community, Ishihara says, Japan should cleave to the East. "This is a nation of Asian people with Asian blood," he says. "It seems natural that we recognize that we exist first for Asia."

SOURCE OF JITTERS. Ishihara's call for a new Japanese identity is being echoed by other nationalists. For instance, Ambassador to Hanoi Kazuo Ogura has penned a widely noted piece calling for Japan and its neighbors to promote such "Asian values" as discipline, diligence, and the primacy of the group ever the individual. Some are even calling for the resurrection of the Greater East Asia Co-Prosperity Sphere, the euphemism given by Japan's wartime leaders to their empire that extended from Manchuria to Indonesia.

Such talk causes jitters among many Asians. But most governments in the region appear to have decided that they are now powerful enough to engage Japan on more equal terms than before. Their goal is to extract more Japanese investment and technology with hopes of furthering their own economic power. "People know Japan is an important source of money," says Chen Peng-Jen, professor of political science at Soochow University in Taiwan. Adds Hadi Soesastro, chief economist at the Center for Strategic & International Studies in Jakarta: "All of us are trying to maximize what we can get from Japan."

Japan's swing, dubbed "re-Asianization" by Yotaro Kobayashi, CEO of Fuji Xerox Co., has picked up a historically loaded slogan: "Datsu-o, nyu-ah," or "Leave the West, enter Asia." This expression resonates because when Japan ended centuries of isolation in the 1850s, setting the stage for the modernization of the Meiji era, the nation adopted a reverse buzzword: "Datsu-ah, ny-o," or "Leave Asia, enter the West."

Could Japan's current shift become as momentous? Some fret that it might. "I fear there's widespread support for Ishihara's viewpoint," says Michael Mochizuki, co-director of the Center for Asia-Pacific Policy at Rand Corp. in California. "Japan wants more freedom from the United States."

The potential implications for the West are huge. Few people believe that Japan could completely divorce itself from the U.S. or Europe, walking away from the large economic stakes it has amassed. And Tokyo has not gone as far as Washington in formalizing its relations with neighboring economies. But it is also clear that Japan needs new sources of growth, particularly to pay the mounting bills for its aging population. Getting that growth means Japan's emphasis on new trade, investment, financial, and technological moves will be in Asia. "Japanese are getting more cautious about putting money into the U.S." says Makoto Kuroda, until recently a senior managing director at Mitsubishi Corp. "Asia is more profitable and dynamic."

Although Japan's push will spur economic growth, it also seems certain to raise the level of business competition in a region that Americans also are targeting. The rapidly changing competitive landscape is not a challenge so much to Motorola, Intel, or General Electric as it is to smaller or medium-size companies just now beginning to tackle those markets. Deepening economic ties with Asia could also make Japanese companies more competitive and their government more resistant to Western trade demands.

FROZEN OUT? In geopolitical terms, Japan's new identity will greatly complicate American diplomacy. Washington's attempt to extract human rights pledges from China could be undercut if Japan sends differing signals to Beijing. The Asia-Pacific Economic Cooperation forum, which is aimed at making sure the U.S. is not kept out of an all-Asian trade bloc, also could be undermined, and efforts to isolate countries such as Burma frustrated, because of a growing sense that Japan's interests may not always converge with America's. A senior official at the Foreign Ministry says leading members of the government are complaining that Japan is too deferential to the U.S. when it comes to such regional issues. "This is a new game," says the official.

Still, there are risks in this new era. Asian nations don't always find that Japan's embrace is entirely beneficent. Countries such as Malaysia and Thailand have enjoyed large sums of new Japanese investment. But they also have developed huge, structural trade deficits with Japan. Their yen-denominated loans from Japanese institutions also have soared in local currency value--and Tokyo shows few signs of wanting to renegotiate onerous loans. And East Asian nations that were savaged by Japanese troops during World War II worry that an increasingly independent Japan could start to rearm.

It's not just wartime atrocities that present problems for the Japanese. Having long looked down on the rest of Asia, many Japanese are finding that they are out of touch with their neighbors' cultures. For instance, while Sanyo has been welcomed by Indonesian politicians, its Japanese managers sparked an uproar last year among its workers. They went out on strike after Sanyo refused to allow 33 of its female assembly-line workers to wear Muslim traditional dress. The company cited safety reasons for its stance. After four months, Sanyo agreed to a compromise in which the women could wear uniforms that covered their arms and legs, as Muslim mores dictate. "We're learning that religion has an equal priority to procedure," concedes Sanyo's Miyagawa.

Moreover, some Japanese worry that by flocking offshore, manufacturers are "hollowing out" their home economy. But unlike U.S. multinationals that started moving production overseas years ago, often to independent suppliers, Japanese companies are maintaining total control and keeping fabrication of all strategic products at home. What's more, Japan's working-age population is peaking this year, meaning Japan's already low unemployment rate isn't expected to worsen much by any hollowing out.

Other Japanese wonder whether by promoting Asian strength, Japan may be creating more competitors--economic, political, and military. Economically, these competitors could well use the Japanese model against the Japanese, as South Korea already has started to do.

Such potential hazards haven't deterred giants like Mitsubishi, which is vigorously establishing regionally integrated networks of alliances and business deals. In China, Mitsubishi Corp. has established alliances with China Natural Gas & Petroleum Corp. and Baoshan Iron & Steel Complex Corp. to explore ways of doing business together. In the Philippines, the company has developed a successful industrial park and is a partner in a power-generation project. In Vietnam, a joint venture with Mitsubishi Motors, Malaysia's Proton, and local investors will assemble vans. Meanwhile, Mitsubishi Motors Corp. next year plans to export pickup trucks from Vietnam to Japan.

THE BIG STAKEOUT. Other Japanese giants are equally aggressive. Honda Motor Co. has launched three joint ventures in China to make and sell motorcycles. Honda is also developing a new sedan for production in Thailand. Nissan Diesel Motor Co. soon plans to introduce an "Asian truck" for sale in Southeast Asia. Through standardization of parts and local production, it expects to cut costs by 30%. In January, Toyota Motor Corp. said that by 1998 it would expand its Asia parts-making network to include about 100 parts, a sharp boost from the current 12.

The company is already planning to introduce a low-priced "Asian car" in 1997, when it intends to double annual car production in Southeast Asia, to more than 1 million. By the time Detroit's Big Three follow through on recently announced plans to set up operations in Southeast Asia, relationships with part suppliers and distributors may be tied up. "The East Asia auto market could be Japan's," says James Abegglen, a Tokyo-based consultant.

Other Japanese industries are moving fast to stake out Asia as well. Matsushita Electric Industrial Co. has 15 affiliates in Malaysia that account for about 4% of the country's exports. In early February, Kawasaki Heavy Industries Ltd. and Nissho Iwai Corp. signed an agreement with Malaysia's Diversified Resources Berhad to build a $100 million motorbike plant in Malaysia. By 1998, Toshiba Corp. plans to invest $122 million in seven Thai affiliates, making color televisions, air conditioners, computer monitors, and semiconductors. In the Chinese port of Dalian, neon signs for Canon, Hitachi, and NEC abound.

Thailand typifies Asia's open-arms welcome to the Japanese. Over the next three years, the Thais aim to attract $8 billion in new Japanese investment to create 160,000 new jobs. One indication of its seriousness: Bangkok is closing its Hong Kong investment-promotion office and moving it to Osaka.

This all adds up to a much stronger tilt by Japan toward Asia than by the U.S. or Europe. According to an estimate by Deutsche Bank, Japan's cumulative direct investment in East Asia through 1994 totaled $64 billion, against an estimated $26 billion from the U.S. and about $7 billion from Germany. In 1993, East Asia took 36% of Japan's exports, against 17% of America's and less than 10% of Germany's or France's, according to the International Monetary Fund.

CARVING OUT. Individual deals don't rattle Western experts as much as the prospect that Japan's entire model of export-led growth and barriers to imports will be imitated throughout the region. Some Asian governments are welcoming Japanese specialists to advise them on how to design and implement industrial policy. Japan's Ministry of International Trade & Industry has experts visit China regularly to dispense knowhow on industrial policy and economic development. China has already taken at least one lesson from Japan's handbook: It's protecting such strategic industries as autos from foreign competition. "If we've been unsuccessful in dealing with MITI, think what that means for us in dealing with China over the next 50 years," says Mark Foster, a U.S. attorney specializing in cracking Asian markets.

Bolstering Japan's clout in the region is its disbursal of foreign aid. Already the world's largest aid donor, Japan directs much of its money to Asia so as to carve out a sphere of influence. Much of this overseas development assistance is in the form of loans. At the end of 1994, Japan's Overseas Economic Co-operation Fund had $69.6 billion worth of loans outstanding in Asia. That's 78% of the OECF's total portfolio. Indonesia was the biggest recipient, followed by China, the Philippines, India, and Thailand.

Japan's growing influence isn't just economic. More than ever, Asians are embracing Japanese cultural exports. In April, Nihon Hoso Kyokai, Japan's public TV network, plans to expand its programming to Asian broadcasters and cable operators from 105 minutes a day to 12 hours. Asians are consuming more Japanese culture than ever. In Taipei, a line forms nightly outside one of the most popular Japanese restaurants. In Hong Kong, Tokyo Love Story, a popular miniseries dubbed into Cantonese, has generated comic-book spin-offs.

Throughout Asia, youngsters bounce to the beat of such Japanese pop groups as the Southern All Stars, Hikaru Genji, and Chage & Aska. And regional stars are releasing their own versions of Japanese hits. This growing acceptance of their culture in the region makes Japanese feel more part of Asia.

In return, Japanese are showing broader interest in ethnic foods, movies, pop music, and books from their neighbors. More Japanese than ever are studying Asian languages and traveling in the region. A new album in Mandarin by Taiwanese singer Faye Wang is a big seller. Asian movies such as Chinese director Chen Kaige's Farewell My Concubine are appealing to a mass audience. "Asian movies take us back 30 years to Japan's period of modernization," says Takahiro Hirao, chief editor of Crea, a popular women's magazine. "Those were the good old days. Now we feel that Asia is like that." Late last year, Crea published a package of stories on Asian food, movies, literature, and travel.

MINOR IRRITANTS. To be sure, all Asians aren't buying into Japan's re-Asianization drive. Even some of Japan's erstwhile allies criticize its behavior in the region. Ishihara's co-author, Prime Minister Mahathir, has expressed ire at Japan's refusal to renegotiate loans taken out before the yen's 100% rise against the Malaysian ringgit. He says Malaysia won't take any more Japanese loans unless they're denominated in a currency other than yen. Mahathir is also upset with Japan's $4.7 billion trade surplus with Malaysia and its restrictive trade practices. Chinese, Taiwanese, and Korean officials similarly have decried Japanese trade barriers. Many Asians complain about the failure of Japanese companies to promote local managers to top positions or to transfer substantial technology.

So far, none of those irritants appears so great that it will halt Japan's entente with Asia. To manage these "frictions," much as they have previously managed disputes with the U.S., Japanese are making a show of greater generosity. MITI, for example, recently offered to help develop parts industries in Asian countries by dispatching retired manufacturing engineers and paying three-fourths of their salaries.

To respond to Asian complaints that the Japanese have lagged U.S. or European competitors in transferring technology, the Japanese are making the first moves in that direction. The Mitsubishi group has opened a research center in China to share technology on a variety of fronts, including environmental cleanup. Pioneer Electronic Corp. in January agreed to supply scrambling technology for cable-TV systems to Tongkook General Electronics Co. of South Korea. And NEC Corp. is sharing chip designs with Taiwan Semiconductor Mfg. Co. "The Japanese realize there is a problem with the pace of technology transfer, and they are ready to accommodate this," says Stephen Leong, executive director of the Center for Japan Studies in Kuala Lumpur.

Many Asians shrewdly argue that a heightened Japanese presence will give them a new tool to pry concessions out of U.S. multinationals. "Our government sees that it can use Japan as a balance to U.S. investment," says legal scholar Li Shuguang at the Chinese University of Political Science & Law in Beijing. "China is happy to see a contest between Japan and the U.S. for market share. It creates a strategic triangle that only gives China more choices."

Indeed, Japan's new Asian identity means that U.S.-Japanese rivalries are becoming more complex than ever. Instead of being confined to two-way issues, they will be visible throughout the region. "U.S.-Japan competition will get more intense on setting the rules and agendas in multilateral economic organizations," predicts Takashi Inoguchi, a political science professor at Tokyo University.

ON THE FAST TRACK. One key testing point will come this fall when Osaka hosts the next top-level meeting of the APEC trade group. There are already signs that it will seek to slow down U.S. proposals for market-opening measures throughout the region. And lobbying from Japanese business interests is giving Tokyo second thoughts about refusing to join a Mahathir-sponsored, Asians-only trade bloc that the U.S. opposes.

Indeed, the days of America's diplomatic ascendancy over Japan may be waning. As the senior Foreign Ministry official reveals, politicians are cranking up pressure for a more Asian tilt in Japan's diplomacy. Growing numbers of top Foreign Ministry jobs are going to Asia specialists, and more influential Japanese diplomats than before are getting ambassadorial assignments in Asia. For the first time, posts related to the region are just as hot among Foreign Ministry fast-trackers as those dealing with the U.S., says an official charged with training young diplomats.

Strategic policy could change with a shift in diplomatic priorities. When Joseph S. Nye Jr., the new U.S. Assistant Defense Secretary for international security, visited Japan last fall, he was disturbed to find signs that Japan was drifting from close cooperation with Washington and shifting its security focus to East Asia. Last year, for example, Japan and South Korea agreed to launch an exchange of naval visits. Nye proposed a series of systematic bilateral contacts, which have started, to underscore the need for maintaining tight defense links.

Chances that Japan will abandon the West to marry Asia appear remote, though. In the post-cold-war era, Japan is but one of many countries, including the U.S., that's reevaluating its role and identity. Some see little reason for worry in a Japanese tilt toward Asia. "We can't be part of Asia as perfectly as some Asianists feel," says Tokyo University's Inoguchi. "We need North America, Latin America, and Western Europe." Re-Asianization, he says, is a "piecemeal adjustment."

Indeed, as China continues on its path of explosive economic growth, Tokyo may feel it requires the weight of Washington to help check Beijing. "Japan needs to keep hooked to the United States to prevent China's becoming the regional hegemon," says Nobuo Noda, professor of law at Kyoto University.

But a redefinition of U.S.-Japan relations does appear to be in the works. This will require careful management by both sides. "Japan is preparing a lot of options because it doesn't know where the world is going," says Ivan Hall, a specialist in Japanese intellectual history based in Tokyo. "One option is to create its own defensive sphere of influence that is economically grounded but with political and cultural ties." That could take 10 to 20 years, he observes.

By then, China may be an even greater economic and military threat. A re-Asianized Japan could choose to align with Beijing and its large markets. Or Tokyo may choose to stick with its longtime patron across the Pacific, hoping that a renewed alliance with Washington would restrain rapidly expanding Chinese power. A third, and perhaps the most likely, scenario would be for Japan to play a middle role, serving as a buffer or moderator between clashing Western and Asian interests.

In any event, this is a crucial moment of self-redefinition in Japan. If sustained, the shift could become a profound change in Japanese identity, similar to when Commodore Matthew Perry forced Japan's doors open and sparked the Meiji-era effort to "catch up and surpass the West." Now that the West is no longer offering what Japan needs most--the prospect of long-term economic growth--the tilt toward Asia is on. For better or worse, the world will feel the effects.

How Japan Is Changing Course

-- More ties with Asia lead to greater two-way flows of languages, entertainment, and other forms of culture

-- "Reverse imports" from Asian-based Japanese subsidiaries leave Japan more impenetrable to Western companies

-- Japanese exports to the U.S. from Asian manufacturing bases obscure size of bilateral trade imbalance

-- Growing Asian clout makes Tokyo less vulnerable to Washington's trade pressure

-- Increasing influence in Asia tempts Japan to pursue its own geopolitical goals in the region

-- Sourcing of cheap components from Asia gives Japan's exports new competitive edge

-- An increasing flow of capital to Asia means that less money from Japan goes to the U.S.

-- The spread of Japan's regulatory

structures makes other Asian markets less open


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