Global Challenges: The Lessons of Japan

Transcription

1 Global Challenges: The Lessons of Japan Stephen S. Roach Senior Fellow Yale Jackson Institute for Global Affairs October 213

2 Conceptual Framework: Forensic Macro Japan as the Template Policy Blunders or Structural Malaise? Bubbles, Imbalances, and Zombies The Hangover: Debt, Deflation and Lost Decades Exit Strategies: A Way Out?

3 Made in Japan? Japan United States Europe China Model Developmental state Invisible hand State-directed Market-based Capitalism Socialism Mandate Lifetime employment Full employment Union of peace and Growth vs stability prosperity Policy blunder Yen suppression and Condone bubbles Flawed currency union Anti-consumer the Plaza Accord Clean not lean Regulatory blunder Evergreen bank Mortgage abuses No banking union State-directed bank lending (MITI) Lax bank oversight No fiscal union lending (NDRC) No political union False prosperity Equity and Property Property and Credit Convergence Export bubble bubbles bubbles bubble Economic distortion Zombie corporates Zombie consumers Zombie PIIGS Zombie SOEs? Zombie LGFVs?

4 The Rise and Fall of Modern Japan Japanese Real GDP Growth (Averages over designated intervals) 7.25% Abenomics: Japan s Phoenix? Three Arrows Monetary: QE on steroids Fiscal: Public works Structural reforms % Three Foils QE traction and deflation Fiscal quagmire Yen, equities, and complacency Source: T. Ito and International Monetary Fund WEO database

5 Japan s Structural Imperative Decomposition of Japanese Economic Growth (Average annual % changes over designated 5 year intervals) GDP Growth Labor Capital TFP to 199 TFP average: 1.5% Pre-Bubble 1991 to 25 TFP average:.1% Post-Bubble Abe s Third Arrow Agenda Agriculture Education Medical Care Tax System Energy Gov. Reform Employment Electoral System Immigration Source: KLEMS database

6 Growth American Style US Consumption Binge Was Not Supported by Income Effects 7 Personal Consumption As a share of GDP Real Private Compensation Index=1 at Business Cycle Troughs Average of Past 4 Cycles Current Cycle average: 64.6% Last plotting: 213-Q2: 68.7% months after trough 13-month shortfall: $ billion or 15.9% of real disposable personal income But Driven by Wealth and Credit Bubbles % YoY 4Q MA 18 1 House Price Index (left) Net equity extraction as a % disposable income (right)

7 Lingering Headwinds of U.S. Balance Sheet Repair Deleveraging Household Sector Debt Outstanding (% of Disposable Personal Income) average: 4.3% Rebuilding Saving Personal Saving Rate (% of Disposable Personal Income) average: 9.3% America s Zombie Consumers (US real consumption: Average annualized growth) The Balance Sheet Recession 28-I to 29-II: -1.8% Anemic Recovery 29-III to 213:2 +2.2% 22-Quarter Average 28-I to 213-II: +1.1% ****************************************** Pre-crisis trend 1996 to 27: +3.6% Source: Federal Reserve flow-of-funds and U.S. Department of Commerce, BEA

8 Growth European Style % European Long-term Interest Rates (Yields on 1-year notes) Germany Greece Ireland France Italy Spain High Flying PIIGS Real GDP in Local Currencies (Index:1999=1) Ireland Greece Spain Portugal Italy Sluggish Core France Germany Sources: European Central Bank and International Monetary Fund

9 Developing Asia s Growth Bonanza % 14 Real GDP Growth Disparities Average DA Gap Developing Asia 8.2% --- Adv. Economies 1.8% 6.4 pts World 3.7% 4.5 pts -6 World Advanced economies Developing Asia Source: IMF World Economic Outlook data base (April 213)

10 Global Rebalancing Imperatives 45 Investment Shares of GDP Major advanced G7 Developing Asia Source: IMF World Economic Outlook database (April 213)

11 Export-Led Developing Asia as % of GDP GDP Shares: Developing Asia Exports Consumption Source: IMF, national data sources

12 The Asian Trade Model Shares of World Trade Indexed at Takeoff Index, period = Japan ASEAN-4 India NIEs China Years after growth takeoff Source: International Monetary Fund

13 Global Saving Disparities % % 6 5 Global Contrasts Gross Saving Rates (Share of GDP) 6 5 China Stands Alone Gross Saving Rates (Share of GDP) China 4 Emerging Market and Developing Economies 4 Developing Asia Advanced Economies 2 1 United States 1 Source: IMF World Economic Outlook (April 213 WEO database)

14 China s Unbalanced Growth Model Unstable, unbalanced, uncoordinated, and unsustainable. Premier Wen Jiabao, March 16, 27 China s Growth Leaders % % 5 55 China s Growth Laggard Fixed Investment Share of GDP Personal Consumption Share of GDP Export Share of GDP Source: National Bureau of Statistics of China

15 China s Internal Imbalances Labor-Saving Resource-Intensive % Change 12 Average GDP and Employment Growth: Percent China's Share of World Total: 28 GDP Growth Employment Growth China India Indonesia Korea Thailand As % of World Source: Eswar Prasad, Rebalancing Growth in Asia, Finance and Development, December 29: GDP IMF, WBMS, BP, CRU, Morgan Stanley Research. Crude Oil Aluminum Steel Products Iron Ore Coal Cement

16 China s Pro-Consumption Rebalancing The 12 th FIVE-YEAR PLAN MECHANISM GOAL JOBS BLUEPRINT FOR LARGE- SCALE SERVICES INDUSTRIES LABOR ABSORPTION WAGES SUPPORT TO RURAL HOUSEHOLD INCOMES HARMONIOUS SOCIETY FINANCIAL SECURITY SAFETY NET IMPERATIVES REDUCE PRECAUTIONARY SAVING

17 The Potential in Chinese Services A Lagging Chinese Services Sector Labor Intensity: Jobs per RMB Million GDP 1% 8% 6% Targeted in the 12th Five-Year Plan Manufacturing and Construction (Secondary) Services (Tertiary) 4% 2% % Targeted in China Korea India Taiwan Japan US

18 Income Leverage of Urbanization 6 % Urban Share of Chinese Population 3.5 Ratio of Urban to Rural Income 5 212: 52.6% Projected urban population growth: 23: 316 million (OECD) 215 UN Projection Source: UN, OECD

19 Urbanization Drives Investment $USD Capital Stock per Worker Japan Australia Germany United States 225 France Singapore United Kingdom Korea Mexico Malaysia Brazil South Africa Russia China Indonesia Philippines Vietnam India % Chinese Capital Stock Per Capita China: Capital Stock per capita, relative to US and Japan Relative to the U.S. and Japan In percent 21 Relative to US 2 Relative to Japan Source: Penn World Tables and International Monetary Fund

20 China s Safety Net Conundrum Chinese Household Saving Rates Retirement Assets 21-11: RMB 2669 Bil % 4 (USD $435 Bil or $569 per worker) 35 3 Rural Urban National Social Security Fund (211) Local Govt Social Security Funds (21) Private Pensions (21) Source: International Monetary Fund, National Bureau of Statistics (China), National Social Security Fund (China), Xinhua News Service, BBVA Research

21 China s Strategic Advantage 5-year Plan Dates Key Feature First Stalinist Central Plan Second Great Leap Forward Third Agricultural Push Fourth Cultural Revolution Fifth Post-Mao (Reforms and Opening Up) Sixth Readjustment and Recovery Seventh Socialism with Chinese Characteristics Eighth Technical development Ninth SOE Reforms Tenth 21-5 Strategic Restructuring Eleventh 26-1 Rebalancing Alert Twelfth Pro-Consumption

22 Codependency and Rebalancing Imperatives % Personal Consumption Share of GDP 8 7 United States China Source: U.S. Department of Commerce and National Bureau of Statistics (China)

23 Global Imbalances and the Lessons of Japan % 3 Current Account Disparities (as % of World GDP) 2 Surpluses Deficits 1-1 ROW CHN+EMA OCADC DEU+JPN OIL United States -2-3 Source: International Monetary Fund (October 212 WEO database) Forecast Total Imbalances 1.2% 2.% 3.2% 3.2% 3.8% 5.6% 5.1% 3.8% 3.4% 3.% 2.8% (as % of World GDP)

24 New Book Yale University Press January 214