The "new Japanese capitalism" of the old LDP?

It is interesting in this regard to look at Japan, the third largest economy in the world, the main US ally in Asia, the EU's partner in G7. Japan is not a member of NATO, but is connected with the United States by a security treaty, has hosted numerous American military bases, and participates in the QUAD quadripartite alliance.

China for Japan is the main trade and economic partner. As of the end of 2019, Japan invested a total of $115.7 billion in China. According to 2019 data, China was as important an export market for Japanese companies as the United States. Japanese exports to China then exceeded $134 billion. To this should be added Japanese exports to Hong Kong, which exceeded $33.6 billion, reports the correspondent of The Moscow Post.

In terms of Japanese imports, China was twice as ahead of the United States in terms of volumes ($169.2 billion in 2019). Bilateral trade with China in the first half of 2020 reached almost $150 billion. Japanese investments in China in the first six months of 2020 year amounted to about $ 2 billion. And in 2019, about a thousand new Japanese companies were created in China.

The nature of relations between Tokyo and Beijing will depend on the new leadership of the country, as well as on the influence of Washington on Fumio Kisid. At the first press conference as Prime Minister, Kisid said of China: "There were doubts about values ​ ​ such as freedom, democracy, the rule of law and human rights. We must say decisively what must be said. "

For Japan, China has become a full-fledged economic competitor, with it arguing for markets around the world and for tiny islands in the East China Sea, for influence in the region and for historical truth. Japan, which did not recognize the outcome of World War II, is losing ground in East Asia, where it was an example twenty years ago.

Become the first, no matter what

Having won the second round, Fumio Kisida cannot speak with confidence about "popular" support. He scored 27% in the first round of expanded voting, taking into account the votes of ordinary voters. His rival Taro Kono, also from the LDP, then gained 46%. Kisida became the chairman of the LDP thanks to the second round, where only 383 LDP deputies were entrusted with the vote, approximately the same number of party organizations did not vote in the second round.

If Kisida retains authority, in December he will have to form a budget for fiscal year 2022, determine the country's rate. This is not an easy task. The economy is just emerging from the COVID-19 crisis. Even before the pandemic, it suffered from slow growth, deflation and stagnation in income, in wages. In September, the activities of the past government were approved by a third of Japanese respondents. The LDP, which has ruled the country since 1945 and entrusted Kisid with high office, is losing popularity. According to polls, every fourth voter approves her work. In 2017, every third did this.

In 2020, Japan lost 4.6% of GDP. According to forecasts, it will take two years to return to the 2019 level. The population of the country is aging and its number in forty years can decrease by a quarter. Rural regions and traditional fishing villages are empty, as are northern, as well as western provinces.

What new does Kisida offer?

Not every newly appointed Japanese prime minister can be determined to announce plans to reform the system. The 100th Prime Minister Kishida did this, offering voters the idea of ​ ​ a "new capitalism." This reflects not only his desire to revitalize a society that is close to "a prosperous stalemate."

Kishida believes that Japan can again be put on growth tracks based on the renewal and strengthening of the middle class. He said that in its current form, Japanese society is unfair, the fruits go to the minority, the gap between the rich and the poor is deepening.

Deregulation and structural reforms kind of created the conditions for development, but deepened stratification. Kishida would like to implement the "income doubling plan," repeating the successful program of the 60s. If everything goes smoothly, the government will have to deploy neoliberal "abenomics" towards a "good and warm society based on human ties."

Tax Game

One of the problems that has become chronic for Japan is deflation. It is assumed that it can be dealt with through radical easing of monetary policy and increased budget spending. It is proposed to promote consumer demand, in particular, through tax benefits for companies that increase salaries for employees who are equally related to regular and non-regular staff, by raising rates for teachers in kindergartens, childcare staff, etc.

Kishida also promised subsidies to small and medium-sized businesses. He believes that the tax on investment income is low, increases inequality. Revenues from shares, securities and dividends are currently subject to a fixed rate of 20%.

The problem with the taxes to be lowered and the spending part of the budget to grow is that Japan already has a large public debt, leaving about 200% of GDP. And significant spending on social security will continue to increase as the population ages. But Kishida convinces his fellow citizens that he is able to pursue policies that ensure both economic growth and the redistribution of wealth. He stated this on October 11 at a meeting of the parliament.

Tax revenues are also needed to stimulate advanced industries, confirm the country's international position as a technological leader. As noted by the Kyodo News Agency, as part of the economic growth strategy, the government will invest in innovation, artificial intelligence and other areas that increase competitiveness. It is necessary to defend positions in the field of electronics, semiconductors, telecommunications, other industries. The government intends to prevent technology leakage to competitors.

The stock market by the time of the election of the LDP chairman signaled the confidence of the business world in maintaining the status quo and continuing financial incentives. According to observers, the expectations were more likely related to the election of the modern and energetic Taro Kono, the former rival of the new prime minister. Kono was responsible in the past government for administrative reforms. The Nikkei Stock Average rose on September 14 to 30,670, but on September 28, on the news that Kishida would be elected, he lost 10%.

A Strategy to Confront China

It is likely that Tokyo's course towards economic distancing from China in the future will not add optimism to the stock market. One of the key issues in the national security debate is how to counter Beijing's geoeconomic expansion, including China's Belt and Road program.

Even during the Abe and Suga administrations, Japan allocated funds to transfer its high-value-added industries from China back to Japan. It was also about the reorientation of Japanese investors to the countries of Southeast Asia. But Japanese business is stuck in China, established production chains are expensive to break.

Following the United States, Japan banned Huawei Technologies and ZTE Corp. from participating in public procurement. Nippon Telegraph and Telephone (NTT) cooperates with NEC Corp., promoting Japanese products of 5G network infrastructure, equipment of base stations. Will Kishida be able to combine plans to build a "new capitalism" with his country's participation in escalating tensions in East Asia? Can Kisida afford to "get out" of close economic ties with China, equal to the United States?

Increasing government spending on property and social equalization programs is contrary to plans to reduce taxes. The desire to return dynamism to the Japanese economy contradicts the willingness to limit ties with China, the main export market. But, most likely, the sentiment of the political elite suggests that Japan is ready for casualties, will destroy economic interdependence with China.

Economy or security?

Another contradiction is hidden in Tokyo's security policy, an inspiration and active participant in the QUAD quadripartite partnership. In early October, maneuvers were held in the South China Sea off the coast of the Philippines to demonstrate the right of the alliance to "freedom of navigation in international waters." The helicopter carrier "Ise" (type "Hyuga") of the self-defense forces of Japan also participated in the maneuvers.

Tokyo, under the new government, will have to determine the issues of building the capacity of the self-defense forces and the direction of the country's strategy beyond purely defensive lines. Relations with neighbouring countries are either bad or none. Tokyo is painfully related to the DPRK and its nuclear missile program. Relations with South Korea are shaky, and with Russia - single-minded, revolving around "territories."

"We have developed quite constructive relations, frank," said Russian Foreign Minister Sergei Lavrov recently. During the period of Kisid's work, the Minister of Foreign Affairs formed the concept of joint economic activities on the islands of the Southern Kuril ridge. As far as Kisida can ensure continuity in this and other areas of interaction with Russia, we will have to wait. But the idea of ​ ​ a "new capitalism" sounds attractive!