Japan offers infrastructure aid while its own house is in complete shambles
Vying to keep pace with China's rising influence and economic clout, Japan plans to provide US$110 billion to help develop roads, ports and other infrastructure in Asia in the next five years, Prime Minister Shinzo Abe said yesterday.
SCMP, May 22
They certainly have the know-how. Over the last 25 years, the Japanese have made themselves world leaders in an experiment with infrastructure investment. Unfortunately, they only proved that they should not have done it.
We start with the evidence of the first chart. The big idea in 1990, when the stock market collapsed and the economy faltered, was that the Japanese government would spend its way back into growth. This is what a fellow named John Maynard Keynes said you had to do, you see.
They thus adopted a huge infrastructure programme, digging long tunnels to nowhere and slathering vast mounds of concrete all over the landscape, so that public investment spending soon amounted to almost 9 per cent of gross domestic product. That is the blue line in the first chart.
For comparison with another has-been, look at the red line representing Britain, where public investment has run at 2 to 3 per cent of GDP over the last 25 years. Yes, some roads in Britain are pretty bad, but Japan still clearly overdid it.
And now for the really big numbers. They financed almost all of it with bond issues and, as a result, Japanese government debt has now risen to more than a quadrillion yen. I shall write this out - 1,000,000,000,000,000 yen.
As the blue line in the second chart shows, this is the equivalent of about 220 per cent of GDP. In 1990, the figure was less than 50 per cent. The red line gives you the contrasting figure for federal debt to GDP in the United States. Yes, they have started to go mad in the US, too, but they are nowhere near Japanese standards of it yet.
And what has all this done for Japan?
Here is the key statistic. Last year, the Japanese economy was smaller than it was 20 years earlier.
I present some of the words you are looking for to describe the Japanese record in infrastructure investment - wipeout, utter failure, scandal, fiasco, debacle, complete shambles.
And the sad thing about Mr Abe's new US$110 billion Asian infrastructure scheme is that he is not even doing it to boost Asian economic growth, let alone provide people with roads and bridges they may need.
No, the reason Mr Abe is doing it is that President Xi Jinping has stolen a march on him by setting up an Asian Infrastructure Investment Bank to rival Japan's tired old Asian Development Bank and Mr Abe apparently still thinks Japan should retain the title of Patron of Asia.
I have a word of advice for the intended recipients of this largesse. It's a poisoned chalice, folks. They are doing it for all the wrong reasons and they will mess it up for sure. That's what they do.
And when they have done it, they will still ask for their money back. You can only lose.
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