With Japan's economy in a slump, China is becoming the engine of growth in the Asia-Pacific region, say analysts at several research centers in Honolulu, Hawaii, which is home to some leading Asia-Pacific institutes.
China has its problems. The banking system is saddled with bad loans, unemployment is high and growing and development is uneven. But big businesses in the Asia-Pacific region are bullish on China, says Stephen Olson, acting president of the Pacific Basin Economic Council. The council is composed of 1,100 companies that do business in the region. Mr. Olson notes more and more of them do business in China.
"I think you're looking at sustained strong economic growth rates," he said. "I think you're looking at a very large market, but more importantly, a market that has largely been untapped. And thirdly, I think you're looking at increased access opportunities in this huge market as a result of China moving into the WTO."
Mr. Olson says China's accession last year to the World Trade Organization will increasingly open its markets to outside competition.
China's official growth rate is over seven percent, and, while analysts are skeptical about that figure, they say it is impressive even at the more likely rate of six percent.
Environmental expert Allen Clark of Hawaii's East-West Center cautions, however, that the price of China's economic growth is pollution and potential social unrest in coastal cities. In reality, he points out, there are two Chinas.
"There's the eastern seaboard China, where most of the production and activities take place, and then there's the central and western portion of China in which there's very little commerce and very little activity," he said. "So what you have there is a concentration of the pollution and all of the other impacts in a relatively small portion of the country. That means it will be much more difficult to deal with that concentrated level of environmental degradation."
China's economy is as robust as its environment is fragile. At some point in the future, China will replace Japan as Asia's biggest economy, although Japan now has an economy four times as large as China's. But the Japanese economy is stagnant, stresses Brad Glosserman, director of research for the Pacific Forum Center for Strategic and International Studies. According to him, most experts see slow growth in Japan for five to 10 years.
He said, "You've got structural problems, you've got serious non-performing loans that are an extraordinary burden on the functioning of the economy, you've got an extraordinary number of unproductive assets, and an unwillingness to move them and to put them to productive use, given the short-term pain that would cause."
Still, Japan remains the world's second largest economy, after the United States. Mr. Glosserman foresees Japan becoming the Switzerland of Asia, rich and comfortable but disconnected.
All Asia-Pacific economies must address the problem of corruption, emphasizes Stephen Olson of the Pacific Basin Economic Council. He notes that developing nations, especially, have much to lose if they lack transparency.
"If either countries or companies have to act in an environment that is rife with corruption, it acts like a tax on business because business transactions involve corrupt payments," he said. "That serves effectively as a tax. And for countries, which are trying to provide higher education and health care standards for their citizens, if their tax revenues are being siphoned off by corrupt practices, obviously that hurts the competitiveness of the country as well."
Mr. Olson says corruption raises the cost of doing business in a country and discourages foreign investment, especially in smaller countries, which do not offer the prospects of large, untapped consumer markets.
As to China, analysts say that, despite the growing social problems and environmental degradation, the business community remains upbeat about the country's economic outlook.