Japan and China share some interesting economic and environmental parallels. Presently, China is in a similar situation as Japan was in the 1970s economically and environmentally. It was a capital and resource-intensive, low-cost manufacturing center, with rampant pollution and environmental problems. According to this article, its GDP growth was quite robust and its currency was somewhat undervalued. Inflation and currency devaluation of the yen transformed Japan’s economy and its outlook. Its industries became more resource-efficient due to the spike in oil prices, and transformed its core business to electronics.
Fast forward to today, China is experiencing similar issues. It faces inflation from increasing wages as well as oil and food prices; and its environmental problems that originated from the industries that helped China grow so immensely. Its $2 trillion foreign exchange reserve and current account surplus helps support its somewhat undervalued currency. China’s central government’s environmental laws are strict, however, its local governments’ lackadaisical enforcement cause a potentially environmentally hazardous place. Can China undergo transformation to wean itself off its growing appetite of finite natural resources?
Markets will need to change to stimulate a transformation. The revaluation of the renmenbi will be needed to adapt its monetary policies to control its inflation. Without the change in markets, there will be little incentives for the capital and resource-intensive companies to clean up their act and change industries (e.g. Japan – from textile to electronics).