TOKYO – There are probably days when Chinese President Xi Jinping can’t believe his luck when it comes to geopolitical adversaries.

First Xi squared off against proud neophyte Donald Trump. The US president thrashed about wildly trying to slow China’s economic rise. Yet Trump’s team failed to notice the myriad ways in which Xi outflanked those efforts at every turn.

They include a trade surplus that was bigger in January 2021 than when Trump won the election in November 2016.

Now Xi may be realizing the blessing that Yoshihide Suga is proving to be in Tokyo.

Though Suga has been on the job only 138 days, a Covid-19 third wave has Japanese growth cratering almost as rapidly as the prime minister’s approval ratings. At about 33%, Suga’s support is barely better than Trump’s when he left the White House on January 20.

Suga’s oddly AWOL “leadership” style is playing into Beijing’s hands as 2021 unfolds.

Take the fiasco surrounding Suga that’s scheduled to start in July. As Covid-19 infection and hospitalization rates tick up, Suga is prioritizing the Olympic Games and the stock market over public health. But though he oversees the world’s third-largest economy, he has offered no plan to ensure the Olympics actually happen.

More than a sneeze: The leadership of Japanese Prime Minister Yoshihide Suga is faltering on all fronts. Photo: AFP/The Yomiuri Shimbun

It’s vital that Suga “push back on a narrative that his overzealousness to promote an economic recovery has slowed his efforts to contain the Covid third wave that began in late fall,” says analyst Scott Seaman at Eurasia Group. “Questions about Suga’s motives and leadership capabilities have significantly eroded his approval ratings.”

If the globe has learned anything from Beijing and Hanoi, Seoul and Taipei – the northeast Asian champions of Covid-19 containment – it’s that mastering the pandemic is a necessary precondition to economic recovery.

China grew 2.3% in 2020, while Vietnam expanded 2.9% and Taiwan produced 1.9% of output. Even though South Korea contracted 1%, it was one of the best performances by Organization for Economic Cooperation and Development members.

Japan, by sharp contrast, shrank 3.5% in 2020, the worst performance since 1946, the year after the country’s catastrophic Pacific War concluded.

Suga is widely expected to extend a state of emergency for major metro areas. Good for pandemic containment, perhaps, but late in the day – and the step will do even more damage to a Covid-traumatized economy.

And yet more damage to his already dismal approval rating, one already suffering from a perception that Suga’s Liberal Democratic Party is less interested in halting the coronavirus than propping up growth.

Haplessness may be softening views of Japan among the Chinese masses.

In its annual Japan-China opinion poll, think tank Genron NPO detected an improvement in Chinese views toward Japan in the September-October period after Suga took power. The stated reason was the fallout from heightened US-China trade friction.

Left unsaid, though, may be the sense that Japan’s leadership is too preoccupied with the crisis at home to pose much of a threat to Chinese interests. Could the average Chinese even feel a sense of pity for their longtime Japanese rivals?

Regardless, Japan’s problems are converging at the same time many economists think China will grow north of 8% this year.

Chinese President Xi Jinping, right, with Japanese Prime Minister Shinzo Abe on September 12, 2018. Photo: AFP/Alexander Vilf/Sputnik

Suga’s tsunami of troubles

As Xi pivots to preparing for the future, Suga faces overlapping troubles at once: lengthening the state of emergency will deepen the distress of businesses and further erode his support rates as he struggles to keep alive hopes of holding the Olympics this summer.

To be fair, Suga is paying a price for the failure of predecessor Shinzo Abe, who Suga served faithfully as chief cabinet secretary from 2012 to 2020. The price has two levels, one pre-Covid, one post-Covid.

Prior to the pandemic, Abe’s sin was a glacial pace of top-down reforms. In 2012, Abe pledged a supply-side Big Bang based on three policy arrows: aggressive monetary stimulus, fiscal loosening and structural reform. If Abenomics was aimed at anything, it was aimed at slowing China’s rapid rise in a region Tokyo long viewed as its natural sphere of influence.

Instead, Abe played into Xi’s grand design. Abe dabbled more in trickle-down economics than leveling playing fields. He directed the Bank of Japan to slash interest rates aggressively, drove down the yen and increased public spending here and there. Abe did little to internationalize labor markets, reduce bureaucracy and increase productivity, alter tax incentives toward startups, empower women or attract more foreign talent.

The dearth of structural change, or government incentives, reduced pressure on companies to boost wages or competitiveness. As a result, Japan’s longest expansion since the 1980s enriched investors far more than consumers. Once Covid-19 hit, Japan’s economy collapsed like a house of cards.

Yet the light-touch coronavirus response continued under Suga. As he spends virtually every waking moment ginning up growth – and preserving Olympic hopes – he’s not building the economic muscle required at home to get Japan back in the game versus China.

When he grabbed the reins from Abe on September 16, Suga pledged to implement the reforms Abe slow-walked. He also promised a robust effort to cut administrative red tape, digitalize the government and reduce mobile phone fees.

To date, Suga has put little meat on the bone of any of these proposals. That’s especially so when it comes to dragging an obsessively paper- and fax-machine-based government into the 21st century.

“The initiative promises to enhance Japan’s delivery of public services, bolstering policy effectiveness and growth, and reducing operating costs,” says analyst Motoki Yanase of Moody’s Investors Service. “All of which would support sovereign credit quality.”

Now, his low-30s approval numbers have political insiders speaking of Suga in lame-duck terms. Increasingly, he runs the risk of being replaced by the ruling LDP ahead of an election that must be held by October. That risk is increasing as Olympics-related chaos and uncertainties irk many of Japan’s 126 million people.

The Tokyo 2020 Olympics Games logo in Tokyo on January 28, 2021. Photo: AFP/Charly Triballeau

‘Slower, lower, weaker’

Suga’s government hasn’t yet found the courage to say what 80% of Japanese already know: the Tokyo Olympics should be canceled or at the very least re-imagined.

Posterity probably won’t look back kindly on plans to welcome waves of athletes, corporate executives and spectators from around the globe to one of humankind’s most densely populated cities during a pandemic.

Postponing the Games, meantime, would add billions of dollars to a budget already approaching $30 billion. And any suggestion that Tokyo hold a spectator-free Olympics runs afoul of corporate sponsors paying tens of millions for their VIP boxes and brand-boosting moment in the global spotlight.

Once reason Tokyo is loath to make a decision is concerns about liability. On top of losing face, the “biggest cost” for the government would be demands it pays compensation, says economist Yasuhide Yajima at NLI Research Institute.

Meanwhile, there appears to be a “you first” game underway between the risk-averse heads of the International Olympic Committee and the Land of the Rising Sun. The Japan Olympic Committee would prefer the IOC to pull the plug, while the IOC would prefer Tokyo take the heat.

Other insiders say the powers that be are hoping that a couple of key sporting countries will announce they’re not sending teams to the Games – granting Tokyo the opportunity to call an overall cancellation unavoidable.

Here today, gone tomorrow

In the meantime, as Suga juggles short-term challenges, Xi’s team is busily limbering China up for the global financial system it will encounter in 2025 and beyond.

As Abe, and now Suga, talked big about reforms that never materialized, China invested trillions of dollars in leading the future of aerospace, artificial intelligence, automation, biotechnology, digital currencies, electric vehicles, renewable energy, robots, semiconductors, software, the creation of new waves of tech “unicorns,” you name it.

Though no one is downplaying the ambition of Toyota Motor’s innovative team, Panasonic’s prowess in the battery space or Fanuc’s advancement in robotics, Japan’s government has a focus problem that China’s decidedly doesn’t.

Now, it has a short-term leadership problem, too.

Abe’s seven-plus year reign was quite the aberration. The previous six governments each lasted about a year. Abe’s determination to stay in office stemmed from concerns that leaders came and went too quickly to accomplish big things.

Yet Suga’s days already seem numbered. With the economy sputtering, Tokyo’s revolving door may be about to spin again.

“The risk that Japan’s economy will stall in the first quarter is gradually becoming stronger,” warns economist Takeshi Minami at Norinchukin Research Institute.

China's private sector has been a key driver of export growth. Photo: iStock
China’s private sector has been a key driver of export growth. Photo: iStock

China’s onward march

China, meantime, has already put risks of another recession in the rearview mirror. That’s allowing Beijing to make progress in an area Japan arguably fears most: per capita income.

At present, China’s annual gross domestic product is nearly three times that of Japan – $14.7 trillion to $5 trillion. Yet in average income in nominal terms, it’s exactly the flipside: China’s $10,800 is more than three-and-half times less than Japan’s $39,000.

The question is how long that divergence, one so vital to Japan’s national psyche, holds.

By 2028, the Japan Center for Economic Research thinks China could overtake US growth. Previously, it predicted this shift in 2036. The UK-based Center for Economics and Business Research is accelerating its timeline for China joining the ranks of high-income economies. The World Bank puts the threshold at $12,600 or more per capita.

CEBR, it’s worth noting, expects India to top Japan in GDP terms by 2030. The wild card is that the specter or trailing India along with China might catalyze Tokyo to build the economic muscle it needs to compete in a fast-changing Asia.

First, though, Japan needs a focused and strategic prime minister who isn’t failing in ways in which China’s president could only have dreamed. Xi’s lucky run with geopolitical rivals continues to amaze.