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Until the Real Estate Super Bubble finally pops here, I’ll smile anytime I see “China” and “Bubble” in one sentence. From The Economist’s asia column titled “Japan’s love-bubbles for China“.

WHAT our colleague, Charlemagne, calls “bubbles of optimism” over China have been popping in Western capitals, as China has taken a hard line against internal dissent, proven unhelpful in efforts to tackle both climate change and Iran’s growing nuclear threat, manipulated its currency and launched cyber-attacks on Western computer networks. China, muscling its way to global prominence, is not quite the partner the West had been cultivating. Striking, then, that in Japan the bubble of optimism, among the country’s new leaders, is only inflating.

Reuters’s most read story of the decade is the “Rise of China“. The rise started with China’s entry into the WTO – in contrast to Russia who’s never been a WTO member. Western businesspeople and politicians believed that WTO membership would mean China plays by the same rules as the rest of the allies: UK, Germany, France, Japan, Korea, etc. Open markets. Rule of law. Migrating their way toward first world standards. That’s what we’ve seen from the Chinese in Hong Kong and in Taiwan, but there is ever growing skepticism that the same transformation will happen in China.

Now rumors suggest Mr Hatoyama may make a visit of remorse, the first by a Japanese prime minister, to Nanjing, site of a massacre by Japanese forces in 1937. In return (and at less political cost), Mr Hu may pay respects to the nuclear victims of Hiroshima.

In the eyes of Chinese people, the “Little Japanese Devils” are their mortal enemy. The Japanese raped and pillaged in Manchukuo, and even committed specifically horrible atrocities in Nanjing. The Gov’t regularly stokes up anti-Japanese sentiment, so the potential patching up of the relationship could immediately alter the balance of power in asia.

History wars, still far from resolved, point to the limits of rapprochement. So too do maritime disputes over territory. But a huge constraint is the fiscal one. Greying Japan is burdened with deflation, stagnant growth and a national debt close to 200% of GDP. Japan lacks the resources (and the will) for the kind of bold strategic moves, putting Japan at the heart of Asia, at which Mr Hatoyama and Mr Ozawa hint. Even a more autonomous security policy, out from under America’s wing, is almost a non-starter. Japan has cut its defense spending in recent years, to just 1% of GDP. It has grown more dependent on the United States, not less.

The commonly accepted debt numbers are: Japan @ 200% of GDP, USA @ 100% of GDP, and China @ 15-30% of GDP. These numbers are interesting, however the Chinese public debt to GDP ration is probably actually closer to 62% – comparable to the western european average.

Due to the one-child-policy, China is also greying, though not quite as fast as Japan. China also has a 117:100 male to female ratio, meaning that 1 in 5 boys won’t be able to find a mate. Compared to 105:100 in Japan and the USA.

Moreover, only 15% of Chinese Chinese can afford to purchase a home – not even the basic 50 sqm (550 sqft) that most Chinese families reside in. Under these circumstances, even getting married and having a family is a luxury beyond the reach of far too many mainland Chinese.

Note: public debt is the cumulative total of all government borrowings less repayments that are denominated in a country’s home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings.

ryan China (中国）