A Comparative Analysis on the slowdown eras of China and Japan

Growing Old Before Growing a Brand: A Comparative Analysis on the Slowdown Eras of China and Japan

As I get off the bus next to my house across the National University of Singapore, where I am pursuing my graduate studies at the moment, I notice a strange commotion. Around a usually deserted bus stop at a late hour in the night, a group of youngsters are searching for something in the bushes while using their smartphones as a compass. It takes a moment for me to realise that I am encountering a scene from a recent global phenomenon: Pokemon Go. These kids, just like millions worldwide, are drawn out of their rooms, seeking to catch a cute little Japanese monster. As much as I do not play the game now unlike many of my generation, I can relate very well to this fervour. When Pokemon was banned in my home country when I was around 9, I remember bursting out in tears in despair. It was one of the worst memories of my childhood, but that little tragedy actually held a wider meaning: A Japanese comic stole the hearts and minds of an entire generation, time and time again, in a more innovative fashion on each occasion.

What’s intriguing here is that this generation was also the one that experienced the ‘cool-down’ of the Japanese economy throughout the 90s and 2000s and the concurrent rise of the Chinese economy. The excellent definition “Japan’s Gross National Cool” coined by Douglas McGray to describe the post-modern globalisation of Japan, is the most adequate framework to grasp how Japanese brands conquered the world’s popular culture. Contemporary to the economic cool down within the country, the Japanese culture started to become ‘cool’ throughout the world, thanks to its sterling and highly perceptible brands such as Hello Kitty, Nikon, FujiFilm and certainly Pokemon.

It has been a while since Japan’s cool-down has been digested and off the global headlines. A notion that many economists and business people around the world have been debating is the slow-down of another, larger and more pivotal economy: China. Excessive investment, burgeoning debt and deteriorating demographics: some of the many well-versed circumstances regarding the contemporary Middle Kingdom. They all show commonalities with the Japanese economy in the 90s and thereafter, leading us to an eligible comparison to how the cool-down periods of the two Asian mega-economies may fare.

Let us briefly examine the technical similarities of the cool-down phases of both of these economies on a macro level; before coming back to the significance of the robust brand value Japan has created within the last generation and how China could compare to that development.

Starting with the mother of all numbers: The GDP. Japan’s share of the global GDP at its peak during 1990 amounted about 12% which is comparable to China’s 11% at the time of writing, arguably nearing its saturation levels.  The era following the 90s in Japan was plagued with deflation as the GDP growth rate also came to a low point of 1,1%. China hasn’t been suffering such low growth rates and severe deflation just yet, but the trend has been downwards since almost two years with little prospect of returning to its high-days.

Another figure: -8,5%. That’s the highest single-day loss of the Chinese benchmark index SSEC in 2015, which probably evokes some memories from the stock market crisis in Japan in the early 90s. The Nikkei index gradually dropped from its peak at 38,900 during 1989 to 10,000 point levels by the early 2000s.

Yet a further remarkable resemblance is the ageing population of these two countries. Japan’s average age in 1990 stood at 37.1 years which is identical to China’s average age of 37.0 years during 2015. Now this represents a critical inflexion point. As much as the demographic data might be identical in this case, there is a catch to it. By the early 1990s, Japan had reached its peak and begun its cool-down. 2015 could also be arguably that turning point for China. Yet, by the time it grew old and slow, the Japanese were already a wealthy society with a plethora of brands to offer the world for the coming generations. China however is still a middle income country in terms of average income per capita and have much less competence in terms of national branding and the globalisation of its popular culture.

From the top of your head, try to name 3 Chinese brands. You probably can do that by now as we’ve all been reading about the likes of Alibaba, Huawei and Haier taking over their respective industries with huge investments. But does hearing any of these names make your heart skip another beat? Does any popular culture trend from China have the power to make small kids in the other side of the world burst into tears? Does any Chinese brands pull millions onto the streets in search of imaginary monsters? When was the last time you dreamed of owning a Haier or a Huawei? Since when has using or owning any Chinese brand been cool — say like flashing out that FujiFilm Polaroid camera at a party?

As much as it accomplished a robust miraculous macroeconomic and societal development story for multiple decades, China is still unable to appeal to the hearts and minds of people around the world. Time and time again, I ask people I converse with on these issues, what are the few connotations they can come up with when they think of China. The answers I get tend not to differ much: “Cheap, big, crowded, historical, far, factories, weird food…” so on, and so forth. The perception of China in my generation and its culture is still unfortunately vague, misled and not that exciting. Japan however incites a much diverse rhetoric: “Perfection, clean, trustworthy, cute, technology, expensive…” and such. It seems so then, as much as it grew old, Japanese companies built robust brands in the meantime, which was indeed rated #1 on the Interbrand index last year, surpassing Switzerland, Germany and the US.

While the quality and cost of production is rising in China, the growth rate of its brands seem to be left behind. China simply cannot demonstrate to the world that they are well-able to churn out good quality brands (what’s wrong with a Xiaomi?) while being able to create an exciting popular culture around their nation brand. This is a stark contrast to the Japanese case, where the production costs did rapidly go up due to the increasing quality but the profits followed as well, as the ability to sell their products for higher prices increased thanks to their well-executed branding.

This phenomenon is therefore a huge challenge for China and the profitability of its commercial scene in the coming years. How will they be able to convince people that Chinese brands are valuable, high-quality and exciting? How will they balance the rapid increase in production costs to their lagging brand perception? Unless solid answers are found to these questions, it seems so that China will continue on growing old demographically before becoming wealthy societally or developing a brand, which gets loved globally.

Written in collaboration with:

David Bakk

David Bakk