A Case of Mistaken Identity

Robert Hsu, April 15, 2008

Recently, I had the opportunity to visit Osaka, Japan, which is Japan's second largest city. You would think that it would be a main tourist attraction in the country, but foreigners aren't greeted with open arms, which I learned firsthand during my visit there.

As part of our time in Osaka, we had planned a show excursion in the city. But we were disappointed to learn that our excursion had been cancelled. The reason: time consuming Japanese immigration entry proceedings.

This morning, it took nearly three hours for my family and other ship passengers to pass through Japanese immigration. By the time we were done with the immigration entry process, we only had four hours to spend in Osaka before our ship was set to depart for our final port of call in Hong Kong. To me, it seems a bit crazy to spend three hours dealing with Japanese immigration and custom officials just for a four-hour stay in the country. Yet, that is exactly what took place.

Clearly, the Japanese government is less friendly to foreign visitors than their counterparts in China. During our visits to numerous Chinese cities, especially Beijing, we were warmly welcomed. Based on my recent experience in both China and Japan, let's compare the two countries and see why China continues to offer a better investment environment than Japan.

Sometimes it seems like China and Japan are like two brothers switched at birth with mistaken identities. To better understand the differences between the two countries, let's look at their views on globalization.

Japan & Globalization: Although Japan is the world's second largest economy and a major exporter, in many ways, the country still harbors a sense of distrust to foreigners. As evidenced by my experiences today, Japan makes it inconvenient for visitors like us to enter the country.

In addition, our cruise ship's satellite communication was disrupted at Osaka harbor, an incident that did not occur anywhere else during our cruise through China. So despite all of Japan's technological advances and wealth, the country is not using them to create a better experience for visitors.

By not making the country easily accessible, Japan is not fully embracing globalization and lacks the globalist mindset that both the U.S. and China have. Another example of this came during our visit to Osaka.

Unlike Shanghai and Beijing, most of Osaka's small businesses do not have English language signs. Other than our tour guides, who spoke heavily accented English, most of the people in Osaka only spoke Japanese. Even the staff at the city's biggest tourist attraction -- the Osaka Castle -- did not speak English. This is in stark contrast to Beijing and Shanghai, where most people who work in the tourism industry can speak some English.

China & Globalization: While Japan is not fully welcoming globalization, China of 2008, on the other hand, fully embraces globalization. Beijing openly welcomes foreign visitors. If you recall from my discussion last week, it only took us 30-minutes -- hassle-free, I might add -- to pass through immigration at Beijing's giant new airport terminal. A vast difference to the three-hour affair at the Osaka port.

Plus, China allows its citizens and visitors to conveniently communicate with people around the world. I also experienced this first hand in my calls to the United States while on the cruise. I was only charged a cheap six-cents-a-minute fee to call the U.S. on my China cell phone.

The main lesson that we need to learn from the stark differences between China and Japan is that when investing in Asia, investors need to pay attention to substance instead of labels.

Continue to Avoid Japan

Now, I'm not saying that our visit to Osaka was completely unpleasant. We were lucky to tour Osaka during the city's most beautiful time of the year -- the springtime cherry blossom week. Plus, the city is always peaceful and pleasant, perhaps due to Osaka's large elderly population.

Osaka strikes me as a pleasant place to visit or even retire. It isn't an exciting city rich with profit opportunities, like New York, Shanghai or Beijing, though. And perhaps that is a reflection of Japan in general, which is turning into a country of elderly retirees.

The combination of low birthrates and high longevity has reduced the ratio of workers to retirees from five to one, down to three to one in the past 15 years. And I expect this ratio will likely get worst.

But even though the Japanese workforce is dwindling, Japanese xenophobia has prevented the country from allowing large numbers of young immigrants to move into the country. This demographic problem combined with structural inefficiency has put Japan in a long-term economic sluggishness. Japan's stock market is down over 70% in the past 18 years, and there is no end in sight. That's why I continue to be bullish China and bearish Japan.

If you want to learn more about China Strategy, click here.