PAR Spring Edition 2013

PENN ASIAN REVIEW V o lu m e 3 | S p r i n g 2013

A UNIVERSITY OF PENNSYLVANIA UNDERGRADUATE PUBLICATION

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Cover design by Sean Hamamato Source: http://tabisaku.cocolog-nifty.com/photo/pic/042_4.jpg

Penn Asian Review

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The Penn Asian Review editorial board consists of: Editor in Chief Minh Joo Yi Vice Editor in Chief Mengyuan Sun Editing Manager Stephanie Ho Business Managers Emma Kaufman Michelle Whang Design Manager Lucy Shi Secretary/ Webmaster Francis Miller Editorial Assistants Sean Hamamoto Trisha Martin Elaine Song Scott Wang

editor’s note Dear Penn Asian Review readers, It is our pleasure to announce the launching of the third volume of Penn Asian Review (PAR), Penn’s only undergraduate publication that deals specifically with the Asia-Pacific region. In our annual issues we provide a forum for academic discourse on numerous topics related to Asia, which is open to all students and faculties in the Penn community.

In choosing which articles to publish in this volume, we made an effort to ensure that they capture various aspects of the Asian societies and their people. The five articles presented here cover issues ranging from Asian economies, seen from both macroeconomic and microeconomic perspectives, to Asian culture and people, specifically relating to food and ethnic identities. We hope that by publishing this journal we can help you obtain a more balanced and thorough understanding of Asia.

We would like to thank the Center for East Asian Studies which has continuously sponsored our organization since its founding. We are also grateful for the Student Activities Council for providing us with most of the financial support that we needed during the publication process. Furthermore, we express our deepest gratitude for our student contributors who inspired us with their numerous high-quality works. It is my pleasure to have been a part of this great organization during my college years, and I hope you all can show continuous interest and support for PAR in the upcoming years as well.

Lastly, please feel free to contribute to our open blog at http://pennasianreviewonline. blogspot.com, where you can post your thoughts on any Asia-related issues and events that spark your interest.

Minh Joo Yi, Editor in Chief, on behalf of Penn Asian Review Editorial Board

Questions and comments may be addressed to penn.asian.review@gmail.com.

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4 | Contents

table of contents east asia

To Free the Renminbi, that is the Question

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What is the Matter with Japan? The Japanese Economy from a Historical Perspective

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Itadakimasu! An Appreciation of Japanese Cuisine

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To What Extent Does Da Ming International Holdings Limited Benefit from the Post-reform Economic Environment of the People’s Republic of China?

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Ethnic Identity in the Undergraduate Experience: A South Asian Perspective

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Yonathan Ginor

east asia

Larry Liu

east asia

Nicole Woon

east asia

Scott C Wang

south asia

E Keith Keenan

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EAST ASIA

To Free the Renminbi, that is the Question Yonatan Ginor, WH ‘13

Source: http://www.davegranlund.com/cartoons/2010/04/06/china-position-on-currency/

The United States credit crisis and the European sovereign debt crisis have led to a fragile global economic state. In light of such events, significant pressure has been placed on China to aid the global economy, and attacks have been made on China’s currency policy. On October 4th 2011, Ben Bernanke, the chairman of the U.S. Federal Reserve, accused China of thwarting the global economic recovery through intervention in the currency market to deliberately weaken the value of the Renminbi (RMB). [1] China’s trade account and export policy have also gained significant attention recently as a frequent topic of debate between President Obama and Governor Romney. Through policies maintaining an artificially weak currency, China encourages exports and onshore investment while decreasing imports and offshore investment. The fundamental difference in opinion arises over the concept underlying the two sides’ respective currency policies. In the American view, the undervalued RMB serves to favor Chinese corporations while harming American companies in the same industries and costing people jobs. The loss of jobs is a particularly contentious point in the U.S. economy today. In the Chinese view, however, a currency policy that sets out to benefit domestic manufacturers is not

an economic policy as much as an expression of China’s need for political stability. As the U.S. presidential election approached, the Obama administration was anxious to improve the economy, and the RMB exchange rate policy became a stinging political issue. In fact, on October 3rd 2011, the U.S. Senate cleared a procedural vote on the Currency Exchange Rate Oversight Reform Act of 2011, which threatens to impose tariffs on imported Chinese goods unless the RMB appreciates more rapidly.

Despite the pressure, the Chinese government is adamant about not giving into these demands. The government has pursued a philosophy of controlled appreciation of the RMB and seeks to maintain control over its currency. Li Daokui, an economist and member of the monetary policy committee of the People’s Bank of China said, “China will not go down the path that Japan did and give in to foreign pressure on the Yuan’s exchange rate”. [2] Here, Li is referring to the Plaza Accord of 1985, an agreement between several western countries, including the U.S., and Japan, to depreciate the U.S. dollar with respect to the Japanese Yen and reduce the growing trade deficit. Once the yen appreciated, Japan lost its influence on international monetary

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6 | To Free the Renminbi, that is the Question systems. China does not want to fall victim to the same sort of economic problems that plagued Japan after the Plaza Accord and is fighting any form of a new Plaza Accord. [3] However, as a powerful globalized nation, China must analyze the effects of its policies on the global economic landscape. While the nation ultimately seeks what is best for itself, the way to achieve that is by working as a global team player. This report analyzes how the Chinese government can continue to grow its economy and control its own fate while alleviating the pressures from other nations regarding its currency policy.

INTERNATIONALIZATION OF RMB China should elect to internationalize its currency.

While internationalization is not equivalent to a complete liberalization of its capital account, it will increase the flow of RMB abroad and pave the way for the RMB to become a global reserve currency in the long run. Internationalizing the currency is a major step for China to further integrate its economy into the global financial markets and to obtain more trade resources.

The Chinese government has already issued legislation that allows domestic corporations to settle transactions with foreign corporations in RMB, which increases the supply of currency offshore. The accumulation of RMB outside of China strengthens ties between China and the global economy.

One measure that China can take towards internationalization, specifically in light of U.S. pressure to liberalize its currency, is to open RMB centers in New York. This measure will increase the circulation of RMB offshore, which will then be invested directly back into China.

This will also be a sign of good faith towards the U.S. by satisfying the demand for RMB among China’s largest trading partner (excluding the EU). Essentially, the purpose of having foreign currencies is to conduct foreign trade and investment, so the RMB is expected to become a more attractive currency for China’s trade partners, such as the U.S. According to Kenneth Ho, head of products for the Asia-Pacific region at Julius Baer, “An increasing number of clients are interested in investing in RMB-denominated products, seeking ways to gain access to the long-term potential of the Chinese currency…and interestingly, this demand is worldwide, not only from our clients living in Asia”. [4] If China makes the RMB more accessible through opening an offshore RMB center, as it already has in Hong Kong, the Chinese government will be helping both the U.S. and itself. The U.S. demand for RMB will be satisfied, providing international investors with an opportunity

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to invest in RMB denominated assets. These benefits are additionally transferred back to China through greater foreign direct investment.

Furthermore, the government can grant foreign companies the right to issue RMB- denominated bonds. To elaborate, corporations would be able to issue RMB denominated bonds in New York, for example, to raise money, but the RMB will eventually get invested back into China. This policy benefits both China and the economy of New York by creating wealth and jobs.

These foreign lenders, such as the bond purchasers in New York, are happy to extend such loans and accumulate RMB out of the belief that the currency will continue to appreciate against the dollar at approximately 5% per annum and can be used to purchase Chinese assets. [5] Alex Fung, chief executive of Société Générale Private Banking in Hong Kong claims, “They offer good investment opportunities for offshore clients who believe that the RMB is going to appreciate further, as currently they cannot directly buy domestic RMB bonds or equities.” While the market for these RMB-denominated products (sometimes referred to as “dim-sum” bonds because the first of these products were issued in Hong Kong) is small, it is growing rapidly. According to the Hong Kong Monetary Authority, the amount of RMB products increased from 62 billion RMB in 2009 to 315 billion RMB ($48 billion) in 2010 and is anticipated to grow up to 40% annually, reaching 9 trillion RMB by 2020. [6] As China makes strides towards greater internationalizing of its currency, by opening offshore RMB centers and increasing foreign RMB-denominated bonds, it is hedging its exchange rate risk. This is particularly significant in a nation like China, where growth is largely dependent on exports. The higher the proportion of China’s trade that is carried out in RMB, the lower the exchange rate risk to which China’s corporations are exposed. For example, a majority of Chinese corporations still accept U.S. dollars to settle transactions. However, if the dollar were to depreciate against the RMB, then the corporations would effectively be paid less than expected. In fact, this is similar to the way in which German corporations benefited from the creation of the eurozone. The elimination of exchange rate risk will result in greater funding efficiency for Chinese financial institutions and will increase their competitiveness in the global financial markets.

For any corporation that operates in China, is looking to expand into China, or is working with Chinese firms, internationalization of the RMB will provide more flexibility regarding payment, collection, and potential in-

Ginor | 7 vestments. China has already established Hong Kong as an offshore RMB center, so corporations can open RMB denominated accounts in Hong Kong to settle transactions across the border with China. All parties involved in cross-border trade with China benefit from the initiative to settle trade in RMB. Suppliers face lower cost of currency hedging and may charge lower prices. Buyers have decreased transaction and administrative costs by paying in RMB and exporters will have to deal with fewer organizations in order to conduct trade. China can appease the U.S. by extending such benefits to New York and other American cities. Moreover, payment in RMB will mark a shift in China’s reserve assets from U.S. dollars to RMB, thus making China’s wealth less dependent on U.S. monetary policy and the value of the dollar. The promotion of the RMB’s status as a global reserve currency will in the long run provide China with more freedom in its economic and monetary policies and also support the global economy. IMF Vice President Zhu Min said that the current unstable triangle of reserve currencies, made up of the US dollar, euro, and yen, will evolve into a stable quadrangle, including the Chinese RMB, which will help the stability of the global monetary system. [7] RMB internationalization is a way for China to set its own agenda without being overly constrained by external conditions that are beyond its control, while at the same time acting as a global player by stimulating the struggling economies in the U.S. and Europe.

While I advocate for China to pursue a path towards internationalization, it is imperative that the Chinese government maintains control of its currency and does not let the RMB become widely available too rapidly.

If this were to occur, the RMB will predictably appreciate and the internationalization of the currency based on speculative appreciation will be unsustainable. The rapid financing into China that sets to take advantage of the rising exchange rate would force the rate up even further, bankrupting parts of China’s exporting industry upon which the nation depends.

The speculative buyers of the Chinese currency, who aim at exchange-rate arbitrage, also pose a threat to the welfare of China. This “hot money”, which refers to the speculative capital, will further drive RMB appreciation and the profits taken by speculators will lead to huge welfare losses to China. So far China has used capital control to prevent hot money from flowing onshore, but as greater internationalization of the currency encourages non-mainland residents to acquire RMB denominated assets, regulating this capital will become more difficult. As a result of internationalization, RMB deposits held by Hong Kong residents have reached 370

billion RMB ($57 billion), and the amount may reach 1 trillion RMB by the end of this year. [8] The problem with hot money is that these deposits are held because of expectations of RMB appreciation, rather than because of faith in China’s growth and its strong economic fundamentals. In conclusion, while internationalization of the RMB is necessary, and indeed inevitable as China becomes integrated in the global financial markets, it should be guided by market principles and pursued in a cautious manner.

INCREASE IMPORTS FOR UNITED STATES The U.S. pressure on China to liberalize its currency comes predominantly from the fact that the U.S. is experiencing low GDP growth and specifically suffering from a large trade deficit with China. Especially because 2012 was an election year, President Obama is making an effort to bolster the economy and fulfill his promise to double export growth by 2015. [9] As the U.S.’s largest trading partner, China plays a vital role in this equation. One way to decrease U.S. imports from China and increase exports to China is through RMB appreciation, which would change the relative dollar price of goods. The U.S. government is pressuring RMB appreciation through the Currency Exchange Rate Oversight Reform Act of 2011. This trade bill would establish tariffs on imports from countries with undervalued currencies, such as China. China responded by saying that such legislation could spark a trade war, which would not be good for either party. My initial recommendation regarding internationalization of the RMB will allow China to appreciate its currency with more control and help China transition away from its export economy in a way that is beneficial to both nations’ economies.

Secondly, I recommend that China assist U.S. export growth directly by increasing its imports from the U.S. Why would China choose to do such a thing? China should specifically focus on importing high-tech goods from the U.S., as such products are less developed and less advanced in China. The U.S. has a competitive advantage in the production of many high-tech goods, so China could increase imports of such products in order to improve it own national capital and at the same time help its trade partners.

The obstacle here is that the U.S. has banned the export of high-tech goods to China since 1989. [10] The demand for high-tech goods in China and the trade deficit in the U.S. present a prime opportunity for a compromise. The U.S. should gradually relax its ban on the export of high-tech goods and China can in turn encourage and incentivize the purchase of such goods,

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8 | To Free the Renminbi, that is the Question thereby decreasing the U.S. trade deficit. China will grow to develop its own technology and high-tech goods in the near future regardless, so it is worthwhile for the U.S. to take advantage of the export profits that they can receive now, while China still demands them and the U.S. has a comparative advantage in their production.

In fact, we can see over the past year that U.S. policy makers have already begun to embrace the idea of relaxing the high-tech import restrictions. According to James Areddy of the Wall Street Journal, “U.S. officials are signaling a rethink of guidelines that now block China’s access to certain technologies to spur U.S. exports and to address complaints from Beijing that the policy is discriminatory”. [11] U.S. officials planned to bring a group of high-technology companies to Shanghai to meet potential Chinese customers to discuss the possibility for trade. “We are in the midst of a major reform and simplification that will enable more hightech goods to be exported to China,” Gary Locke, the U.S. ambassador to China, said in a speech in Shanghai in March 2012, outlining the plan broadly. Beijing often highlights export controls to counter U.S. criticisms that China uses an undervalued Yuan for trade advantages. Chinese authorities argue that the ability to purchase U.S. high technology would give a lift to the U.S. economy and therefore bring about a mutually beneficial and cooperative trade policy.

Presently, China’s currency exchange policy is an interesting issue, and new circumstances regarding the issue are evolving daily. Turmoil in the global financial markets, specifically in the U.S. and in Europe, has placed significant political pressure on China, both in the form of an attack as well as in the form of a plea for help.

The goal for China is to establish itself as a dominant player in the global economy, which in turn provides the nation with tremendous opportunities. By taking measures towards internationalization of its currency, China can boost growth in the U.S. while retaining most

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control over its currency, and without compromising its economic or social stability. In addition, China can assist the U.S. trade deficit by increasing its imports of high-tech goods, and in doing so both nations may relax existing trade restrictions and learn to work together. At a time in which most of the developed world is struggling, China must decide where to allocate its resources in order to promote the greatest welfare for all and produce the best possible outlook for its future.

NOTES [1] Beattie, Alan. “Bernanke Criticises China over Currency.”

Financial Times. N.p., 4 Oct. 2011. Web. 20 Nov. 2011.

[2] Xing, Wang. “No Repeat of Japan’s Mistake: Official.” No Repeat of Japan’s Mistake: Official. China Daily, n.d. Web. 20 Nov. 2011.

[3] Xing, “No Repeat of Japan’s Mistake: Official” [4] Kolesnikov-Jessop, Sonia. “Renminbi-Linked Investments Expand.” The New York Times. The New York Times, 29 Mar. 2011. Web. 3 Dec. 2012.

[5] Kolesnikov-Jessop, Sonia. “Renminbi-Linked Investments Expand.”

[6] Ibid [7] Han, Sha Sha. “RMB Internationalization Benefits World.”

- People’s Daily Online. N.p., 12 Oct. 2011. Web. 20 Oct. 2012.

[8] Yongding, Yu. “The Renminbi’s Journey to the World.”

Project Syndicate, 27 May 2011. Web. 20 Oct. 2011.

[9] Cooper, Helene. “Obama Sets Ambitious Export Goal.”

The New York Times. The New York Times, 29 Jan. 2010.

Web. 5 Dec. 2012.

[10] Jung, Edward, and Nathan Myhrvold. “Asia’s High-Tech Boom Is Good for Us, Too.” Wall Street Journal. N.p., 23 July 2011. Web. 5 Dec. 2012.

[11] Areddy, James T. “U.S. Weighs Easing Curbs on Chinese Access to High Tech.” Wall Street Journal. N.p., 28 Mar. 2012.

Web. 5 Dec. 2012.

EAST ASIA

What is the Matter with Japan?

The Japanese Economy from a Historical Perspective Larry Liu, CAS ‘14

Source: http://gideongartner.com/2010/04/is-japan-economy-precedent-for-u-s/

After his resounding electoral success, the incoming Prime Minister Shinzo Abe vowed to revive the Japanese economy after almost two decades of economic stagnation and deflation by increasing government spending and instructing the Bank of Japan (Central Bank) to increase the yen’s monetary supply to raise inflation and spur exports. [1] Abe’s goal was to target 3% economic growth per year. In order to get there, he will propose a public works program worth 200 trillion yen ($2.4 trillion) over ten years to strengthen the protection of buildings against earthquakes and tsunamis. [2] This program has been announced despite the enormous debt burden facing Japan. Its public debt will increase to an estimated 237% of GDP by 2013. [3] Japan was the second largest economy of the world, but in February 2011 it gave up its second spot to China. [4] As a result of China’s growing economic strength, the Japanese political leadership has asserted a more decisive stance on the highly controversial Senkaku/Diaoyu

islands off the Chinese coast. In his campaign speech, Abe declared the islands to be part of Japanese territory, [5] which the Chinese government also claims for itself. [6] The dispute over the island has recently gained much attention because the Japanese government had nationalized the remote, uninhabited islands in September of 2012, [7] leading to mass anti-Japanese protests in China. [8] Some observers see Japan’s assertiveness over an uninhabited island as a distraction from its internal economic problems in order to boost national confidence and popular votes. [9] While China’s economy grew by an average of 9.3% between 1989 and 2012, [10] Japan’s economy only expanded by an average of 2.08% between 1981 and 2012, and contracted by 3.5% in the third quarter of 2012. [11] It is fairly well-known that the Japanese economy has been struggling to retain its position for the last 20 years. [12] The 1990s are considered as Japan’s “lost decade”, referring to its ongoing deep economic mal-

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10 | What is the Matter with Japan? aise. [13] In order to gain some perspective on Japan’s economic and geo-political position, I want to shed some light on the historical development of the Japanese economy, especially since the end of World War II, when Japan quickly rebuilt itself to become the economic powerhouse of East Asia in the 1970s. I will then describe the circumstances of the Japanese economy of the last twenty years to account for its weaknesses and challenges. I will conclude by tying my analysis of Japan’s economic history to the contemporary political challenges in East Asia.

The economic history of Japan since 1945 can be divided into four periods: a recovery period (1946-1950), a rapid growth period (1950-1973; 9.3% annual average growth), a moderate growth period (1976-1991; 4.3% growth) and a stagnation period (1992-2003; 1% growth). [14] Following the end of World War II, Japan fell under U.S. occupation, and the Japanese economy was destroyed. [15] Industrial production was severely limited due to a lack of raw material and finance. [16] Japan faced an enormous food and fuel shortage. [17] In order to handle the economic hardship, the government carried out a land reform that gave land to distressed tenant farmers, effectively expropriating the landlords. [18] The workers were helped by a surge in labor union membership that rose to 46% of the industrial workforce by 1947. [19] Japanese companies also developed a lifetime employment scheme, shielding employees from layoffs. [20] Furthermore, the government implemented an active policy of developing the coal and steel industries, which went under the heading “priority production plan” (Keisha seisan hoshiki), using mostly domestically available resources. [21] The government founded the “Reconstruction Bank” in order to finance the plan, and used price controls and resource allocations in order to tame the ensuing inflation.

However, inflation continued to accelerate, as wages and prices were hiked. [22] The United States, that oversaw the Japanese government, implemented the so-called Dodge Plan in 1949, which tied the yen’s exchange rate to the U.S. dollar, halted the Reconstruction Bank loans and reduced direct government subsidies. This policy produced a deflationary spiral, [23] which was halted by an increase in export demand created by the Korean War (1950-53). [24] In the period between 1950 and 1973, Japan experienced a huge economic growth rate. It benefited from high worldwide growth rates, an increase in international trade, the Bretton Woods system, a stable political system supportive of growth, stable labor-management relations and low prices of raw materials (Japan is highly dependent on raw material imports). Further-

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more, the strengthening Japanese industry was helped by the importation of foreign technology, a high savings and investment rate, and low defense expenditures.

[25] Japanese companies improved quality controls and implemented the just-in-time production system, making its manufacturing products competitive in the world market. [26] As a result of the boom period, the unemployment rate was merely between 1.1 and 1.4% between the years 1961 and 1974. [27] Between 1951 and 1960, Japan’s national income more than doubled, and even tripled between 1960 and 1973. [28] The boom period was overshadowed only by greater environmental degradation, overcrowding in metropolitan areas, high inflation, and poverty among non-workers. [29] The economic growth was moderated by the early 1970s, because the impact of imports in foreign technology began to wear off. [30] In addition, the oil shock, which drastically increased oil prices, put a halt to the golden age of the Japanese economy. [31] Due to its resource poverty, Japan was highly dependent on cheap foreign resources. [32] One major impact of the oil crisis was that thousands of workers were dismissed in a corporate effort to reduce labor costs. The resignation of employees (especially females) was accompanied by the intensification of the “just-in-time” production system to raise the productivity rates given the oil price increases and the economic slowdown. [33] The 1980s were marked by a period of a speculative bubble. Over the course of the 1980s, Japan had a huge trade surplus with the U.S., exporting far more than it imported. Japan benefited from a devalued currency, making export goods cheaper for the US. Japan’s exports were so flourishing during the 1980s that leading American policy scholars were concerned about Japan’s “disruptive force” in American economic life. [34] In order to solve the US trade imbalance, the Japanese government allowed the yen to appreciate against the dollar in 1986, which temporarily generated an economic contraction and a reduction in the export-oriented electronics, steel, and automobile industry. [35] In order to alleviate a weakening economy, the Bank of Japan (Central Bank) lowered the official interest rate, leading to historically record high stock prices that peaked in 1989. The huge trade surplus, the strong yen, and the low interest rates swelled the nation’s monetary supply.

The Japanese auto industry, the stronghold of the country’s industrial economy, had saturated the markets, and sought speculative outlets for their enormous savings. [36] Banks were eager to lend money to individuals for the purchase of real estate. [37] In 1987, when Japan’s GNP (gross national product) was 345 trillion yen, financial assets increased by 382 trillion yen, while

Liu | 11 land assets grew by 374 trillion yen. [38] Furthermore, the banks were committed to a policy of lending money to companies that were no longer profitable (also called “zombie firms�). The ensuing defaults led to enormous bank problems, requiring a government bailout. [39] In order to save the banks the government had assumed the debt from the private banking sector, escalating the public debt to about 581 trillion yen in March 2010. [40] In order to counter the speculative frenzy, the Bank of Japan gradually hiked interest rates in 1989, which reduced stock prices by 45% in 1992 compared to the peak. Restrictions on real estate loans were implemented, which led to a bursting of the real estate bubble, and a 53% decline in the price of land in 1996 compared to its peak in six major cities. The capital gains and money funds of businesses and corporations were wiped away.

Real estate prices declined; consumer demand, employment and wages decreased; and the manufacturing sector built up an overcapacity. Given the enormous debt and the falling profits, Japanese manufacturers began to reduce their domestic labor force and replace them by cheaper overseas workers, hollowing out their domestic manufacturing sector. [41] China has been a prime destination for Japanese capital investments, because their wage costs are approximately one-thirtieth of Japanese wage costs. [42] Outsourcing of jobs particularly occurred in the heavy industries such as steel, shipbuilding, machinery, automobiles and electric machinery.

[43] Layoffs frequently affect female workers and high school graduates. [44] As a consequence of the reduced labor costs, standard (full-time) employment in Japan decreased. The share of men in the standard (full-time) employment category decreased from 91.5% in 1991 to 84.5% in 2003, and the share of women decreased from 62.8% to 49.5% in the same time period. [45] Recent data reveals that 33% of all Japanese employees are non-regular or part-time employees. [46] The bottom two income deciles in Japan have seen their real wages decline between 1995 and 2000. [47] The shrinking share of labor as part of the national income has contributed to depressed sales and aggregate demand, reducing investments and weakening the economy. [48] The outsourcing process has also harmed the small business sector, whose profit margins have been reduced from an average of 3.5% in the late 1980s to zero between 1999 and 2002, and whose bankruptcy rates have been very high. [49] The only beneficiaries of the changed business environment are the large corporations that are flush with cash. These large corporations have 60 trillion yen ($713 billion) in reserves, and have, thus far, spent $80 billion to purchase 620 different foreign companies. [50]

The 1990s were marked by an economic malaise as growth rates remained low, unemployment rates increased, and bank failures occurred. [51] During the 1990s, all prefectures and industrial sectors saw a decline in real output (15%), number of business establishments (15%), and employment (15%). [52] An overhang of bad debt was burdening the Japanese economy, as indebted banks were unwilling to lend money to companies. In 1994, the government permitted banks to write off over $400 billion in debt, and made the taxpayers provide new funds for the banks to continue lending. [53] In an effort to fight the problem of bad debt incurred during the bubble period, banks received loan assistance from the government. The number of banks receiving loan assistance sharply increased from seven cases in 1997 to 51 cases in 2002. [54] The amount of bad debt disposition had reached a peak in 2001, and by the end of 2005 was lowered to 4.6% of total bank assets. [55] In order to stimulate the economy, the government passed several fiscal spending packages over the course of the 1990s, totaling 122 trillion yen in stimulus. [56] They were designed to create public works projects. However, the fiscal programs were not sufficient, and most funds only benefited the political clientele rather than the general economy. [57] The Bank of Japan lowered the official interest rate from a high of 6% in 1991 to a low of close to 0.15% in 1999 in the hopes of halting deflation and stimulating the economy. It also pursued the strategy of quantitative easing, which increased the Bank’s balance of current account from five trillion yen in 2001 to 30-35 trillion yen in 2004. [58] The policy of countering deflation had been a failure, and the zero interest rates lost their effectiveness, because they could not go lower. [59] Japan was in a liquidity trap, because no interest rate was low enough for scared borrowers and reluctant lenders to engage in transactions, which is a pre-requisite to growing the economy. [60] Deflation weakened the Japanese economy, because it lowered investment spending. It raised the real rate of interest, making the Japanese debt burden even worse. Bankruptcies among companies and private individuals became more likely, making the banks less willing to lend. [61] As the economy improved slightly in the mid-1990s, the Japanese government became worried about the ballooning deficit, and embarked on a fiscal austerity program, involving spending cuts and tax increases.

However, this measure led to a sharp decline in GDP between 1997 and 1998. [62] The government under Koizumi (2001-2006) implemented a policy of further government spending reduction, deregulation and liberalization. He privatized the postal services and

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12 | What is the Matter with Japan? the highway systems, reduced the number of public employees and delegated greater administrative responsibilities to the local governments. [63] Despite those austerity policies that temporarily reduced the deficit, the deficit and debt continued to rise after 2008, following the collapse of the US housing bubble and economic crisis. By 2010, the government budget deficit increased to 10.5%, [64] and 43% of government revenues were devoted to debt service payments. [65] Despite the debt commitments, interest rates on government bonds have been low. In July 2012, the 10-year yield on Japanese bonds decreased to 0.79%, the lowest rate since 2003, partly because the Bank of Japan eagerly bought government bonds. [66] The main reason Japan’s high public debt burden did not result in higher interest rates was that the Japanese people had a generally high savings rate, allowing the government to draw heavily from their savers without upsetting foreign investors, who are more sensitive to expectations about debt levels. [67] However, the fairly stable fiscal position of the Japanese government may be upset by the fact that the nation’s historically high saving rate is shrinking. While Japan’s household savings rate has historically been high, averaging at about 14% of disposable income in the 1990s, this rate has shrunk to 2% in the last few years. [68] Japan’s economic and fiscal troubles were compounded by the earthquake catastrophe in 2011. [69] Some of the auto and electric industry’s operations were temporarily disrupted. [70] Following the disruption in the energy supply, Japan also had to import additional costly oil from abroad. [71] Despite the country’s growing fiscal problems, Japan is still the third largest economy in the world. Japanese big businesses still play a huge role in the world economy. Historically, Japan has been a strong exporter of manufacturing goods. It has also played a major role in East and Southeast Asia. The Asian economies have heavily depended on Japanese capital, technology and strategic guidance. [72] While the public debt crisis is continuing to exacerbate, Japanese companies are said to have shaken off the effects of the earthquake and nuclear disaster. Publicly traded firms experienced an increase in the pre-tax profit of 24%. [73] However, the success of Japanese corporations that have greatly benefited from low-cost labor and technological advancements are overshadowed by six factors, including foreign competition, emerging trade deficits, low-wage domestic labor, weakening foreign demand, government debt, and an aging population. In terms of foreign competition, for example, Japanese steelmakers have seen their revenues shrink by over 50%, as Chinese steelmakers dramatically brought down

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steel prices. [74] Japan’s status as primary exporter is also challenged by the country’s first trade deficit since 1963. Estimates suggest that by 2015, Japan’s overall current account will be in deficit. [75] The wages of Japanese workers have also seen a drop, as unit labor costs in June 2012 were 3.6% lower than in the previous year. [76] The corporate policy of wage reduction in an environment of diminished demand will have further negative consequences on total consumption. Given the debt-ridden European economies, foreign demand for Japanese products has sharply decreased, plunging by 8.1% in August 2012 compared to last year. [77] The government debt that has thus far prevented a deterioration of the Japanese economy has increased to 237% of its GDP, raising fears among Japanese officials that the low interest rates on government debt bonds may rise sharply. [78] Finally, Japan’s population is aging rapidly. One third of its population is over 60, which will increase to 42% by the middle of the century. [79] The aging population explains the rising social and medical expenditures, which are counter-balanced by the relatively high labor participation rate of Japanese seniors. [80] Japan’s economic history since the end of World War II reveals the changing nature of its economy. Immediately after the war, Japan was struggling to regain economic strength, and under the protection of the U.S. was capable to attain it. What followed was a 20-year economic boom phase, stretching from the 1950s to the 1970s, during which Japan benefited from a stable international trading system, a favorable economic environment in Europe and the U.S., technological imports and a skilled, disciplined population. But the oil crisis led to the end of the unrestricted growth period. Japanese policymakers remained, nonetheless, very persistent about sustaining economic growth rates. Japanese companies forcefully reduced their labor costs, and improved their manufacturing efficiency in order to boost exports. In the 1980s, the accumulated capital was then used to prop up a real estate bubble that was aided by the Bank of Japan, sending land prices through the roof, and promising short-term profits. By the early 1990s, when the Bank of Japan hiked interest rates, the property bubble inevitably collapsed as the borrowers defaulted, bringing the banks to the verge of bankruptcy. The government bailed out the banks with taxpayer guarantees, but the overhang of bad debts continued to plague the Japanese economy until the early 2000s.

Since the early 1990s, the government and the Bank of Japan have frequently intervened in the economy via stimulus packages and quantitative easing, often with limited results. Shinzo Abe’s current policy objectives

Liu | 13 fall well in line with the policies that had been tried from the early 1990s on. The problem remained that the bursting of the bubble forced companies to reduce their debt load and reduce investments, keeping the economy weak. Japan, furthermore, showed signs of a mature economy, whose demand stopped increasing, labor force started shrinking, and profitable investment opportunities began drying up. [81] In the pursuit of growth, Japanese businesses have successfully resorted to increasing their foreign investments. On the other hand, the enormous government debt load, that has bolstered businesses, points to the limited capability of the government to further sustain the economy through intervention. The emerging trade deficits, which point to a weakened export sector and foreign (rather than domestic) capital investments of Japanese corporations, further threaten the ability of the Japanese government to continue with deficit spending. The main economic challenges for Japan reveal the general challenges facing mature capitalist economies that will require solutions that are different from the tried solutions of the Japanese government. Karl Marx wrote that capital either has to grow or die. [82] However, there have been enormous challenges to the growing capital over the last few decades. David Harvey notes that many Western countries, including Japan, have found it difficult to ensure that the excess capital is absorbed through greater demand in real goods and services. [83] Therefore the Japanese have resorted to speculative bubbles in the property market in the 1980s and government-led deficit spending since the 1990s. These measures have limited effectiveness, and only produce debt bubbles with future problems that are even greater than the present ones.

In my view, it is the context of the rising economic pressures against Japan, especially the competition with China, that the Japanese government has sharpened its tone against China. This policy of greater political, and—in the worst case scenario—military confrontation in East Asia is proving to be a major international security challenge, which will require further elucidation among scholars and policy experts. [84] How the complex international diplomatic and economic conditions of Japan are playing out is best illustrated in a recent speech that Prime Minister Abe gave on a visit to the U.S.: “Japan is not, and never will be, a twotier country…… So today I will make a pledge. I will bring back a strong Japan, strong enough to do even more good for the betterment of the world.” [85] The ‘two-tier country’ reference can also be interpreted as a jab on China that had overtaken Japan in terms of the overall size of the economy, but not in per capita

terms. Abe expressed his concern that China’s rise could threaten Japan’s position. Besides currency devaluation and huge infrastructure spending programs to revive the troubled economy, Abe has also boosted defense spending for the first time in eleven years. [86] The U.S., Japan’s strategic ally, has also boosted its military support for Japan. The U.S. currently has 47,000 troops stationed in Japan, and recently announced to station new aircraft fighter jets in Okinawa, [87] a Japanese island with a major U.S. military base.

China, as a rising nation, has also taken a more assertive stance against Japan. The newly appointed leader Xi Jinping has spoken regarding the Diaoyu/Senkaku island conflict that “China will never give up its development interests, security and sovereignty to any foreign power.” [88] The “foreign power” he referred to was obviously Japan. Furthermore, the military preparations of the U.S. and Japan have not gone unnoticed in Beijing. China has boosted its military spending by 11% in 2012 compared to the previous year, bringing total spending to about $106 billion. [89] China is facing its own domestic conflicts, such as enormous air pollution in the major cities, an internet-based political opposition, corrupt Communist party, widening gap between the rich and the poor, and rising labor strife. [90] The implication is that Xi and other Chinese leaders welcome foreign political tensions against Japan in order to defuse domestic conflicts. The enormous anti-Japanese protests that were in part steered and approved by the Chinese government reflect the historical grievances of the Chinese, who are still angry about the Japanese occupation in China during the World War II. [91] It is the complicated political history between China and Japan, along with increasing economic pressures against Japan, and rising political tensions in China, that may contribute to a further escalation of bilateral conflicts in the East Asia region.

NOTES [1] Alexander Martin and William Mallard, “Japan’s Abe Pushes for Easing”, Wall Street Journal, December 17, 2012, accessed December 20, 2012, http://online.wsj.com/article/SB1 0001424127887324407504578184781736768970.html.

[2] Anthony Fenson, “Can ‘Abenomics’ Save Japan’s Economy?”, Diplomat, December 18, 2008, accessed December 20, 2012, http://thediplomat.com/2012/12/18/can-abenomicssave-japans-economy/?all=true.

[3] Yuka Hayashi, “On IMF Sidelines, Host Japan Debt Worries Lurk Beneath Europe”, Wall Street Journal, October 13, 2012, accessed December 20, 2012, http://online.wsj.com/article/SB10000872396390443749204578055092911251324.html.

[4] Stephanie Flanders, “China Overtakes Japan as World’s

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14 | What is the Matter with Japan?

Second-Biggest Economy”, BBC News, February 14, 2011, accessed December 20, 2012, http://www.bbc.co.uk/news/business-12427321.

1, 2012, accessed December 20, 2012, http://www.nytimes. com/2012/12/02/world/asia/alarm-as-china-issues-rules-fordisputed-sea.html?ref=territorialdisputes&_r=0.

[5] Kwan Weng Kin, “Abe Talks Tough: Senkaku Islands Belong to Japan”, China Daily, December 18, 2012, accessed December 20, 2012, http://africa.chinadaily.com.cn/ world/2012-12/18/content_16028552.htm.

[10] Trading Economics, “China GDP Annual Growth Rate”, accessed December 20, 2012, http://www.tradingeconomics. com/china/gdp-growth-annual.

[6] For a brief history of the Senkaku/Diaoyu island struggle between Japan and China, consult Joyman Lee, “Senkaku/ Diaoyu: Islands of Conflict”, History Today 61, no. 5 (2011), accessed December 20, 2012, http://www.historytoday.com/ joyman-lee/senkakudiaoyu-islands-conflict.

[7] Asahi Shimbun, “Update: Noda Government to Buy Senkaku Islands for 2 Billion Yen”, September 5, 2012, accessed December 20, 2012, http://ajw.asahi.com/article/behind_news/ politics/AJ201209050013.

[8] Malcolm Moore, “China Warns It is Ready for ‘Further Action’ against Japan over Islands”, Telegraph, September 18, 2012, accessed December 20, 2012, http://www.telegraph. co.uk/news/worldnews/asia/china/9550614/China-warns-it-isready-for-further-action-against-Japan-over-islands.html.

[9] Daniel Morley, “Japan/China Island Dispute Exposes Increasing Imperialist Contradictions at Centre of World Trade”, International Marxist Tendency, October 26, 2012, accessed December 20, 2012, http://www.marxist.com/japan-china-island-dispute-imperialist-tensions.htm; Yinan He, “Nationalism and the China-Japan Island Disputes”, Council on Foreign Relations, September 18, 2012, accessed December 20, 2012, http://blogs.cfr.org/asia/2012/09/18/nationalism-and-the-china-japan-island-disputes/; Rodger Baker, “Understanding the China-Japan Island Conflict”, Stratfor, September 25, 2012, accessed December 20, 2012, http://www.stratfor.com/weekly/ understanding-china-japan-island-conflict.

I would like to add that the growing nationalism and economic challenges in Japan can not be the only source of political conflict in regard to the islands. China’s foreign political assertiveness has also contributed to the dispute. Its assertiveness increased in the recent past, which is reflected in China’s contemporary and historical border conflicts with Kyrgyzstan, Kazakhstan, Russia, North Korea, Tajikistan, India, Pakistan, Mongolia, Bhutan, Myanmar, Philippines, and Vietnam.

This situation suggests that China’s growing economic power is related to the power struggle over the disputed islands. But China’s economic and political assertiveness has to be analyzed in a separate paper. Consider M. Taylor Fravel, “The Dangerous Math of Chinese Island Disputes”, Wall Street Journal, October 28, 2012, accessed December 20, 2012, http://online. wsj.com/article/SB100014240529702039228045780823715095 69896.html; Wenwen Shen, “China and Its Neighbors: Troubled Relations”, EU-Asia Centre, March 1, 2012, accessed December 20, 2012, http://www.eu-asiacentre.eu/pub_details. php?pub_id=46; Sudha Ramachandran, “China Plays Long Game on Border Disputes”, Asia Times, January 27, 2011, accessed December 20, 2012, http://www.atimes.com/atimes/ China/MA27Ad02.html; Jane Perlez, “Alarm as China Issues Rules for Disputed Area”, New York Times, December

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[11] Trading Economics, “Japan GDP Annual Growth Rate”, accessed December 20, 2012, http://www.tradingeconomics. com/japan/gdp-growth-annual.

[12] Takeo Hoshi and Anil K. Kashyap, “Japan’s Financial Crisis and Economic Stagnation”, Journal of Economic Perspectives 18, no. 1 (2004): 3-26, 3, accessed December 20, 2012, http://pzacad.pitzer.edu/~lyamane/hoshi1.pdf.

[13] Tim Callen and Jonathan D. Ostry, Japan’s Lost Decade: Policies for Economic Revival (Washington D.C.: International Monetary Fund, 2003); Hiroshi Yoshikawa, Japan’s Lost Decade (Tokyo: International House of Japan, 2011).

[14] Mitsushiko Iyoda, Postwar Japanese Economy: Lessons of Economic Growth and the Bubble Economy (New York: Springer, 2010):7.

[15] Yasutami Shimomura, “Macroeconomic Policy with Particular Reference to Rapid Economic Growth”, in Economic and Policy Lessons from Japan to Developing Countries, ed.

Toshihisa Toyoda, Jun Nishikawa, and Hiroshi Kan Sato (Basingstoke, UK: Palgrave Macmillan, 2012): 19-40, 25.

[16] Yutaka, Kosai, En no Sengo-Shi (A History of the Yen in the Post-War Japan) (Tokyo: Nihon Hoso Shuppan Kyokai, 1995):12.

[17] Shimomura, “Macroeconomic Policy”, 25.

[18] Dennis B. Smith, Japan Since 1945: The Rise of an Economic Superpower (New York: St. Martin’s Press, 1995):50-52.

[19] Ibid., 56.

[20] Iyoda, Postwar Japanese Economy, 30.

[21] Yutuka, Kosai, The Era of High Speed Growth: Notes on the Postwar Japanese Economy (Kodo Seicho no Jidai) (Tokyo: University of Tokyo Press, 1986):41-42.

[22] Iyoda, Postwar Japanese Economy, 33.

[23] A deflationary spiral is a situation, where price decreases induced by the government’s abstention of funding reduce overall production, which weakens wages and demands, thus lowering price and production further.

[24] Iyoda, Postwar Japanese Economy, 34.

[25] Ibid., 40-42.

[26] Smith, Japan Since 1945, 90.

[27] Iyoda, Postwar Japanese Economy, 46.

[28] Smith, Japan Since 1945, 85.

[29] Iyoda, Postwar Japanese Economy, 66.

[30] Smith, Japan Since 1945, 112.

[31] Ibid., 118.

[32] Masaru Yoshitomi, “The Recent Japanese Economy: The

Liu | 15 Oil Crisis and the Transition to Medium Path Growth, Developing Economies 14, no.4 (1976): 319-340, 319, accessed December 20, 2012, http://www.ide.go.jp/English/Publish/Periodicals/De/pdf/76_04_01.pdf.

David E. Weinstein (Cambridge, MA: MIT Press, 2005): 1-36, 11.

[33] William K. Tabb, The Postwar Japanese System (New York: Oxford University Press, 1995):83.

[53] Tabb, The Postwar Japanese System, 223.

[34] C. Fred Bergsten, “What to do about the U.S.-Japanese Conflict”, Foreign Affairs 60, no.5 (1982):1059-1075, 1059.

[52] Cowling and Tomlinson, “Transnational Monopoly Capitalism”, 72.

[54] Cargill and Sakamoto, Japan Since 1980, 117.

[37] Iyoda, Postwar Japanese Economy, 74-76.

[55] Nobuyoshi Yamori and Narunto Nishigaki, “Japanese Banks: The Lost Decade and New Challenges”, in A New Japan for the Twenty-First Century: An Inside Overview of Current Fundamental Challenges and Problems, ed. Rien T. Segers (New York: Routledge, 2008): 35-54, 46-47.

[38] Tabb, The Postwar Japanese System, 210.

[56] Iyoda, Postwar Japanese Economy, 89.

[39] Hoshi and Kashyap, “Japan’s Financial Crisis”, 7.

[57] Cargill and Sakamoto, Japan Since 1980, 104.

[40] Iyoda, Postwar Japanese Economy, 89.

[58] Iyoda, Postwar Japanese Economy, 89.

[41] Ibid., 81-82; also consider Keith Cowling and Philip R. Tomlinson, “Transnational Monopoly Capitalism, the J-Mode Firm and Industrial ‘Hollowing Out’ in Japan”, in Crisis or Recovery in Japan, ed. David Bailey, Dan Coffey and Phil Tomlinson (Cornwall, UK: MPG Books, 2007): 61-81, 70.

[59] Takatoshi Ito and Frederic S. Mishkin, “Monetary Policy in Japan: Problems and Solutions”, in Reviving Japan’s Economy, ed. Ito, Patrick and Weinstein: 107-146, 116.

[35] Iyoda, Postwar Japanese Economy, 72-74.

[36] Tabb, The Postwar Japanese System, 214.

[42] Hideo Kobayashi, “Responses of South Korea, Taiwan and Japan to the Hollowing Out of Industry”, mimeo, Waseda University (2004): 1-37, 27, accessed December 21, 2012, http://dspace.wul.waseda.ac.jp/dspace/bitstream/2065/790/1/031120_kobayashi_eng.pdf.

[43] Ibid., 27.

[44] Ryo Kambayashi and Takao Kato, “The Employment System After the Bubble Burst: New Evidence”, in Japan’s Bubble, Deflation, and Long-Term Stagnation, ed. Koichi Hamada, Anil K. Kashyap and David E. Weinstein (Cambrdige, MA: MIT Press, 2011): 217-262, 259.

[45] Hiroshi, Ono, “Lifetime Employment in Japan: Concepts and Measurements”, SSE/EFI Working Paper Series in Economics and Finance, no. 624 (2006): 1-58, 11, accessed December 21, 2012, http://www.econstor.eu/bitstream/10419/56291/1/510036791.pdf.

[46] Thomas F. Cargill and Takayuki Sakamoto, Japan Since 1980 (New York, Cambridge University Press, 2008):248.

[47] Michael Förster and Marco Mira d’Ercole, “Income Distribution and Poverty in OECD Countries in the Second Half of 1990s”, OECD Social, Employment and Migration Working Papers (2005): 1-79, 17, accessed December 21, 2012, http:// www.oecd.org/social/socialpoliciesanddata/34483698.pdf.

[48]Cowling and Tomlinson, “Transnational Monopoly Capitalism”, 63.

[60] A. Gary Shilling, “Japan’s Debt Sustains a Deflationary Depression”, Bloomberg, June 4, 2012, accessed December 21, 2012, http://www.bloomberg.com/news/2012-06-04/japan-sdebt-sustains-a-deflationary-depression.html.

[61] Cargill and Sakamoto, Japan Since 1980, 138.

[62] Ibid, 113.

[63] Ibid, 202.

[64] Trading Economics, “Japan Government Budget”, accessed December 21, 2012, http://www.tradingeconomics.com/ japan/government-budget.

[65] Shilling, “Japan’s Debt Sustains a Deflationary Depression.”

[66] Eleanor Warnock, “BOJ Behind Steep Declines in JGB Yields”, Wall Street Journal, July 11, 2012, accessed December 21, 2012, http://online.wsj.com/article/SB10001424052702 303919504577520224031209192.html.

[67] Teivan Pettinger, “Why Can Japanese Government Borrow at Low Interest Rates?”, EconomicsHelp, November 29, 2012, accessed December 21, 2012, http://www.economicshelp. org/blog/6372/economics/why-can-japanese-government-borrow-at-low-interest-rates/.

Contrast Japan’s situation with Spain or Greece, whose debtto-GDP ratio is lower than in Japan, but who owe most of the loans to foreign investors and banks, who raise the government’s interest rates to unsustainably high levels.

[49] Ibid., 71.

[68] Economist, “Seeing Red”, January 14, 2012, accessed December 21, 2012, http://www.economist.com/node/21542794?z id=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227.

[50] Economist, “Armed with a Strong Yen”, December 17, 2011, accessed December 21, 2012, http://www.economist. com/node/21541848?zid=306&ah=1b164dbd43b0cb27ba0d4c 3b12a5e227.

[69] Angel Gurria, “Towards a Positive Legacy of a Terrible Crisis”, OECD Yearbook, (2012), accessed December 21, 2012, http://www.oecd.org/general/towardsapositivelegacyofaterriblecrisis.htm.

[51] Takatoshi Ito, and Hugh Patrick, “Problems and Prescriptions for the Japanese Economy: An Overview”, in Reviving Japan’s Economy, ed. Takatoshi Ito, Hugh Patrick and

[70] Ministry of Economy, Trade and Industry (METI), “Economic Impact of the Great East Japan Earthquake and Cur-

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16 | What is the Matter with Japan? rent Status of Recovery”, May 16, 2011, accessed December 21, 2012, http://www.meti.go.jp/english/earthquake/recovery/ pdf/20110516_impact.pdf.

Penguin, 1976 [1967]).

[71] Economist, “Seeing Red.”

[84] I do not mean to suggest that there will definitely be a military confrontation between Japan and China. I am only indicating that, structurally, their political relationship will continue to worsen, even though it has not yet fundamentally harmed trade interests.

[72] Tabb, The Postwar Japanese System, 263.

[73] SAPA, “Japanese Corporate Profits to Rise”, Business Report, May 12, 2012, accessed December 21, 2012, http://www. iol.co.za/business/international/japanese-corporate-profits-torise-1.1295193#.UNJWG-RZUc8.

[74] AFP, “China Competition Said to be Hurting Japan’s Steel Firms”, Taipei Times, July 23, 2012, accessed December 21, 2012, http://www.taipeitimes.com/News/biz/archives/2012/07/23/2003538400.

[75] Economist, “Seeing Red.” [76] Keiko Ujikane, “Japan’s Cost-Cutting Leaves Compensation Nearing Crisis Low”, Bloomberg, September 11, 2012, accessed December 21, 2012, http://www.bloomberg.com/ news/2012-09-10/japan-cost-cutting-leaves-compensation-approaching-crisis-low.html.

[77] Leika Kihara, “Weak Japan Exports, Hit by Europe, Raise Questions on Recovery”, Reuters, August 21, 2012, accessed December 21, 2012, http://www.reuters.com/article/2012/08/22/ us-japan-economy-trade-idUSBRE87L00020120822 [78] Yuka Hayashi, “On IMF Sidelines, Host Japan Debt Worries Lurk Beneath Europe.”

[79] Michael Hodin, “Aging Asia and that Competitiveness Thing”, Huffington Post, September 26, 2012, accessed December 21, 2012, http://www.huffingtonpost.com/michael-hodin/population-aging_b_1915775.html.

[80] Labor force participation in Japan among people aged 65 and over have been 35.9% , which is a higher rate than in most other OECD countries. Cited from Yukiku Katsumata, “The Impact of Population Aging and Population Decline in Japan from the Perspectives of Social and Labor Policy”, Expert Group Meeting on Policy Responses to Population Ageing and Population Decline, United Nations Secretariat, October 1618, 2000, accessed December 21, 2012, http://www.un.org/esa/ population/publications/popdecline/Katsumata.pdf.

[81] Iyoda, Postwar Japanese Economy, 90.

[82] Karl Marx, Capital Vol. 1, trans. Ben Fowkes (London:

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[83] David Harvey, The Enigma of Capital (New York: Oxford University Press, 2010), 28.

[85] Kiyoshi Takenaka, “On Key U.S. Visit, Abe Vows to Bring back a Strong Japan”, Reuters, Feburary 22, 2013, accessed February 23, 2013. http://www.reuters.com/article/2013/02/22/ us-usa-japan-abe-idUSBRE91L12P20130222 [86] Ibid.

[87] Press TV, “U.S. Military Wants More Aircraft in Japan”, January 14, 2013, accessed February 23, 2013. http://www. presstv.ir/detail/2013/01/14/283405/us-military-wants-moreaircraft-in-japan/ [88] Want China Times, “Xi Jinping Hints at Future Foreign Policy”, January 31, 2013, accessed February 23, 2013. http://www.wantchinatimes.com/news-subclass-cnt. aspx?id=20130131000018&cid=1101 [89] Keith B. Richburg, “China Military Spending to Top $100 Billion in 2012, Alarming Neighbors,” Washington Post, March 4, 2012, accessed February 23, 2013. http://articles. washingtonpost.com/2012-03-04/world/35448587_1_path-ofpeaceful-development-official-military-budget-first-aircraftcarrier [90] William Pesek, “Chinese-Japanese War Games are Dismal Economic Policy”, Bloomberg, February 7, 2013, accessed February 23, 2013. http://www.bloomberg.com/news/201302-07/china-japan-war-games-make-dismal-economic-policy. html [91] Barbara Demick and Julie Makinen, “China Government’s Hand Seen in anti-Japan Protests”, Los Angeles Times, September 20, 2012, accessed February 23, 2013. http://articles.latimes.com/2012/sep/20/world/la-fg-china-japan-protests-20120921

EAST ASIA

Itadakimasu!

An Appreciation of Japanese Cuisine Nicole Woon, WH & SEAS ‘14

Source: Nicole Woon, WH & SEAS ‘14

“Appreciate its gestalt. Savor the aromas. Jewels of fat glittering on the surface. Shinachiku roots shining.

Seaweed slowly sinking. Spring onions floating. Concentrate on the three pork slices... they play the key role, but stay modestly hidden. First, caress the surface with the chopstick tips to express affection. Then poke the pork. Gently pick it up and dip it into the soup on the right of the bowl. What’s important here is to apologize to the pork by saying, ‘See you soon.’”

(Appendix 1). He suggests that to be successful at the art of noodle soup making, one must be successful at the art of noodle soup eating. He implores Gun to not slurp up his meal in seconds, but to approach the bowl of ramen as if it was a lover. Never take it for granted; let each aspect shine in the spotlight and embrace each feature as something beautiful. By personifying the ramen in this way, the master candidly displays his love for and engagement with food. Only by fully utilizing all five senses can one achieve the utmost pleasure and enjoyment when dining.

In this scene from the 1985 film Tampopo, truck driver Gun, played byWatanabe Ken, and an anonymous ramen master, played by Katō Yoshi, sit at a ramen bar, ruminating over bowls of the popular noodle soup. To help the struggling owner Tampopo, the actor Miyamoto Nobuko, with her recently inherited ramen shop, Gun seeks to absorb this master’s exceptional expertise and transmit the information to his colleague. The master agrees to the arrangement and immediately commences instructing Gun on the proper techniques

The affection towards food expressed in Tampopo is merely one example of how food reflects the Japanese mindset. The Japanese express a deep gratitude for the cook and ingredients used in a dish. Uttered at the beginning of every Japanese meal, Itadakimasu (literally translated as “I humbly receive” in English) conveys thanks to all who played a role in preparing, cultivating, harvesting, or hunting the food. It also acknowledges that plants and animals gave their lives for the meal.

This humble appreciation for every component of a dish

SAKIZUKE: AN APPETIZING INTRODUCTION

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18 | An Appreciation of Japanese Cuisine reveals Japan’s perspective on food and—in a greater context—life. Analyzing Japan’s connection with food sheds light on the implications of this gastronomic affinity: Japanese cuisine exemplifies principles of reductionism and relationships.

This paper will first discuss the evolution of Japanese cuisine in popular culture over time and its representation in various media formats. Next, the paper will analyze two broader themes that can be better understood through a gastronomic lens. Finally, the conclusion will synthesize the two ideas to illustrate food’s intimate relationship with cultural identity.

HASSUN: SETTING THE STAGE “The salt that goes with the tempura mushrooms is a natural sea salt. It is made in Australia.”

“Australia? Hmm, indeed, using this natural Australian salt brings out the best in the tempura mushrooms.”

“I never realized that one could make a meal solely out of mushrooms. And these are all grown in Japan, of course. Mushrooms come from Western cuisine, but of course in Japan, we have developed so many ways of making them.”

Japan’s present-day admiration for food is unparalleled.

However, Japanese cuisine did not always boast such a glorified status. Up until World War II, food never took the spotlight in Japanese culture. According to writer and gourmand Kaikō Takeshi, eating was treated “as an illegitimate child, or as a concubine or a mistress” in literature and otherwise. [1] Food was a means for survival, a necessity for absorbing energy. The supposedly uncouth, vulgar nature of eating made it an activity to be done away from the public eye. Drinking gatherings experienced slightly more representation in pre-war literature, but not to the extent that the Japanese completely approved of gastronomic consumption in media.

Once the war occurred and Japan began rebuilding its society, the Japanese developed a new appreciation for the culinary world. Eating and cooking for pleasure gained traction in media during the mid-1950s. By the 1980s, a gastronomic boom erupted in Japan and other countries in the world. As the Japanese explored foods not native to their homeland, they started incorporating foreign ingredients into their dishes and applied their own cultural flair. Consider the Japanese versions of curry (from India), hamburgers (from the United States), and pizza (from Italy). Apples and honey do not appear in curry in New Delhi, kinpira rice burgers and fried shrimp burgers are unlikely to be found on menus in Philadelphia, and mayonnaise and corn

Penn Asian Review

are unusual toppings for pizza in Naples. However, the Japanese readily adopted the foreign influences and integrated the components into Japanese cuisine.

Additionally, the rise of a more luxurious and gourmet lifestyle—coined as gurume—sparked a desire for the exotic and a general knowledge of good food. People consumed both the physical food product and any information surrounding the particular item. Paradoxically, despite these affluent trends, the wall between elitist tastes and those of the ordinary populist dissolved.

What was once considered a fussy upper-class activity was now accessible by the common people. A gourmand was no longer restricted to those of a high class background; various media such as the manga Oishinbo and the film Tampopo presented scenarios where homeless individuals became the city’s most trusted restaurant critics (Appendix 2). Anyone could partake in extraordinary culinary experiences and learn to comment on food intelligently. This omnipresent epicurean and international mindset sparked the rise of the televisionjournal-book circulation tactic, an approach borrowed from the BBC public service broadcasting corporation.

Today, NHK, the Japanese equivalent of the BBC, produces various programs that target specific populations, from simple food lovers to traditional epicures to modern foodies. Whether through Iron Chef-style competitions, scientific explorations of certain food elements, or cooking manga, the Japanese media effectively disseminates food knowledge to the Japanese populace through popular culture. [2]

YAKIMONO: THE MEAT OF THE MATTER Food’s influx into mainstream culture inevitably speaks to particular facets of the Japanese identity. The following sections explore two of these tenets.

Reductionism “At first, it seems like Shirō’s dish is simplicity itself, but actually it’s not. The way he chose the salt, the concentration of salt, the way he dried it, the way he grilled it—he must have drawn on every bit of knowledge he had. In other words, this is the pinnacle of technique.”

[3] To those who grew up on rich cream sauces and hearty meat-infused stocks, Japanese dishes may initially appear insipid and flavorless. However, Japanese cuisine is anything but bland. Japan’s precise focus on the subtle, natural aroma and pure flavor of ingredients distinguishes the nation from its brethren. Japan is distinct in its tendencies towards reductionism, an impulse that is likely to be rooted in the country’s spiritual beliefs in

Woon | 19 Shintō and Buddhism. The two religions form an “ideational and aesthetic basis for many of the preparation and presentation ideas implicit in, and part of, Japanese cuisine: freshness, balance, restraint.” [4] For instance, a key Shintō concept impresses that “every rock, tree, hill, body of water, and other feature of nature is an embodiment of the entire cosmos.” [5] Viewing Japanese cuisine through this lens illustrates the emphasis on the natural quality of ingredients. Japanese chefs rigorously check each element of the dishes they create, making a conscious effort to not overwhelm innate flavors. This perspective is also prevalent in Zen philosophy. Kanso (“simplicity”), one of Zen’s seven aesthetic principles, stresses the importance of maximal effect with minimal means. By eliminating unnecessary or distracting features, one can achieve the peak of elegance. There is beauty in empty space; this “margin of emptiness” in a dish is “not from stinginess or penury… but from a desire to stimulate eye and palate alike.” [6] No overly spiced rub or buttery sauce masks the pure nakedness of a fresh piece of sashimi or a bowl of fluffy white rice.

“Tofu and Water,” Oishinbo’s debut episode, presents a situation emphasizing Japan’s dedication to reductionism. The story opens with a gathering of Tozai News employees. The newspaper’s publisher yearns to construct the “Ultimate Menu”; this list of culinary masterpieces will commemorate the company’s centennial anniversary and serve as a “cultural treasure to bequeath to the future.” To determine the best reporters for the job, he designs a challenging two-part taste test.

First, amongst three indistinguishable glasses of water, which contains city water, which local well water, and which mountain spring water? Second, amongst three seemingly identical chunks of tofu, which comes from a supermarket, which a famous tofu shop in Tokyo, and which a famous shop in Kyoto? Despite the fact that these items are commonly considered tasteless substances, reporters Yamaoka Shirō and Kurita Yūko demonstrate their expertise, making the distinction between the samples and correctly identifying the sources. [7] [8] Cases like “Tofu and Water” highlight Japan’s inclination towards simplicity. Yamaoka and Kurita impress the ideology that to fully appreciate the vast variety of Japanese cuisine, one must appreciate the nuances of the most basic components. A dish may be composed of twenty different ingredients and assembled via flashy cooking methods, but Japanese cuisine embraces the purity of culinary fare. Any apparent blandness is hence “more intimate, more personal, than it would be if surrounded by rich sauces and strong spices. It requires and demands more of the diner than a spiced

food would, and, in a sense, at the same time, ‘blends’ with the essence of the diner.” [9] Human intervention in preparing a dish should accentuate, not diminish, the absolute unmitigated flavor of the natural.

Japanese flare additionally exhibits a pervasive timeand-place aesthetic. Changing seasons dictate the makeup of dishes and their presentation. Shun is the celebration of seasonal food at its peak, describing “the exact moment that a vegetable is at its very best, a fruit at its most succulently sweet, fish at its most flavorful.” [10] What may be a widely used summer ingredient, such as an impossibly juicy white peach, will never be featured in the winter, a season when earthy pickled turnips may take precedence. The location where these ingredients are harvested is also highly valued. Writer and professor Paul Noguchi explains that by dining locally, “one can experience a unique appreciation of communion with the area.” [11] The quest for discovering a region’s meibutsu (famous products or specialties) increased in popularity as Japanese society grew more modernized.

Beginning in the 1950s, metropolitan centers like Tokyo started to eclipse the countryside. As younger generations migrated towards large cities to make a living, the countryside transformed from a home into a destination spot. Two types of travelers emerged. The first were those who returned to their rural hometowns to escape city life and experience the home (and home cooking) of their youth. The second were the tourists embarking on meibutsu expeditions as they might for pilgrimages. Whether they drank water from holy springs or feasted on fruit from a particular mountain, they could proudly claim they had “been there.” Meibutsu became the equivalent of edible photographs, representing the place where they were bought and providing “graphic, tactile, sensual testimony to the quality and goodness, the rich cultural heritage, the ancient history, of the place from which they came.” [12] From Hokkaido spider crab to Okinawa spicy pork paste to Fukushima sea urchin, meibutsu highlights a place’s gastronomic strengths. Regional festivals, shrines, and special events further act as rallying points for local feelings and local pride. Focusing on food in their natural environment and natural form impresses the idea of simplicity. By not attempting to be all encompassing, regions can embrace their inimitability and local color.

Reductionism is one of Japan’s core competencies. Applying it in a gastronomic setting, the Japanese show that simple food can be just as good as—if not better than—gourmet food. This is especially the case if the meal accounts for the person for whom it is prepared.

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20 | An Appreciation of Japanese Cuisine Relationships “The idea behind cooking is to bring joy to the person who is eating your cooking. If that’s the case, you would naturally prepare and season the food to the tastes of the person whom you wish to make happy, wouldn’t you?” [13] Food may be fun to cook and consume, but it is more than just a fuel for the body. Food is a catalyst for forging relationships. This orientation is particularly relevant in Asian cultures, says chef and restaurateur Willin Low, where it is traditional “when eating to place all the dishes in the center of the table to be shared by everyone, rather than to be served individual dishes… culturally we like to share our food with others.” [14] The bentō is a distinct national icon that emphasizes Japan’s interpersonal culture. The ubiquitous Japanese lunchbox is well known for being “eaten by the eye” rather than the mouth. Books and blogs dedicate themselves to accumulating galleries of bentō collections, many of which represent pop culture icons in their lunchbox designs (Appendix 3). Itoh Makiko, a blogger who runs http://justbento.com, suggests that “food presented attractively looks more appetizing, since we eat with our eyes as much as our taste buds and stomachs.

That’s emphasized more in Japanese cuisine and culture perhaps than in other cuisines.” [15] By pleasing both the eye and the palate, the edible art form of bentō tantalizes all five human senses.

Yet food feeds more than the body: it feeds the soul. The care instilled in each bentō suggests a deeper connection between individuals. Before World War II, bentō normally fed an entire group off the same ingredients due to the social structure of large extended families and the poverty of people’s diets. Because both young and old collaborated in preparing and consuming these communal lunches, meals stressed the importance of the family unit and unity amongst dining companions.

The 1950s ushered in the new trend of a designated “bentō-maker,” in which devoted middle-class homemaking mothers strived to reflect their social identity through various channels. [16] One particularly relevant outlet that surfaced was school. Preschoolers and elementary school students are of an age range when peer assessments govern the status quo; comparisons of “who’s the best” at a given subject or activity dictate a hierarchy amongst the youth. School thus became the perfect venue for mothers to flaunt their superior status, talents, and affection for their children.

A mother meticulously designs bentō with the recipient—her child—specifically in mind; it truly is a labor

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of love. Bentō-making “requires a depth of knowledge of nutrients and color, of the art of cooking, of the recipient’s likes and dislikes and overall appetite that day, as well as time and energy.” [17] The customized meal hence manifests a mother’s particularized care and fondness for her child. Upon opening the lunchbox, the “mother’s love and feelings should pop out of the box. Children should feel, ‘My mother made this just for me.’” [18] The mother’s public display of affection is intended to evoke visceral pleasure in the child, deep envy in his or her peers, and approval from the child’s teachers. Communication in this context relies greatly on nonverbal interaction. Although the mother cannot accompany her child to school, she and her emotional attachment to the child are expressed in the form of bentō.

Food’s role in reinforcing relationships does not only play a part for those intimately related. Connections are also observed between two strangers. Imagine a yatai (small mobile stall), izakaya (drinking pub), or other dining establishment. The communion between “a chef—cooking and preparing his own specialty—and a customer—recognizing, by subtle hints, the quality of the food, and interjecting his own personal preferences—”exemplifies Japan’s interpersonal culture. [19] As with bentō, nonverbal indirect communication defines an unmediated relationship between two strangers.

This approach to bonding with another individual may seem obtuse. However, real communication is achieved when the chef inherently understands what the guest “really” wants through observation and by interpreting the customer’s mood, intentions, and preferences without vociferous explanation. Actions speak louder than words. As seen in the 2011 documentary Jiro Dreams of Sushi, customers willingly let sushi chef Ono Jiro to lead them on a gastronomic journey through his tasting menu. This win-win situation gives Ono creative culinary freedom and allows patrons to experience the master’s craft firsthand. Ono’s consciousness of the customer exhibits itself in every move he makes. He ensures every chopstick and plate is in its place before guests arrive, carefully controls the temperature of ingredients for optimal eating pleasure, and offers guests their favorite pieces of fish provided it is in season. He not only pays attention to the individual, but also stays cognizant of the interaction between multiple people.

Whether he seats men and women in a particular order or serves customers different sized pieces of sushi (male patrons receive slightly larger pieces compared to their female counterparts so that all guests finish a course at the same time), Ono shows his focus on giving the customer the best possible experience. [20] All this is done

Woon | 21 without direction from the customer. The bond between chef and guest represents a significant mainstay of the Japanese food industry. Momentary though it may be, the personalized attention a chef pays to a guest allows the former to temporarily serve as the latter’s surrogate confidant and companion.

At times, food communicates feelings more effectively than language. Whether through a bentō’s contents or a chef ’s care for his customer, it speaks to the relationship between maker and recipient. Kobori Enshū, an Edo period aristocrat, highlighted the importance of infusing meaning in dishes, claiming that “if the goodwill of the host is wholehearted, even a bowl of rice will seem delicious to the guest. But if the host’s goodwill is grudging, even the most delicious food will seem tasteless, even the delicious sweet fish and the carp will seem poor fare.” [21]

SHIIZAKANA: A HEARTY CONCLUSION Japanese cuisine reinforces the nation’s penchant for reductionism and relationships. By removing the nonessential, an individual can focus on the unique, distinct aspects of ingredients and let their natural flavors sing.

Despite the extreme variation of dishes in Japanese cooking in terms of preparation, look, or taste, they are

all equally “Japanese cuisine.” A better descriptor for Japanese cuisine would thus be washoku. As described by teacher and writer Elizabeth Andoh,

The first [character], ‘wa,’ has two meanings. It can mean indigenous to Japan, so when it is used before another word, it means Japanese. The second meaning of the ‘wa’ calligraphy is harmony. ‘Shoku,’ the other character, means anything that is consumed. If you layer those together, you have the harmony of food that is indigenous to Japan. [22] The spirit of washoku synthesizes various components yet still allows the individual flavors of the ingredients to remain distinct. Together, they can develop into something representative of the Japanese palate. In a broader context, washoku exemplifies a cuisine that harmonizes people over pleasurable gastronomic experiences.

A palpable depth exists in the components out of which people make meals. When a person combines ingredients with sincere care and attention, it brings resonance to the bonds formed with the consumer of the dish.

Food eliminates boundaries between people and creates community amongst them. When a dish is simple and infused with meaning, it is exquisite.

GOHAN: APPENDIX

Appendix 1 In Tampopo, the ramen master teaches Gun how to enjoy a bowl of ramen for maximal hedonistic enjoyment.

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22 | An Appreciation of Japanese Cuisine

Appendix 2 Oishinbo and Tampopo demonstrate examples of homeless individuals acting as the city’s most trusted gastronomic advisors.

Super Smash Bros.

Brawl

Sleeping Totoro

Domo-kun

Appendix 3 AnnaTheRed is a blogger famous for her anime and video game-inspired bentĹ?.

Her blog features her original designs and instructions on how to create her masterpieces.

Featured here are a few designs from her collection.

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Woon | 23 MIZUMONO: NOTES AND BIBLIOGRAPHY [1] Takeshi Kaikō, Saigo no bansan. (Tokyo: Bungei Shunjū, 1979).

[2] Michael Ashkenazi and Jeanne Jacob, The Essence of Japanese Cuisine: An Essay on Food and Culture. (Philadelphia: University of Pennsylvania Press, 2000), 174.

[3] Tetsu Kariya and Hanasaki Akira, Oishinbo a la Carte: Japanese Cuisine. (San Francisco: VIZ Media, 2009).

[4] Ashkenazi, Essence of Japanese Cuisine, 42.

[5] Boyé Lafayette de Mente, Japan’s Cultural Code Words: 233 Key Terms That Explain Attitudes & Behavior of the Japanese. (Tokyo: Tuttle Publishing, 2004), 251.

[6] Yoshio Tsuchiya, A Feast for the Eyes: The Japanese Art of Food Arrangement. (Tokyo: Kodansha International Ltd., 1985).

[7] Tetsu Kariya and Hanasaki Akira, Oishinbo. Vol. 1. (Tokyo: Shogakukan, 1983–2003).

[8] Lorie Brau, “Oishinbo’s Adventures in Eating: Food, Communication, and Culture in Japanese Comics,” Gastronomica: The Journal of Food and Culture 4.4 (2004): 34-45.

[9] Ashkenazi, Essence of Japanese Cuisine, 142-143.

[10] “Shun: The Essence of the Seasons,” Savory Japan, accessed December 4, 2012, http://savoryjapan.com/learn/culture/shun.html.

[11] Paul Noguchi, “Slowly: Ekiben- The Fast Food of HighSpeed Japan,” Ethnology 33.4 (1994): 317-30.

[12] Ashkenazi, Essence of Japanese Cuisine, 176.

[13] Tetsu Kariya and Hanasaki Akira, Oishinbo. Vol. 51. (Tokyo: Shogakukan, 1983–2003).

[14] Ayako Mie, “The first bite is with the camera,” The Japan Times, June 29, 2012, accessed December 3, 2012.

[15] Samantha Storey. “Bentō Boxes Win Lunch Fans.” The New York Times, September 8, 2009.

[16] Tomoke Onabe. “Bentō: Boxed Love, Eaten by the Eye.” Japanese Foodways, Past and Present. Ed. Eric C. Rath and Stephanie Assmann. (Chicago: University of Illinois Press, 2010), 211-212.

[17] Onabe, “Bentō”, 213.

[18] Lois Peak. Learning to Go to School in Japan: The Transition from Home to Preschool Life. (Berkeley: University of California Press, 1991).

[19] Ashkenazi, Essence of Japanese Cuisine, 147.

[20] Jiro Dreams of Sushi, directed by David Gelb (2011; Tokyo: Magnolia Pictures), DVD. [21] Kaichi Tsuji. Kaiseki: Zen Tastes in Japanese Cooking.

(Tokyo: Kodansha International Ltd., 1972).

[22] Beth Hughes. “FIVE QUESTIONS. For Elizabeth Andoh / Three Japanese principles head for American kitchens.”

San Francisco Chronicle, January 22, 2006, accessed December 5, 2012, http://www.sfgate.com/living/article/FIVE-QUESTIONS-For-Elizabeth-Andoh-Three-2506095.php

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EAST ASIA

To What Extent Does Da Ming International Holdings Limited Benefit from the Post-reform Economic Environment of the People’s Republic of China?

Scott C Wang, SEAS ‘16

Picture of machines at Da Ming International Source: Da Ming International

INTRODUCTION When the People’s Republic of China (PRC) was established in 1949, it adopted a planned economy. To attempt to create rapid economic development, the PRC government adopted a strategy of developing heavy industry, [1] believing that this would allow the economy to overtake the development level of developed nations quickly. Under the planned economy, the PRC government nationalized heavy industry corporations, and as a result, profit ceased to be the aim of production. There was a significant lack of investment in other sectors of the economy, leading to imbalanced development.

In the late 1970s, after the death of Mao Zedong, it was recognized that the economy’s structure and development strategy were flawed. The government under Deng Xiaoping initiated economic reforms that served to

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stimulate growth and development. [2] Heavy industries no longer formed the focus of the post-reform economy; instead, private corporations run for profit did. Light industries developed rapidly, taking advantage of the PRC’s comparative advantage [3] in labor supply; yet these light industries’ raw material needs, especially steel, were not satisfied by the existing heavy industry. There was a mismatch between demand [5] and supply [4] between the heavy and the light industries.

This market anomaly gave rise to the business of Da Ming International Holdings Limited (Daming for short). Daming created a business opportunity by bridging the gap between the heavy industry and the light industry, allowing it to become successful by filling a gap in the supply chain. [6] Analyzing the company’s success allows insight into how a private corporation is

Wang | 25 able to take advantage of the existing economic environment (in this case, a discontinuity between the heavy and the light industries) to create a niche for itself. From a macroeconomic perspective, Daming is a testament to what is widely considered a successful period of reforms in the PRC; from a microeconomic perspective, Daming occupies a unique niche that has allowed it to thrive. Therefore, we will explore the following research question: To what extent does Da Ming International Holdings Ltd. benefit from the post-reform economic environment of the PRC?

METHODOLOGY For this study, I conducted research on the macroeconomics of the PRC before and after the reform, and collected data specific to the heavy and light industries.

In order to relate the economic environment of the PRC to Daming, I researched its history, business model, and financial performance through publicly available resources such as its IPO prospectus, press releases, and newspaper reports. On 28 August 2011, I interviewed Daming’s founder and chairman Mr. Zhou Keming, deputy general manager Mr. Zou Xiaoping, and chief financial officer Mr. Wesley Leung Man Fai. The interview provided insights into the current operation and strategy of the company.

Qualitative data were collected during the interviews.

These complemented the quantitative data about the PRC economy and the development of Daming. Despite the depth of information available in qualitative data, processing and analyzing the data is more difficult. On the contrary, there is a dearth of secondary data relating to the history of the PRC economy. Few macroeconomic data were available to peruse.

Although I surveyed the economic situation in which Daming thrives, it was not easy to isolate any one aspect of economic reforms that led to Daming’s success in its industry. It can only be said that the post-reform economic climate of the PRC was advantageous to Daming.

ECONOMIC SITUATION IN THE PRC Pre-Reform Socialist governments usually operate planned economies, rather than market economies. In planned economies, the government controls the allocation of factors of production and distribution of resources. Most resources are owned by collectives; prices are set by the government.

From 1949 to the 1970s, the PRC’s economy was a

planned economy as such. In an attempt to quickly achieve an environment that is conducive to development, the government chose to develop heavy industry (i.e. a “Big Push” or “Leap-forward” strategy) first.

This development strategy was chosen by the government due to the PRC’s need to be perceived quickly by other countries as a powerful, industrialized, and effective country.

Unfortunately, the strategy of promoting heavy industry for development in the early PRC was not ideal for the balanced development of the economy. This was primarily due to a lack of capital. [7] Liquid capital was scarce and so interest rates [8] were prohibitively high, particularly deleterious to heavy industry. In addition, fixed capital such as the machinery used in heavy industry was costly to import due to expensive foreign exchange. [9] There also existed the problems of inadequate resources and of an infrastructure ineffective in distributing raw materials and labor for the production of heavy goods. The PRC government therefore implemented policies to facilitate the development of heavy industry, such as lowering of the interest rate and exchange rates against other currencies.

Since prices of goods and services were controlled by the government, the market price did not usually coincide with the equilibrium price, [10] resulting in excesses which the market could not rectify. To enable heavy industry to meet costs and ensure adequate supply, the government reduced the prices of raw materials and labor, overtook the price mechanism, and controlled the allocation of resources itself. Labor is an example: between 1958 and 1978, the average wage level under the unified wage system remained between RMB 500 and 600, which is about $203 to $243 at the 1971 exchange rate. [11] (In comparison, the average wage in the U.S. nearly tripled between 1958 and 1978 from $3674 to $10,556.) [12] Similarly, other materials for heavy industry such as energy and ore remained at a low price. To ensure stable revenue for steel producers, the price of steel was set high, which led to surpluses of heavy industry goods.

On the demand side, with labor at a low, constant rate not dependent upon productivity, labor had no incentive to be productive, aggregate demand did not increase, and the quality of life remained stagnant. In addition, because an insalubrious proportion of resources were directed towards heavy industry, the development of the light industry was shelved, resulting in a low supply. Besides, prices of consumer goods were set low by the government. A shortage of consumer goods resulted.

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26 | To What Extent Does Da Ming International Holdings Limited Benefit?

Post-Reform Although pre-reform policies did not lead to healthy overall economic development, they did result in an increase of the production capacity of heavy industry. Economic reforms were initiated in the late 1970s, consisting of deregulation, [13] liberalization, [14] and privatization [15] of state-owned enterprises. All of these served the purpose of facilitating wholesome economic development by increasing efficiency, thereby moving the production possibility curve outwards (causing potential growth).

Deregulation was accomplished amongst 60% of industrial enterprises in the economy based on output by 1980. [16] Rather than receiving all costs from the government and returning all revenue, the government allowed the enterprise to retain a certain amount of profit. Afterwards, the government changed this policy to a corporate tax policy. Deregulation made profit the goal of production for enterprises. With an incentive to reduce costs and increase revenues, production became more efficient as managers invested in capital that was more productive. Since under the new scheme workers were allowed more flexible wages, including bonuses, workers had an incentive to increase their productivity to gain more in wages.

After 1978, output did not all have to be sold to the government; the enterprise could sell any excess output on the market for greater revenue. [17] Additionally, firms were allowed to manage their own affairs, including the

sourcing of raw materials, purchasing of equipment, marketing, and distribution. These measures returned entrepreneurship to the private sector. However, due to factor immobility, [18] the products still conformed to the planning of the government and did not suit the market’s requirements. In 1984, only 9.6% of steel output that state-owned enterprises produced was excess steel to be sold on the market, [19] showing that steel produced by the enterprises were not well received by the market.

In order to stimulate the market, the government eased restrictions on the prices of goods and services. Prices of resources were raised in 1984 to alleviate the shortages; the State Planning Commission gradually stopped controlling prices beginning in 1985. Particularly, the price of pig iron, a raw material in steel production, was liberalized, as was the price of steel. [20] With the price mechanism now governing the allocation of these resources, the allocation of resources towards steel production increased to meet demand, as did the incentive for enterprises to produce steel. The production of steel rose spectacularly, as shown in Figure 1. [21] Before reform, only 6% of investment in fixed capital was in light industry. [22] Light industries hence had good development potential, especially since production was labor-intensive and labor was cheap, and because there was a strong pent-up demand [23] for consumer goods due to the rise of wages and the development of the economy as a whole. The price elasticity of the demand [24] for the products fell as incomes rose, as the

Figure1 Growth of the PRC steel industry

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Wang | 27 goods became more of necessities, and as they gradually became more accessible to purchase.

A typical free market economy moves from sectors requiring less capital (i.e. the primary sector) towards sectors requiring more capital (i.e. the tertiary sector). [25] This is the reverse of what the PRC government attempted to do: develop the capital-intensive heavy industry before developing other less capital-intensive sectors, causing imbalances.

This development model also explains why the implementation of the reform was not completely even: less capital-intensive industries generally benefitted from the reform earlier than more capital-intensive industries.

This is why a discrepancy in development was observed, especially between the heavy and light industries, which created a market niche for “bridge” companies such as Daming.

DAMING AND ITS SUCCESS It is in this economic environment that Daming found a market niche that few other firms exploited. The opportunity arose from a mismatch between heavy and light industries and because of a surge in aggregate demand for consumer goods.

Daming’s founder and chairman, Mr. Zhou, revealed that he had noticed a business opportunity in steel processing ever since the reform, when he would peddle steel goods on a bicycle. [26] Wuxi Daming was established in 1998 [27] and began a steel trading business. Soon after, Daming entered the steel processing industry with a processing center in Wuxi. Thereafter, the processing business has grown to four processing centers in different cities in the PRC as of 2010. [28] Daming operates by purchasing steel coils from major steel producers, such as those that originally were stateowned enterprises before privatization. It then cuts the steel to size and shape and polishes the plate as desired by the customer, using machines imported from countries including Italy, Korea, and the USA. [29] Its sales network encompasses the whole of China, mainly the Yangtze River Delta and the northern provinces. [31] Daming underwent an IPO in November 2010. [31] Daming has grown considerably since reform in the PRC. Now Daming has grown to be the largest stainless steel processing and distribution company in China. Its revenue for 2009 reached 6.45 billion RMB (1.02 billion USD), and its net profit was 203 million RMB (32.0 million USD). [32]

A Mismatch Between Industries At the beginning of reform, the heavy industry could not supply the fast-growing light industry with the raw materials it needed. Generally, steel producers produce steel in unrefined rectangular sheets and bars, using large machines and furnaces, and great quantities of iron ore, coking coal, and nickel. Light industries, on the other hand, prefer polished sheets of metal cut to required sizes or shapes; however, heavy industry firms are unable to customize their products to suit the light industries, as customization is expensive. Daming’s business developed from this gap.

Daming’s primary supplier of raw materials in 2010 was TISCO (Taiyuan Iron and Steel Co., Ltd.). [33] TISCO Group’s fixed assets amounted to 30,821 million RMB at the end of 2010, about 52% of its total assets. Another 11% of the group’s assets are under construction. [34] The large proportion of fixed capital in TISCO’s assets and the fact that the company is continuing to expand indicate that large economies of scale [35] exist within steel producers.

Due to these economies of scale, TISCO has high production volumes: its operating revenue was 75,339 million RMB in 2010 and its production volume of steel was 9597.2 thousand tons (of which 2716.4 thousand tons were stainless steel). [36] With such large production processes, producers of steel are reluctant to customize their products to fit the needs of individual firms, such as manufacturers in the light industry.

In the market economy, the price mechanism [37] would move production levels of the products with comparatively low demand to products with comparatively high demand. Pre-reform, this equilibrium was not established due to government intervention. Post-reform, this equilibrium still could not be established due to the X-inefficient [38] production methods inherited from state-owned enterprises and the large economies of scale present in the industry’s processes. Furthermore, because reforms allowed light industries to develop before heavy industries could catch up, supply of raw materials to light industries was constricted. This asymmetry resulted in an excess demand for raw materials from light industry firms and heavy industry’s supply that did not match the demand.

For instance, one of TISCO’s products is cold-rolled stainless steel plates with widths between 1500 mm to 2100 mm. [39] The deputy general manager of Daming indicated that these sizes are generally impractical for the light industry’s purposes; light industry generally requires much smaller widths for a wider range of applica-

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28 | To What Extent Does Da Ming International Holdings Limited Benefit?

Figure 2 Consumer durables purchased in the PRC tions, for the production of steel tubes, machinery, home appliances, construction, and vehicles. [40] This disparity allowed companies such as Daming, which function as processors and distributors, to spring up. Being privy to demand from its customers, Daming buys large quantities of steel from TISCO, thus enjoying a discount to the market price and supplying products to light industry after processing. Through these intermediaries, large steel firms have become acclimatized to the demand of firms lower down in the supply chain.

products to fit their own needs. In addition, the cost of purchase and operation is prohibitively high because the machinery would have a low utilization rate. [43] The light industry firm thus would not be able to benefit from economies of scale; it would also have to bear the risks of depreciation, a lack of factor mobility, developments in technology rendering its fixed capital obsolete, an increase in product lead-time, etc. Mitigating these risks would cause inefficiency in the firm’s operations and introduce an opportunity cost. [44]

A Growing Market for Light Goods

The founder of Daming revealed that light industry firms use Daming’s services in order to reduce costs and optimize cashflow management. He noted that Daming’s clients had become very reliant upon Daming’s services, giving Daming a loyal customer base. [45] One of Daming’s customers, Zhejiang Jiuli Hi-Tech Metals Co., Ltd., creates steel tubes for the petrochemical and food industries, among others. [46] In order to create tubes to the dimensions specified by its customers, Jiuli must use slitted plates of steel, which require additional machinery to produce. So that it can increase the efficiency of its operation, Jiuli would prefer to specialize in the production of its steel tubes and outsource the slitting operation to Daming.

With incomes rising, the quality of life in the PRC has ameliorated continuously since reform, increasing demand for more higher-technology products. This created a fertile market for light goods, which boosted the demand for steel and that for steel processing services such as those provided by Daming.

Figure 2 shows the evolution of consumer durables purchased by the average household. [41] Clearly, the Chinese people are increasingly buying consumer durables that are more technologically advanced and have a greater cost, indicating that the income elasticity of demand [42] for higher-tech products has fallen and the quality of life of the Chinese people has risen. This trend has brought about structural change in the PRC economy towards higher-tech industries. Therefore, in order to produce these higher-tech products to meet consumer demand, light industries have increased their demand for steel as raw material.

Unfortunately, as mentioned before, heavy industry does not provide customized steel products for light industry. The customization is a capital-intensive operation. The small private firms in the light industry do not have the fixed capital necessary to customize their own

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Daming was able to capitalize upon a growing need for steel processing services as demand for steel grew. Daming built a large, diversified customer base in many different areas, including machinery, petrochemical, home appliances, and construction; the rise in demand for processed steel products from all of these production areas can be traced back to an increase in consumer demand, responding to a rise in living standards. As of mid-2010, Daming has more than 6000 customers. [47] The increase in demand for Daming’s services has allowed Daming to take advantage of the economies of scale that

Wang | 29 its clients lacked; it is able to purchase steel in bulk and invest in up-to-date, high-technology machines. The prospectus of Daming indicated that it owned 57 machines as of mid-2010; [48] only a year after, in an interview conducted in August 2011, the deputy general manager of the company stated that the company had more than 100 machines, the majority of which were operating at a utilization rate of greater than 70%. Daming expects that this utilization rate would rise by a further 20% by next year. [49] In the first half of 2010, Daming had property, plant, and equipment assets totaling 720 million RMB, and inventories totaling 949 million RMB, [50] illustrating the economies of scale available to Daming.

Daming’s large clientele came about because of soaring demand for light goods. The Chief Financial Officer of Daming attributed the company’s large revenue to the great demand for its service and stated that Daming aspired to expand its operations beyond stainless steel processing to other metals and other services, the demands of which are also increasing due to the rise in demand for consumer goods. [51]

RISKS TO DAMING Daming has found a market niche in the post-reform economy, yet not all characteristics of the post-reform economy are beneficial to Daming.

The post-reform economy has made Daming reliant upon demand from the users of steel. While Daming carefully controls its procurement and sales, it cannot totally predict the demand of its customers. The freer market structure post-reform has made Daming vulnerable to fluctuations in demand downstream, which will affect its sales. An instance of this is the global financial crisis of 2008 to 2009. This crisis decreased demand for steel processing services, which reduced Daming’s revenue from 9.03 billion RMB in 2007 to 7.97 billion in 2008 and 6.45 billion in 2009. [52] This has a correlation with steel consumption in the PRC, which dropped 9.5% in 2008 from 2007. [53] This susceptibility of Daming to steel demand is a consequence of the economic reform in the PRC: deregulation potentially could lead to market instability, a danger for Daming. In order to mitigate this, Da Ming has alliances with certain important customers. [54] In addition, with the deregulation on the price of steel by the PRC government, Daming can purchase and sell steel at market prices. However, this makes Daming prone to fluctuations in steel price, especially large fluctuations during the turnover time. Daming must balance stocking inventory for operations and mitigating adverse changes in steel price if the unregulated steel price changes wildly. To stabilize its inventory and reduce its

turnover time, Daming has formed a joint venture with TISCO, its key supplier. [55] Post-reform, the PRC’s market has been gradually opening to international trade. One effect of this has been to make the PRC solely a manufacturing country. In an interview, Daming’s founder expressed concern that the two extremes of the supply chain, product design and final customer, were both located overseas, exposing the intermediate stages of the supply chain located in the PRC, viz. manufacturing, to increased systemic risk. [56] If either the supply of product design or the demand for the final product weakens, Daming may suffer from a cascading failure.

One intended effect of the reform is the rise of competition within each industry. Competition decreases X-inefficiency in each firm and reduces the risk of market failure from monopoly. However, competition compromises Daming’s market niche as other firms take advantage of it. Daming does not hold any patents, copyrights, or any other intellectual property rights; [57] thus, there is no barrier to another firm who wishes to enter the steel processing market. Presently, the steel processing industry in the PRC is competitive as the number of small firms providing steel processing grows and the large steel manufacturers diversify into the processing industry as they optimize the inefficient pre-reform practices. To stay competitive, Daming must diversify, as it is doing now: Daming is considering beginning processing services of different types of metal, such as carbon steel, [58] and increasing the variety and complexity of the services it offers to its customers. [59]

CONCLUSION Investigation of the factors affecting Daming in the postreform economy of the PRC indicates that Daming has indeed benefitted from the new economic environment.

Steel producers who have the power (conferred on them post-reform) to sell their steel products in the market still used inefficient processes from pre-reform times, during which they enjoyed the benefits of state-owned enterprises. This made them insensitive to demand downstream for products that were more useful in later manufacturing processes.

Reform increased average wages, which led to an increase in aggregate demand. In turn, firms began to produce more consumer goods, leading them to demand more steel products from upstream.

Through allowing light and heavy industries to develop at different paces, the post-reform economy contained a gap in the supply chain where firms in both industries were reluctant to process steel. In heavy industry firms, large economies of scale and inefficiency in operation

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30 | To What Extent Does Da Ming International Holdings Limited Benefit? made steel producers unwilling to process steel. A lack of fixed capital and risks in purchasing this fixed capital caused light industry firms to avoid the processing stage as well.

Daming has benefitted from a market niche created by these factors. Nevertheless, Daming still suffers certain risks that the post-reform economy created, namely reliance on upstream supply and downstream demand, price fluctuation, systemic risk, and competition. However, it is clear that for the most part Daming has profited from the post-reform economic environment in the PRC. This essay has focused primarily on the economic environment of the PRC since reform and its relation to one particular business. There is a certain degree of uncertainty as to the future of the PRC economy: whether Daming’s niche will continue to hold remains to be seen.

Further research might be done on the risks that Daming faces; in particular, the effect of economic environment could be investigated on other firms operating in the increasingly crowded steel processing market.

NOTES [1] “Heavy industry” is used in this essay to mean capitalintensive industry, including steel production. Conversely, “light industry” signifies labour-intensive industry, including consumer good production.

[2] Many books have been written about economic reform in the PRC, such as Lin, J. Y., Li, Z. & Cai, F., 2003. The China Miracle: Development Strategy and Economic Reform. Revised Edition ed. Hong Kong SAR: The Chinese University Press.

[3] The benefit of a lower opportunity cost in comparison to another producer of performing an economic activity. (All definitions: Gwartney, J. D. & Stroup, R. L., 1982. Economics: Private and Public Choice. Fifth Edition ed. Orlando: Harcourt Brace Jovanovich, Publishers; Blink, J. & Dorton, I., 2007. Economics Course Companion. Oxford: Oxford University Press)

[12] Office of the Chief Actuary, 2010. National Average Wage Index. [Online] Available at: http://www.ssa.gov/oact/cola/ AWI.html [Accessed 15 June 2011].

[13] The simplification of government restrictions on market operations [14] An increase in the number of entities participating in the market [15] The sale of firms owned by the government (termed “state-owned enterprises” in the PRC) to the private sector [16] Lin, et al., 2003, p.150 [17] Ibid, p.157 [18] The inability of a factor of production producing one product to be used in the production of another product [19] Ibid, p.157 [20] Ibid, p.158 [21] Yu, H. & Yang, M., 2010. China’s Steel Industry: An Update, p.4 [Online] Available at: http://www.eai.nus.edu.sg/ BB501.pdf [Accessed 01 June 2011].

[22] Yu, H. & Yang, M., 2010.

[23] Unsatisfied demand.

[24] A measure of the proportional change in quantity demanded of a product given a specified change in its price.

[25] Biz/ed, 2001. Fisher Clark’s Theory of Structural Change [Biz/ed Virtual Developing Country]. [Online] Available at: http://www.bized.co.uk/virtual/dc/copper/theory/th6.htm [Accessed 10 August 2011].

[26] Zhou, K. 2011. [Interview] (29 August 2011).

[27] Da Ming International Holdings Limited, 2010. Global Offering Prospectus], p.108 [Online] Available at: http://www. dmssc.net/images/cwp101.pdf [Accessed 17 May 2011].

[28] Ibid, p.102 [29] Ibid, p.126 [30] Ibid, p.138 [31] Ibid, pp.i-iii

[4] The quantity of a product that consumers are willing and able to buy at a given price during a specified time period.

[32] Ibid, p.221

[5] The quantity of a product that producers are willing and able to sell at a given price during a specified time period.

[34] Shanxi Taigang Stainless Steel Co., Ltd. (TISCO), 2011.

Wide stainless cold-rolled (information page). [Online] Available at: http://tgbx.tisco.com.cn/show.jsp?id=70 [Accessed 19 June 2011].

[6] The system that allows a product to be enjoyed by a consumer through the manipulation of factors of production.

[33] Ibid, p.158

[7] A factor of production that is itself a product, such as machinery (fixed capital) or cash (liquid capital).

[35] Reductions in average costs per unit of production

[8] The cost of borrowing liquid capital.

[37] The market forces of supply and demand.

[9] The price of converting between currencies.

[38] Not operating optimally.

[10] A price of a certain good where the quantities supplied and demanded of that good are equal.

[39] Ibid.

[11] Lin et al., 2003, p.44

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[36] Ibid.

[40] Zou, X. 2011. [Interview] (29 August 2011).

Wang | 31 [41] Lin et al., 2003, p.10

[50] Da Ming, Global Offering [Prospectus], p.229

[42] A measure of the proportional change in quantity demanded of a product given a change in per capita income.

[51] Leung, 2011

[43] The ratio of the actual output of a given unit of capital to its capacity in a given period of time.

[53] Ibid, p.201

[44] The benefit of another choice that could have been made in an economic decision.

[55] Leung, M. F. W. 2011. [Interview] (29 August 2011).

[52] Ibid, p.221 [54] Ibid, p.151

[45] Zhou, 2011

[56] Zhou, 2011

[46] Zhejiang Jiuli Hi-Tech Metals Co., Ltd., 2007. . [Online] Available at: http://www.jiuli.com/jiulipipes/product/pshow. asp?ClassID=3 [Accessed 30 August 2011].

[57] Da Ming, Global Offering [Prospectus], p.204

[47] Da Ming, Global Offering [Prospectus], p.154 [48] Ibid, p.136 [49] Zou, 2011

[58] Da Ming International Holdings Limited, 2010. (Products) About to be introduced (information page)]. [Online] Available at: http://www.dmssc.net/Manufacture/Manu_JJYJ. aspx [Accessed 30 August 2011].

[59] Leung, 2011

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SOUTH ASIA

Ethnic Identity in the Undergraduate Experience: A South Asian Perspective E Keith Keenan, CAS ‘15

Pious Patel, a freshman South Asian American studying at Penn Source: Keith Keenan

INTRODUCTION For many years, South Asian American students have attended four-year colleges at higher rates than white students. [1] In exploring the impact of higher education on South Asian immigrants it is valuable to first investigate the mindset that commonly leads to such an emphasis on attaining college education. [2][3] South Asians are generally quite successful in their pursuit of academic excellence. The diligence and determination to succeed that others see as the driving force behind this success have led to South Asian Americans being labeled as a “model minority”; [4] those Americans who are not themselves part of a minority group see South Asian Americans as the embodiment of an ideal immigrant.

Hardworking, law-abiding, and seemingly culturally sensitive, South Asians appear to have successfully retained their own traditions while finding a place within mainstream American society. [5][6][7] Yet it is worth exploring how the years of college education on which South Asians place such a premium actually affect their ethnic identity.

Penn Asian Review

In this paper “ethnic identity” refers to “an individual’s self-identification as a group member, a sense of belonging to an ethnic group, attitudes toward ethnic group membership, and degree of ethnic group affiliation or involvement.” [8] College years are a time when many second generation South Asians first have to construct an ethnic identity on their own. [9] In this study I define second-generation South Asian Americans as those who were either born to parents who emigrated from South Asia, or who came to the United States with their parents while they were still quite young–in most cases pre-middle school. This population is frequently labeled ABCD or American Born Confused Desi; an expression of the opinion of many first generation immigrants who feel that their children do not fully embrace and appreciate their sending country’s culture. [10] The experience of this population in college is especially important in determining how they construct their identity in later years.

In this study I investigated how undergraduate education at the University of Pennsylvania (Penn) influences

Keenan | 33 the esoteric view South Asian students have of their identity as South Asians. I made an effort to determine not only how South Asians’ view of themselves had changed, but also if there was a difference in the way they felt others viewed them at Penn as opposed to the way they were viewed at home. In doing so, I sought to identify what aspects of students’ lives were most important in defining their identity before coming to Penn, and also sought to explore what changes had taken place in those areas since the participants had come to Penn.

THE STUDY Five undergraduate students from Penn were interviewed for this study. Four of them were freshmen, and one was an upperclassman. Two were male and three were female. All five were second generation South Asians who had spent most of their lives in the U.S. and had parents who had come to the U.S. from India. The participants had grown up in different parts of the U.S.: one was from New Jersey, one from Florida, one from Philadelphia, one from South Dakota, and one from Columbus Ohio. Their parents were all from the professional class. Some worked in the medical industry, and others worked in computer programing, business accounting, and scientific research. I decided to interview first year students in particular because I felt that they would have a better memory of how they constructed their identity prior to coming to Penn. Furthermore, since I was interested in what changes had taken place in the way they viewed their identity, it was valuable for me to draw from a portion of the student body which still had those changes fresh in their minds.

The interview process first focused on the participants’ experience at home before coming to college. In order to meaningfully analyze the changes that had been experienced by these students, it was important to first establish what had been the norm for them prior to their matriculation. I made an effort to examine what types of South Asian communities the participants had been part of, and what kinds of traditions and practices had been important to those communities. I also investigated what activities and beliefs had been central to each participant’s own family in constructing their South Asian identity.

Once I had finished investigating these issues, we began discussing how they viewed their identity since coming to Penn. While I did start by directly asking the participants if they felt there had been any changes in their identity since coming to college, I relied primarily on discussing how the activities and beliefs that they

had practiced at home may have changed since they came to Penn. By doing so I hoped to avoid having the interviewee feel that they needed to defend the fact that they were still Indian, and instead allow them to divulge what shifts they had felt since coming to Penn.

LITERATURE VS RESEARCH RESULTS Over the course of this study, three aspects stood out as being especially vital to forming South Asian American students’ identity. First and foremost was family.

During my interviews I intended to discuss the question of family with the participants, but they consistently brought up the topic before I even had a chance to ask them about that aspect of their identity. Another issue that always came to the forefront of my interviews was religion–specifically Hinduism. Four of the five people I interviewed were Hindu, but even the participant who was not Hindu talked about how her not being Hindu influenced how she constructed her Indian identity.

Last but not least was the issue of gender. I had not anticipated this aspect of the study, but a number of the participants talked about how gender influenced the way in which young people in the South Asian community constructed their identity.

Family is frequently a primary source of one’s identity, [11] and this is especially true of the ethnic identity of South Asians. [12] In South Asian families, the older members of the household are often the primary arbiters of what counts as being authentically South Asian.

Frequently, the older generation believes it to be their responsibility to ensure an unadulterated transmission of their home culture to the next generation. [13][14] Thus, the second generation’s self-perceived identity as South Asians becomes a function of the practices of their families.

The second generation itself views the family as the quintessence of what it means to be an authentic South Asian. One of my interviewees expressed a sentiment echoed by nearly all the participants in this study when he said that his parents were “very, very, very traditional”: they never drank in their lives, did not believe in drinking even after twenty-one, did not smoke, and did not want him to date in high school. He also mentioned that “they are still hinting at the whole arranged marriage possibility.” While my interviewee had no intention of being party to an arranged marriage, he still said that due to his family’s influence he “was even more [quote-en-quote] ‘Indian’ growing up” than those who had a stronger Indian community but a less traditional family background.

In college, second generation South Asian Americans

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34 | Ethnic Identity in the Undergraduate Experience are no longer surrounded by an environment defined by the beliefs and traditions which their families used to help preserve South Asian culture in their homes.

One might expect this change in environment to result in a departure from the identity to which they would have ascribed while they were still in their parents’ home. Some scholars’ research seem to indicate that one should anticipate a gradual process of acculturation that results in students beginning to slowly adopt the customs and outlook of the college environment in which they find themselves. [15][16][17] My study, however, did not lend credence to this idea.

During the interviews for this study, after the participants had described the way in which they constructed their identities before coming to college, I asked them “Do you feel that your time here at Penn has led you to view/define yourself as Indian to a greater or lesser extent than you did before coming to Penn?” Every participant immediately underwent a visible change as soon as I asked the question. Up until then interviewees had maintained a normal amount of eye contact, and with one exception they seemed perfectly at ease. However, the moment I asked the question, the interviewees broke eye contact with me, and began to make nervous repetitive movements. One began to shift rhythmically in his chair; one started to cross and uncross her arms; one started to play with a table decoration in front of him; one began to fiddle with her cell phone, and so on.

Their responses to my prompts and questions became markedly shorter as well. In several cases interviewees repeatedly tried to shift the conversation back to how they had viewed their identities at home. When discussing their practices at home, the participants generally gave out information voluntarily and frequently expressed willingness to discuss the topic in more depth.

However, as the topic changed they tended to answer my questions in a very minimalistic manner and expressed no interest in continuing the conversation in that vein.

Nonetheless, this discomfort with the topic may not have been the result of feelings of guilt due to the loss of Indian identity. All of the participants insisted that they did indeed maintain their Indian identity while at Penn; they used phrases such as “definitely”, “It’s not like I’m rejecting being an Indian”, and “I don’t see a difference.” While most literature assumes that South Asians shed much of their ethnic identity while at college, this study did not substantiate such a viewpoint.

Second generation South Asian Americans are certainly troubled by the question of whether they are maintaining true South Asian identity, but it does not seem that they are at risk of losing their cultural heritage. Sev-

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eral participants in this study even said that they have become more involved in Indian culture since coming to Penn. One student, who claimed she was a member of an Indian dance team, noted that the team was like a family; “they are always asking you if you want to get dinner together … you are always with them.” She then went on to explain how her dance team had taken on the role her family used to have in providing a context for her Indian identity. Other interviewees pointed to South Asian student associations and Hindu religious groups as being the primary source of context for their ethnic identity, but all agreed that separation from their family did not mean the loss of the identity that they had while they were with their families.

In addition to family, religion plays a major role in South Asian cultural identity. [18] In the minds of many Indians, Hinduism is a central part of what it means to be Indian. Deviation from the accepted Hindu religious practice is considered not just as religious unorthodoxy, but also as cultural infidelity. [19][20] In the words of one interviewee, “Hindu religion is really big in Indian culture.” Hinduism also emphasizes the importance of the spiritual over the physical and the significance of not allowing material gain to hold a too high priority in one’s life. [21] As participants in the high-pressure, performance-oriented ethos of top-tier colleges, second generation South Asian Americans frequently face considerable pressure to marginalize their traditional cultural backgrounds as they try to fit in and compete. [22] One would reasonably anticipate that this would lead to a subtle shedding of South Asian culture in favor of what are viewed as a more “modern” and less “traditional” practices. [23] However, once again my research did not lend credence to this assumption. Most of my interviewees contended that they had not lost touch with their traditional religious practices during their time at the Penn. Some went further and said that their religion was more important to them now that it was no longer something that their parents required them to do. The only time a participant expressed any doubt as to whether they had maintained their Indian religious tradition was when I asked one participant if he had retained the million and one traditional and religions practices he described as composing his Indian identity. He acknowledged that “maybe it is a million and minus one, a few things,” but he quickly added “I definitely think I retain a bunch of the traditional Indian stuff.” A different participant explained that pujas (religious rituals performed by Hindus) actually came to have more meaning to him since he came to college. Another participant discussed how his Hindu faith had grown deeper and more genu-

Keenan| 35 ine since coming to Penn because he had to choose by himself to pursue his faith.

lying difference between how they were viewed at home and how they were viewed at Penn.

Gender roles are also very important to South Asian culture. While the older generation as a whole is viewed as being responsible to pass their knowledge of Indian culture onto the younger generation, in many—perhaps even most—South Asian families mother is considered the primary repository of culture. [24] Not surprisingly, families then also spend more effort ensuring that their daughters remain in touch with the Indian culture.

Amongst South Asian families this most frequently takes the form of keeping a much tighter rein on girls than on boys. [25][26][27]

DISCUSSION AND CONCLUSION

Unfortunately, this can also result in some male South Asian youth not being as fully invested in their home culture as their female counterparts do. During my interviews, one girl explained that “they [male students] try to act like they are not Indian … if they participate in something that was an Indian activity they would want to make it not known … it is really common with guys [that] they will be embarrassed…” Another girl I interviewed talked about the differences between her and her brother. Her parents had given them the choice of whether they wanted to eat white meat. She chose to be strictly vegetarian while her brother had no problem eating white meat. She then went on to explain that she wanted to be part of the Indian culture and chose to “enter into the whole Indian community” to a greater extent than her mom required. In contrast, her brother was not interested in pursuing Indian culture and, insofar as his parents gave him the option, he tried to assimilate into American culture.

While a small body of literature deals with theories of how and why immigrants’ views of their own ethnic identity change during their time in college, there is an absence of research investigating the possible differences in how South Asian Americans feel they were perceived by others in college and before coming to college.

In addressing this topic I was perhaps somewhat presumptuous, given the absence of sources in the literature dealing with the topic. Yet I felt that the responses of my interviewees to my inquiries were revealing. Most admitted that they had never seriously thought about the question before. One participant explained that back home many of his friends were surprised by how he broke many common stereotypes of South Asians and added that at Penn “maybe it was a similar kind of surprise; it was just not as apparent.” Another talked about how he thought that people are “aware of colors but kind of chill to even make jokes.” Overall, the participants generally agreed that there was no real under-

College is often a defining time in people’s lives, which is true for South Asian Americans just as much as it is for any other group. Much of the literature discussing how college affects South Asian Americans, however, seems to assume that the undergraduate experience tends to lead second generation South Asian American students away from their ethnic roots. At least in the University of Pennsylvania, this assumption appears to be invalid.

South Asian students at Penn find that their undergraduate years tend to result in greater adherence to, at the very least, the religious aspects of their cultural heritage.

One study is hardly sufficient to thoroughly explore the ways in which higher education affects South Asians’ construction of their ethnic identity. Nevertheless, as we approach this topic, it is worth rethinking the assumption that four years of college education necessarily drive South Asians away from the culture they experienced at home. It may well be the case that as students are forced to maintain an ethnic identity on their own, they actually come to embrace their home culture to an extent that they never did before.

NOTES [1] Sue, Stanley, and Sumie Okazaki. “Asian-American

Educational Achievements: A Phenomenon in Search of an Explanation.” American Psychologist; American Psychologist 45, no. 8 (1990): 913 [2] Bhattacharya, Gauri. “The School Adjustment of South Asian Immigrant Children in the United States.” Adolescence 35, no. 137 (2000): 77 [3] Goyette, Kimberly, and Yu Xie. “Educational Expectations of Asian American Youths: Determinants and Ethnic Differences.” Sociology of Education (1999): 22-36 [4] Lee, Stacey J. Unraveling the” Model Minority” Stereotype: Listening to Asian American Youth. Teachers College Press, 1234 Amsterdam Avenue, New York, NY 10027, 1996.

[5] Ibid [6] Ying, Yu-Wen, Peter Allen Lee, Jeanne L. Tsai, Yuan Hung, Melissa Lin, and Ching Tin Wan. “Asian American College Students as Model Minorities: An Examination of Their Overall Competence.” Cultural Diversity and Ethnic Minority Psychology 7, no. 1 (2001): 59 [7] Prashad, Vijay. Karma of Brown Folk. University of Minnesota Press, 2001.

[8] Farver, Jo Ann M., Sonia K. Narang, and Bakhtawar R. Bhadha. “East Meets West: Ethnic Identity, Acculturation, and Conflict in Asian Indian Families.” Journal of Family

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36 | Ethnic Identity in the Undergraduate Experience Psychology 16, no. 3 (2002): 338

34-50

[9] Shankar, Lavina. A Part, Yet Apart: South Asians in Asian America. Temple University Press, 1998.

[20] Ibrahim et al., “Asian American Identity Development,” 37-38

[10] Poulsen, Shruti S. “East Indian Families Raising ABCD Adolescents: Cultural and Generational Challenges.” The Family Journal 17, no. 2 (2009): 168-174

[21] Ying et al., “Asian American College Students as Model Minorities,” 59

[11] Phinney, Jean S., Victor Chavira, and Lisa Williamson.

“Acculturation Attitudes and Self-esteem among High School and College Students.” Youth & Society (1992).

[12] Farver et al., “East Meets West,” 338 [13] Ibid [14] Rudrappa, Sharmila. Ethnic Routes to Becoming American: Indian Immigrants and the Cultures of Citizenship.

Rutgers University Press, 2004.

[15] Farver et al., “East Meets West,” 338 [16] Busto, Rudy V. “The Gospel According to the Model Minority?: Hazarding an Interpretation of Asian American Evangelical College Students.” Amerasia Journal 22, no. 1 (1996): 133-147 [16] Poulsen, “East Indian Families Raising ABCD Adolescents,” 168-174 [17] Ibrahim, Farah, Hifumi Ohnishi, and Daya Singh Sandhu. “Asian American Identity Development: A Culture Specific Model for South Asian Americans.” Journal of Multicultural Counseling and Development 25, no. 1 (1997): 37-38 [18] Rudrappa, Ethnic Routes to Becoming American: Indian Immigrants and the Cultures of Citizenship [19] Ibrahim et al., “Asian American Identity Development,”

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[22] Davé, Shilpa, Pawan Dhingra, Sunaina Maira, Partha Mazumdar, Lavina Dhingra Shankar, Jaideep Singh, and Rajini Srikanth. “De-privileging Positions: Indian Americans, South Asian Americans, and the Politics of Asian American Studies.” Journal of Asian American Studies 3, no. 1 (2000): 67-100.

[23] Rudrappa, Sharmila. “Disciplining Desire in Making the Home: Engendering Ethnicity in Indian Immigrant Families.” Second Generation: Ethnic Identity among Asian Americans. Altamira (Rowman & Littlefield), Walnut Creek, CA (2002): 85-111.

[24] Gupta, Monisha Das. “‘What is Indian about You?’ A Gendered, Transnational Approach to Ethnicity.” Gender & Society 11, no. 5 (1997): 572-596.

[25] Srinivasan, Shobha. “‘Being Indian,’ ‘Being American’: A Balancing Act or a Creative Blend?” Journal of Human Behavior in the Social Environment 3, no. 3/4 (2001): 135158.

[26] Manohar, Namita. “‘Sshh…!! Don’t Tell My Parents’: Dating among Second-Generation Patels in Florida.” Journal of Comparative Family Studies 39, no. 4 (2008): 571-588.

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Printed April 2013. A University of Pennsylvania publication.