Published on January 26, 2020. This article introduces an essay by Hideo Tamura from the Sankei Shimbun, discussing the crisis that the U.S.–China “Phase One” trade agreement may bring to the Chinese economy and the folly of South Korea’s “pro-China, away-from-Japan” course. Through comparisons of economic growth in Korea and Taiwan under prewar Japanese rule, British-ruled India, the stagnation of Korea under the Yi dynasty, and Taiwan’s growth through moving away from China, it highlights the difference between South Korea’s and Taiwan’s chosen paths.

January 26, 2020
We, the postwar generation, have been implanted through education with the negative image that colony equals exploitation, but
The following is from today’s Sankei Shimbun.
The U.S.–China Trade Agreement That Invites a “China Crisis”
The Folly of South Korea’s “Away from Japan”
Editorial Writer Hideo Tamura
The United States and China have signed the “Phase One” trade agreement, but there is no prospect of an improvement in the Chinese economy.
Even though this could become the root cause of a financial crisis in that country, South Korea is desperately pursuing “pro-China, away from Japan.”
This stands in contrast to Taiwan, which is “away from Communist China.”
It is strange indeed.
Why are South Korea and Taiwan going in such different directions?
Let us consider that first, leaving aside for the moment the reasons for anxiety over China.
Both South Korea and Taiwan were part of Japan before the war.
We, the postwar generation, have been implanted through education with the negative image that colony equals exploitation, but if one checks objective economic data, one can see that this is nothing more than an excessive masochistic view of history.
The graph compares the prewar real economic growth rates of Japan, South Korea, Taiwan, and India, which had been under British rule.
I downloaded it from the website of the Groningen Growth and Development Centre in the Netherlands, which contains economic history data for major regions around the world.
Most of the sources for the South Korean portion come from the Naksungdae Institute of Economic Research in Seoul, whose chairman is former Seoul National University professor Lee Young-hoon.
In order to smooth out annual fluctuations, I calculated the five-year annual average values up to each year by hand.
It is obvious at a glance that during the Japanese colonial period, the economic growth rates of South Korea and Taiwan remained, for most of the period, at the same level as Japan’s or even higher.
In India’s case, by contrast, growth remained stagnant.
The late Hirofumi Uzawa, a leading authority in modern economics, judged Britain’s rule over India to have been “one of the most brutal, cold-blooded, and gloomy in the long history of mankind.”
Under the pretext of protecting India, Britain made the Indian government bear most of the military expenses, and made Indians pay the pensions of British civil servants who were assigned to India once during their terms.
Furthermore, the portion of Britain’s trade deficit with India was kept in London, and by manipulating the exchange rate between the British pound and the Indian rupee, it was effectively written off.
By contrast, Japan placed emphasis on modernization investment in Korea and Taiwan and grew their economies.
Taiwan was ceded from the Qing dynasty to Japan in 1895, and the “Japan–Korea Annexation” took place in 1910; the data above are recorded from 1911.
Before being incorporated into Japanese territory, the Korean Peninsula was ruled by the Yi dynasty.
At the time, the British travel writer Isabella Bird, who visited the peninsula, wrote in Korea and Her Neighbours: “When Japan undertook reform, there were only two classes in Korea. Those who stole and those from whom things were stolen. And among those who stole were included the enormous number of people who constituted officialdom. Everyone in Korea knows that poverty is his best means of defense, and that if he has more than enough to feed and clothe himself and his family, it will be taken away by greedy and corrupt officials.”
Under such conditions, there is no way growth could occur.
According to documents of Japan’s Foreign Ministry at the time of defeat, based on the historical record Annals of the Yi Dynasty, cultivated land area declined by 40 percent over 215 years of the Yi dynasty, and the population declined by 20 percent over 151 years.
In short, can we not infer that South Korea had experienced negative growth for more than one hundred years before annexation?
That South Korea continues to resent Japan, which had been its suzerain, and draws close to China, its former destination of tribute.
On the other hand, a majority of public opinion in Taiwan is pro-Japanese and highly values the development investment in Taiwan made by Japan before the war.
Let us return to the point raised at the beginning.
South Korea’s real gross domestic product, GDP, growth rate in 2019 was 2 percent, its lowest level in ten years since 2009, when it lost speed because of the Lehman Shock.
This was the effect of the U.S.–China trade war and the slowdown of the Chinese economy.
The fragility of South Korea, whose exports to China are extremely high at 10 percent of GDP, was exposed.
This year, the South Korean government says it will “accelerate the move away from Japan…investing 2.1 trillion won, or about 200 billion yen, in materials, parts, and equipment,” according to the Japanese electronic edition of the JoongAng Ilbo dated the 22nd.
This concerns such items as hydrogen fluoride for semiconductor manufacturing, regarding which Japan brought its export controls on South Korea into line with those for ordinary target countries, but surely South Korea cannot catch up with the advanced parts and materials technologies Japan has built up over many years with just that amount.
Taiwan, meanwhile, is riding the wave of “away from China,” and its real growth rate is accelerating, reaching nearly 7 percent on an annualized basis in the October–December quarter of 2019 compared with the previous quarter.
In response to America’s hard-line trade measures against China in semiconductors and other fields, companies are returning their production bases to Taiwan.
Which choice is correct?
The answer lies in the U.S.–China Phase One agreement.
Because China will increase imports from the United States, America’s annual deficit with China will decrease by more than 120 billion dollars from the 337.2 billion dollars recorded in 2017, to about 210 billion dollars.
Looking at Chinese statistics, China’s trade surplus with the United States was about 300 billion dollars in 2019.
That is six times the overall current-account surplus of 50 billion dollars in 2018.
If the surplus with the United States decreases by 120 billion dollars, China will fall into being a deficit country.
The Chinese financial and economic system, supported by the dollar, will likely be exposed to the danger of collapse.
Likely.