This year, China overtook Japan as the world's second-largest economy, a shift in the global pecking order that surprised nobody who has been paying attention for the past 20 years.
What was truly surprising is that Japan was still No. 2. Like a distant uncle whose death notice reminds you he was alive, Japan is noteworthy for its furtive slinking from the world stage. It is an extraordinary disappearing act for a country whose global hegemony was seen as a fait accompli just 20 years ago. But the ur-Asian-export juggernaut has slipped into a permafunk of its own making. Japan as Number One now languishes as the 400,000th most popular book on Amazon.com while When China Rules the World is a bestseller.
The funny thing is that China borrowed much of its economic model from Japan: producing low-cost exports to fund investment at home while aggravating trading partners. At times, it seems like only the names have changed. Where Detroit automakers once denounced Honda and Toyota for dumping cheap, fuel-efficient sedans on American housewives, Treasury secretaries now wring their hands about the undervalued renminbi while China's trade surpluses yawn.
As pleasurable as it must be for China's leaders to have beaten Japan at its own game, the joke might soon be on them. In fact, they would do well to veer off of Japan's development path promptly. Sure, Japan's export boom funded stellar growth for four decades. But its undervalued currency eventually helped blow one of the largest bubbles in history, the bursting of which still hobbles Japan today. Japan's famously dismal demographics didn't help, but China's aren't much better. Beijing's one-child policy, introduced in 1979, has worked its way up the population pyramid such that China's supply of rural workers ages 20 to 29 will halve by 2030. Worse yet, China is much larger than Japan -- which means that the global consequences of a crash would be far greater. For the moment, Beijing is riding high, but China's sustained success depends on understanding where Japan went so badly wrong.
Some answers can be found 250 miles north of Tokyo in Kamaishi. The furnaces went out in 1988, and the birthplace of Japan's steel industry is now a sleepy fishing town. Kamaishi has drafted a number of renewal plans under the motto "City of Steel, Fish, and Tourism." Of the three, the fish are most reliable, but steel and tourism come together in an unexpected way. While the number of annual visitors is down by half since the 1990s, Kamaishi's shuttered steel mill still attracts a particular brand of tourist -- those fascinated by ghost towns. The Kamaishi Iron Works was once considered one of the finest haikyo, or modern-day ruins, in all of Japan.
But it seems even haikyo tourists are growing weary of Kamaishi -- recent blog entries complain that the site is now too decomposed, "a ruin of a ruin." Not even the receipt of Iwate prefecture's "Lively Non Flatland Area Prize" several years ago has kept people in Kamaishi, and the population continues to dwindle, from 100,000 in the 1960s to just 45,000 today. Nippon Steel, formerly the town's largest employer, has tried valiantly to help the city move on. But employment schemes such as stuffing old mills with racks of moist logs for the cultivation of shiitake mushrooms and miniature orchids have had little effect, and the company eventually abandoned its most symbolic sop to town spirit: In 2001, the once-formidable Kamaishi Nippon Steel Rugby Club was downgraded to an unaffiliated amateur club, the Kamaishi Seawaves.