China learns from Japan; Japan should learn from China:Exchanging looks from two sides of the sea The Chinese banking system enjoys learning from abroad: consultants are hired from all over the world; foreigners sit on management chairs; aggressive overseas actions allow members of the boards to take part in top-level meetings in primary institutions such as Barclays. It is a new banking development strategy, whose model is inspired from a place not far away from Peking: for better or for worse, Japan has proven to be the main reference. Masamoto Yashiro is a long time expert in the Asian banking environment. After thirty years of experience at Exxon, he served as vice-president at Citicorp Japan; now Mr. Yashiro is senior advisor of the Shinsei Bank, a nationalized institution; and he is also a member of the Council of International Advisers of the China Banking Regulatory Commission. It is hard to expect a better panelist to talk about “Japan’s Problems and Emerging China,” as in the distinguished lecture held by the Center on Japanese Economy and Business at Columbia Business School on September 20.  The Japanese economy suffered a deep crisis consequent to the housing bubble in 1989; it took some ten years to “clean up the balance sheets,” in the words of Mr. Yashiro. This situation caused local bankers to become extremely risk averse and economic growth was dampened by lack of an entrepreneurial credit culture. From the Chinese side, such an eventuality means that economic development should be monitored to assess the possible timing of growth vs. halts. Specific restructurings have been carried out to keep a thorough evaluation of granted loans. Political influence on issues such as mortgages and lending to state firms is less and less present. The IT culture is also one of the main focuses taken from the Japanese model. Chinese banks have a deeply fragmented structure: many branches serve rural areas; income distribution and operations pace is extremely diversified geographically. Large investments have been carried out to develop automated control systems. Mr. Yashiro stressed the point that this is indeed the direction to go: random controls in IT-deficient local offices constantly result in hundreds of errors coming to the surface. “Machines do not lie,” said the experienced banker. Yet, he added, “having IT does not mean that people are using it!” The behavioral side is the most difficult element to change. The Chinese banking future appears promising, according to Mr. Yashiro. The biggest question remains that of the inference of political communism with private banking. As it seems, no privatization is forthcoming; the newfound system of “marketization” is most likely. The State will retain a significant share of the banks’ equities, confident in the power of private initiative to create wealth. But as China is learning from Japan, Is anything happening in the reverse direction? It seems that there is too much resistance to internationalization and new generations in the whole Japanese economy. “Also Tokyo should learn from Peking,” said Mr. Yashiro. The average age of banking board members in Japan is 50-60 years; English should be a greater focus beginning with primary school; national goals should be more defined; and the government should keep closer contact with the nearest commercial partners, China and Korea. Yet, the forces which should drive the change are proving difficult to materialize. The recipe for a new Japanese miracle is clear; its implementation is not.  An event report of this lecture is forthcoming.