Midwife to Asian affluence: Japan is attending to the world's fastest growing economies. Terry McCarthy reports from Tokyo

THERE could have been no clearer demonstration of the split between Japanese politicians and bureaucrats than the conflicting statements last week on the country's huge trade surplus and the need to open domestic markets to compensate.

The newly elected Prime Minister, Tsutomu Hata, was touring Europe, reciting to each of his hosts the mantra that Tokyo realised its surpluses were a problem and that his government would speed up efforts to open its markets and deregulate its economy.

Meanwhile bureaucrats in the powerful Ministry of International Trade and Industry (Miti) had just released a report claiming that any charges that Japanese markets were closed were not supported by facts.

The Miti report was a response to a document drawn up by the US Trade Representative's Office, detailing a wide range of industries in which foreign competition is in effect shut out.

'An objective standard is not clear (in the US report),' said Sozaburo Okamatsu, the Miti vice- minister for international affairs.

Given the fact that Mr Hata is heading a minority government, and that bureaucrats from Miti and the Ministry of Finance have been dealing with Japan's trade surpluses for decades, it is not hard to guess who will come out on top - again.

According to Kenneth Courtis, economist for Deutsche Bank in Tokyo, during the 1980s Japan amassed an accumulated current account surplus of dollars 415bn. In the first four years of the 1990s, the surplus has already reached dollars 360bn, and is likely to top dollars 1,000bn by 1999.

The figures themselves are almost mesmerising. But even more interesting is what is happening to these surpluses, since they must be reinvested somewhere. Increasingly that somewhere is Asia. A fundamental change has been taking place in Japan's relations with its trading partners - a change that the US, and more conspicuously Europe, have been far too slow to appreciate.

While the former French Prime Minister Edith Cresson can insult Japanese as mindless ants, and protectionists in Europe and the US portray Asian economies as backward, primitive systems based on peasant agriculture and slave labour, Japan knows differently.

A whole swathe of Asian countries are making the breakthrough to modern, industrialised and increasingly affluent societies. And Japan is positioning itself as the midwife for this series of births. According to a World Bank study released last month, the developing economies of East Asia will grow at three times the rate of the industrialised world in the next 10 years.

Following in the footsteps of the four 'Tigers' - Hong Kong, Singapore, Taiwan and South Korea - are Thailand, Malaysia and Indonesia, while the Philippines, China and Vietnam will constitute the third wave. East Asian economic growth will average 7.6 per cent over the next decade, compared with 2.7 per cent for the industrialised world, according to the World Bank.

China, albeit starting from a low base, has been growing by an average of 11.3 per cent in the last three years, and the World Bank says it will continue to expand its economy by 8.5 per cent each year until 2003. Excluding Japan and Korea, East Asia has a population of some 1.8 billion people. And everyone will eventually want a car, a television, a house, a video, a refrigerator, and so on.

But the West still sees Asia largely as a threat - a source of cheap exports, destroying domestic industries. Japan sees Asia as an opportunity, and while Western politicians preach against Asian exporters, Japanese salesmen and manufacturers are travelling to the smallest towns of South-east Asia and China in search of new markets or new investment possibilities.

Check into the main hotel of any provincial city in China. One floor will invariably be taken up by the permanent offices of Itochu, Marubeni, Mitsubishi and the other Japanese trading firms. Western companies will have an office in Peking and, at most, a representative in Shanghai - to cover a country with five times the population of the US.

Instead of following Japan into Asia and attempting to compete in the fastest growing economies in the world, Europe and, to a slightly lesser extent, the US, are falling into the trap of thinking the economic challenge from Japan has abated.

Much play was given to a report last month by the Kenneth Leventhal accounting firm on Japanese disinvestment in the US property market. By the end of this year, the report said, 40 per cent of the dollars 77.3bn worth of US property that Japan bought in the 1980s would have been sold off. The fears of a Japanese economic juggernaut have been shown to be misplaced, the argument runs, so we don't need to worry about Japan any longer. In fact Japan has simply shifted its focus.

Already a new watershed has been reached in Japan's export statistics: for the first time, the surplus with Asia has exceeded the surplus with the US. For the fiscal year that ended this March, the surplus with Asia was dollars 55.95bn, compared with dollars 51.14bn with the US. Japanese exports to Asia increased by an average of 16 per cent, while exports to China's rapidly expanding economy increased by 42 per cent.

Japan is not just selling electronics and cars to newly rich Asians. It is also building the factories that are making many of these people rich in the first place. In 1985, 10 per cent of Japan's direct foreign investment went to Asia. Today the proportion has jumped to 20 per cent.

The latest investment hotspot is Vietnam, after the US made moves to drop its trade embargo with the communist state. Japan had been holding back from Vietnam for fear of incurring Washington's wrath, but although it is only the sixth largest foreign investor, it is already Vietnam's biggest trading partner, and many Japanese companies have set up representative offices in Vietnam to get to know the market.

Next week, Japan's new ambassador, Kazuo Ogura, will arrive in Hanoi. His last job? Head of the economic affairs bureau in the Foreign Ministry.

All of Asia's booming economies are following Japan's model of an export-driven economic boom: and as the surplus figures indicate, their exports are going to the US and Europe, not to Japan. And Asians protest just as bitterly - if not as loudly - as the US and Europe about their lack of access to Japanese markets. Which brings us back to the 'divergence in views' between Mr Hata and his mandarins at Miti.

(Photographs omitted)