Japan, moreover, is China's largest trading partner and sanctions would have had a serious impact on industries in both countries, Kwan said in a column posted recently on RIETI's Web site (www.rieti.go.jp).
He said building barriers to prevent the relocation of sunset industries overseas would merely hamper industrial upgrading.
"There are in fact no examples of sinking industries in developed countries that have recovered their competitiveness through government-instituted protection policies," Kwan said.
Instead of using import curbs and subsidies to lock labor and capital and into uncompetitive sectors, the government should focus on eliminating barriers to productivity growth and the creation of new manufacturing and service industries, he said.
By keeping unviable companies afloat, economists say Japan is not only building up a mountain of non-performing loans on the books of the nation's banks but also stunting the creation of wealth needed to provide pensions for its greying population.
According to Kathy Matsui, equity strategist at Goldman Sachs, major Japanese firms will make a return on equity this year of just 2 percent -- less than one third of the levels of German companies and one eighth that of US firms.
The temptation to resort to a cheaper yen instead of painful restructuring has grown in tandem with an exodus of Japanese companies to China in the past year, lured not only by cheap labour but by soaring quality and efficiency levels. Xie said an adjustment of the yen could not possibly close the cost chasm between China and Japan. Not only are China's wages just 3 percent of Japan's but its labour productivity is already virtually identical in areas such as light manufacturing and consumer electronics. Steel, petrochemicals and the auto industry are not far behind.
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