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Thursday, 2 May, 2002, 21:19 GMT 22:19 UK
US warns Japan over 'boxcar' economy
US Treasury Secretary Paul O'Neill
Paul O'Neill: "Better to force bankruptcies now"
The Japanese economy, the world's second largest, risks becoming a "boxcar" on the global racetrack, US Treasury Secretary Paul O'Neill has said.

Experts predict that, on current trends, Japan will fall behind China in the global economic league, and claim an economy one quarter the size of the US's, Mr O'Neill said.

Too much capital continues to prop up old investments gone bad instead of going after better opportunities

Paul O'Neill, US Treasury Secretary
"In 1991, the Japanese economy was nine time the size of China's and three-fifths the size of the United States'," he told a conference in New York.

Japan's fall would reduce its influence on the global stage.

"Japan will no longer be a engine for the world economy, it will be a boxcar," he said.

In with the new

Mr O'Neill urged bank chiefs to force failing companies into liquidation rather than, as has been frequent, allow them to limp on.

"The new generation of bank managers and corporate leaders should... not waste the hard-earned savings of Japanese workers.

"It is better to do it now, when there is still some value to salvage, than to wait until the desperate, bitter, bankrupt end."

Banks should focus instead on fostering new firms with potential to support future economic growth.

"Too much [capital] continues to prop up old investments gone bad instead of going after better opportunities."

Policy initiatives

He supported the direction of the country under the direction of Prime Minister Junichiro Koizumi.

But too much Japanese industry remained protected by regulations and trade barriers.

"Eliminating regulatory barriers and introducing competition throughout the Japanese economy entails thousands of smaller, highly important decisions in trade, regulatory, and fiscal policies," Mr O'Neill said.

He added: "It is not my place or the place of the US government to lecture the Japanese government on how to proceed -- these are decisions for the Japanese people."

See also:

24 Apr 02 | Business
Purse strings still tight in Japan
19 Apr 02 | Business
Japanese banks to merge
01 Apr 02 | Business
Weak start to Japan's new year
22 Mar 02 | Business
Japan slump 'slowing'
10 Mar 02 | Business
Company profits 'plunge' in Japan
08 Mar 02 | Business
Japan's recession drags on
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