TOKYO - Prime Minister Dr Mahathir Mohamad warned Japan today not to pursue rapid reforms if it wanted to avoid excessive disruption, instead urging it to lead the world with its economic might.

"Today's world is in shambles," Mahathir said, addressing a crowd assembled for the 20th anniversary of his "Look East" policy, launched to promote Japanese and South Korean work ethics among Malaysians. The policy is considered a pillar of Malaysia-Japan ties.

"The abuses of the free trading system, the unlimited greed of a considerable number of speculators, the fumbling and incompetence in the handling of problems have resulted in the world losing its way," he said.

The long-time Malaysian leader was also critical of on-going Western-inspired structural reforms in Japan and corporate job cuts amid an economic slump that has dragged on for more than a decade, saying "Japanese corporations should go back to life-time employment."

"We understand the desire of the Japanese to Westernise its system. But when systems are suddenly changed, even if it is for the better, there will be severe disruptions. It is far better to stick to the system which worked."

Wake up call

He argued Japanese values and culture helped it rise from the ashes of World War II and develop into the world's second largest economy.

"The Japanese people as a whole must wake up and appreciate that the disaster that you face now is of your own making. Just as your post-war recovery was through your own way, you can recover now by your own way."

"The challenge for Japan is to take on the leadership role," he said, noting that there has been little input from East Asian countries into how to properly handle globalisation.

Asked to comment on China's emerging economic presence, Mahathir said: "There is no way you can really stop China from becoming an economic power, a very big economic power."

But Japan should also know "China will become not just an economic power but it is also going to be a big military power as well."

"Of course this creates a lot of fear even among Southeast Asians. We would rather try and work with China rather than confront China."

Calling confrontation "the wrong way of solving a problem," Mahathir welcomed a free trade agreement between China and the 10-member Association of Southeast Asian Nations (Asean).

Trade pact with Japan

Mahathir stressed that the agreement was not a full free trade pact as many exclusions were included to protect the countries of Southeast Asia, which he said "really cannot compete with China."

Mahathir arrived here early today for a five-day official visit and expressed hope that Malaysia would sign its first bilateral free trade agreement with Japan during a meeting with Economy, Trade and Industry Minister Takeo Hiranuma.

He will meet with Prime Minister Junichiro Koizumi later today and with Finance Minister Masajuro Shiokawa tomorrow.

He also planned to visit Tokyo DisneySea, a theme park opened near the Japanese capital last year. AFP