Japan itself to blame for its woes

Some recent discussions in the media have centered on whether the Japanese economy really relies as heavily on China as is made out to be.

To begin with, the Japanese economy is export-oriented and Japan's rise can be attributed to exports. Or else, how could the Plaza Accord be signed to help the continuous appreciation of the Japanese yen from 1985 to 1995? How could the yen start appreciating again in 2008 and continue to linger at a high level until now?

Second, the low proportion of exports in Japan's economic aggregate doesn't mean that the Japanese economy is not dependent on exports. How could the Japanese economy wipe out the memories of the "lost decade" (1991-2000) with its recovery from 2003 to 2008? How could it recover and maintain its growth for years on end? Wasn't it because of the Chinese demand factor?

Third, according to Japanese statistics, the country's direct exports to China in 2011 accounted for 2.47 percent of its GDP, and Japan's imports from China accounted for 2.45 percent of the latter's GDP. But the conclusion, based on the almost equal ratios, that Japan and China are equally dependent on each other is too one-sided, because it doesn't take into consideration Japan's indirect exports to China and their scale.

After devising an export-oriented growth model in the last century, Japan enacted policies and took measures to encourage exports, curb imports and exclude foreign competition. These policies have hardly seen any change.

From the early 1950s to the late 1980s, the Japanese economy experienced unprecedented growth. Affected by the sharp appreciation of the yen, however, Japan began experiencing surplus in investment, equipment, employment and production and ultimately entered the "lost decade". China's economic rise and robust growth in this century created huge external demands, which helped the Japanese economy to pull itself out of the quagmire onto a road of recovery.

Japan's economic recovery was driven by exports. The increase in external demand and exports raised the demand for Japanese equipment and downstream materials. And the Japanese manufacturing sector, from upstream to downstream, experienced a gradual revival and expanded operations. With increased revenues and profits, Japanese companies could pay higher salaries to employees, and with higher incomes employees could spend more on consumption, resulting in a complete socio-economic recovery from production to services and from manufacturing to consumption.

In other words, exports is the primary force driving of Japan's economic growth, followed by investment and consumption. Japan exports goods to China directly as well as indirectly. The figures we see in official statistics are that of direct exports. But quite a large amount of Japan's direct exports to Hong Kong and Taiwan, and the Republic of Korea enter the Chinese mainland. Indirect exports to the Chinese mainland include materials and key components made in Japan and accessories made in Hong Kong and Taiwan, and the ROK, which are then processed and/or assembled to end up as final products. This is evident in Japan's huge trade surplus with Hong Kong and Taiwan, and the ROK, as well as Taiwan's and the ROK's huge trade surplus with the Chinese mainland. Japan sees this as the "East Asian division of labor".

Some American and European companies, too, purchase Japanese industrial designs, materials and key components, and export them to the United States and Europe after having them assembled in China. So the "East Asian division of labor" has evolved into a "global division of labor". Thanks to the division of labor in East Asia, Japan could diversify its exports and reduce trade frictions, unlike those seen frequently between China and the US and between China and the EU. In the early days Japan's indirect exports were conducive to China's expanding exports, but gradually their negative effects started emerging.

In my analysis, Japan's direct and indirect exports to China are estimated to be 30 percent of Japan's total exports. Besides, 60 to 70 percent of China's total exports to Japan are operated by Japanese companies. Therefore, Japanese companies not only play a key role in expanding China's exports to Japan, but also get the lion's share of the profits.

The Japanese economy is "gravely ill" now. Ever since Japan played out the farce of "purchasing" China's Diaoyu Islands, Sino-Japanese trade has been suffering seriously, compromising the performance of Japanese enterprises in China.

But Japan cannot blame China for its economic downslide, because the Chinese government has taken measures to safeguard the legitimate rights and interests of foreign companies, including Japanese companies, doing business in China. In fact, Premier Wen Jiabao has repeatedly said all enterprises registered in China are Chinese enterprises and their products are Chinese products. Chinese laws protect all enterprises, including Japanese-funded enterprises.

So Japan has only itself to blame for the economic mess it is in.

The author is a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

(China Daily 11/20/2012 page9)