White Paper on International Economy and Trade 2014 (Part 2)
Japan and the world shifting to new growth models
Japan and the world shifting to new growth models
Policy Planning and Research Office
Trade Policy Bureau
Ministry of Economy, Trade and Industry
Deepening of trade and investment and the activities of Japanese companies in East Asia
1 Deepening of trade and investment in East Asia
Overviewing the trade flow between East Asia and key regions around the world reveals increasing international specialization in East Asia, with intermediate goods comprising a large portion of trade within East Asia and a high ratio of final goods going to the US and Europe (Fig. 1). This suggests that within East Asia, intermediate goods are being exported from Japan and Korea to China and ASEAN; intermediate goods are also being exported within ASEAN and between China and ASEAN; and assembled final goods are being exported from China and ASEAN to the US and Europe. Looking at changes from 2000 to 2012, trade value has grown, with China's trade value in particular showing considerable expansion.
Figure 1: Trade flow between East Asia and key regions (2012) (289KB)
Next, to see what changes are occurring within the above trade structure, we turn to trends in the export destinations of East Asian final goods (consumer and capital goods). In the case of consumer goods, exports to the US and Europe plunged immediately after the Lehman shock but have been on a recovery trend since 2010, with exports to East Asia in particular rising steeply (Fig. 2). Looking at the regional shares of export destinations, East Asia's share is on the rise. In the case of capital goods, exports to East Asia have generally outweighed exports to the US and the EU since the 1990s, evincing an even steeper upward turn since the 2000s. Exports to China and ASEAN have been particularly strong (Fig. 3). East Asia's share of exports of final goods is growing, albeit gradually, with signs of an economic zone emerging based on regional demand.
Figure 2: Trends in East Asian exports by trading partner (consumer goods/value) (254KB)
Figure 3: Trends in East Asian exports by trading partner (capital goods/value) (253KB)
2 Activities ofJapanese companies inEast Asia
As a trend, long-term Japanese outward direct investment has grown substantially since the late 1980s. Trends in the outward FDI stock by industry type since 2005 reveal that while manufacturing and non-manufacturing have both increased, non-manufacturing has grown more. In recent years, finance and insurance, wholesale and retail, mining and telecommunications in particular have expanded. In other words, offshore expansion has been accompanied by a change in how Japanese firms earn. In terms of trade, in addition to exports to North America and other regions, there has been a significant jump in exports of intermediate goods directed at international specialization in East Asia, while in areas other than trade, the production activities of Japanese affiliates overseas are expanding along with the dividends (categorized as income revenues in the international balance of payments) and royalty revenues (categorized as service revenues) arising from these. Below we examine these trends based on survey of Japanese overseas affiliates.
Looking first at the regions where Japanese affiliates are being located, Asia's share is on the rise, topping 60 percent in FY2012. China's share in particular has grown substantially. On the sales front, Asia has the largest share with around 45 percent. The profits derived from these activities are being used to pay dividends to Japanese investors. Royalties are also remitted when the parent company's technologies and brands are used. Dividend and royalty payments are trending upward (Fig. 4). By industry, manufacturing accounts for the highest share (Fig. 5).
Figure 4: Trends in payments to Japanese investors by Japanese manufacturing affiliates (169KB)
Figure 5: Trends in payments to Japanese investors by Japanese affiliates (239KB)
Looking next at the procurement and production activities of Japanese manufacturing affiliates, while local procurement ratios for production in East Asia are rising, exports from Japan are not falling (Fig. 6). Local sales ratios are increasing, and the R&D ratio in Asia becamehigher than the North America R&D ratio in FY2012, with Japanese companies' business activities in Asia clearly deepening.
Fig. 6: Purchases by Japanese Manufacturing Affiliates in Asia (238KB)
Moving on from Japanese companies' business activities, next we examine what role these activities and Japanese policy can play in East Asia. The 2014 White Paper discusses the search for new growth models in China and ASEAN. Development of the business environment to encourage and promote corporate dynamism plays a key role in achieving these kind of growth model shifts, including developing local supporting industries, training advanced human resources to build the capacities of local companies, developing both 'hard' and 'soft' infrastructure, and eliminating non-tariff barriers to reduce transaction costs. The deepening of Japanese companies' business expansion into Asia noted above will contribute to business environment development through the provision of technologies, business models and knowhow, as well as enabling companies to respond to increasingly sophisticated consumer needs.
Japan's global outreach
Japan's trade account has been in deficit for three consecutive years even as the current account surplus shrinks, making the development of the business environment both in Japan and overseas increasingly important in terms of strengthening the competitiveness of Japanese industry. From that perspective, here we discuss Japan's Global Outreach Strategy, which comprises the three pillars of (1) pursuing economic partnerships, (2) strategic approaches to emerging countries and (3) attracting leading overseas personnel and companies to Japan.
1 Building economic partnership networks around the world
Expanding free trade and pursuing economic partnerships are the pillars of Japan's trade policy, and particularly from now on, it will be vital for Japan's growth to promote wide-ranging economic partnership agreements (EPAs) such as the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP), the Japan-China-South Korea FTA, and the Japan-EU EPA to create a global network of economic partnerships as a means of capturing the Asia-Pacific's growth and massive markets. The Japan Revitalization Strategy (adopted by Cabinet decision on 14 June 2013) also calls for Japan to raise its FTA ratio (the ratio of trade value of those countries with which Japan has an FTA) from the current 19 percent to 70 percent by 2018, with Japan continuing to progress the various negotiations.
2 Strategic approaches to emerging countries
Capturing emerging country demand will be vital in Japanese companies locking in the demand growth occurring around the world and feeding this back into Japan's wealth, and also in laying the foundations for promoting product exports and the procurement of components and materials from Japan.
Accordingly, as of 2013, Japan has classified the emerging countries into three types-China and ASEAN; Southwest Asia, Middle East, Russia and CIS, and Latin America; and Africa-according to their degree of economic development, the extent of Japanese companies' local operations, and the competitive environment with other countries' firms, and is pursuing initiatives in each of these.
3 Attraction of leading overseas personnel and companies
Amidst increasing global competition to attract foreign companies, stimulating inward direct investment, an area where we lag behind other countries, will provide the new stimuli to promote open innovation, and will also be important from the perspective of energizing local economies.
To that end, Japan will pursue regulatory and systemic reform based on the opinions of foreign companies, while also working with JETRO, Japanese diplomatic missions and front-running local authorities on initiatives to attract foreign companies, with the Conference on Promoting Foreign Direct Investment in Japan serving as a control tower.
(original article : Japanese)