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JETRO Survey: Analysis of Japan-China Trade in 2011 and Outlook for 2012
-Total trade sets a new record, while export growth falls because of China’s economic slowdown and influence from the earthquake-

Feb. 23, 2012
Converting yen-denominated statistics for imports and exports released by Japan’s Ministry of Finance in February 2012 to US dollars, JETRO found that compared to the previous year Japan’s total trade with China rose 14.3% to US$344.9 billion in 2011, setting a new record.

Both imports and exports made record highs; imports from China rose 20% to US$183.4 billion, while exports to China rose 8.3% to US$161.5 billion. Due to consequences of the Great East Japan Earthquake, Japan’s export growth fell, allowing import growth to surpass it for the first time since 2005. As a result, Japan’s balance of trade logged a deficit of US$21.9 billion, an increase of 5.9 times that of the previous year. This was also the first increase in deficit since 2005.

Overview of 2011
  • Japan-China trade increased for two consecutive years, fueled by expanding domestic demand in Japan for imports of finished goods and parts from China, as well as China’s steady economy. However, the total rate of trade growth on a single month basis fell to single digits after November 2011, due to a decrease in Japanese exports to China.
  • Exports to China reached a record high in 2011. An increase was noted in the exports of industrial facility equipment and raw materials. However, compared to the same period the year before, there was a decrease for three consecutive months after October, due to impact from the earthquake and other factors such as the strong yen, China’s slowing economy and Europe’s debt crisis.
  • Imports from China also set a record high in 2011. An increase was noted in those of communication instruments led by expanding demand for smart phones. Imports of clothing and accessories, as well as foodstuffs also increased. In addition, product imports such as electric fans, power generators and batteries rose sharply on the back of demand related to post-disaster recovery efforts, the electricity shortage and nationwide power-saving campaign, and for emergency supplies.
  • China’s share of Japan’s total trade dropped by 0.1 point to 20.6 % from the previous year, as the growth rate in trade with China fell below that of Japan’s total trade with the world. This is the first drop in China’s share in 21 years.

Outlook for 2012
  • Japanese exports to China are expected to either see a decrease or a modest rise at best, resulting from China’s tight monetary policies, post-quake adjustment of supply chains and countermeasures against the strong yen taken by domestic companies as well as some effects from Europe’s debt crisis.
  • Imports are expected to show continued double-digit growth, fueled by further development of overseas production and the increasing import of smart phones.
  • Backed by Japan’s import growth, Japan-China trade through 2012 is likely to surpass US$350 billion, possibly topping the record set in 2011.
  • While export to China had continuously exceeded import from China between 2006 and 2010, the trade deficit which began in 2011 is expected to increase this year, with no factors foreseen to bring significant export growth.

Detail analysis

EXPORTS:
Due to influence from the Japan disaster, car exports declined, exports of semiconductors and other electronic components shrank sharply
Japan’s exports to China in 2011 showed double-digit growth in the first quarter, on the back of China’s steady economy (its real GDP growth rate in 2011: 9.2%). However, due to influence from the Great East Japan Earthquake, the growth rate dropped to single-digit in April and May, as a result of a sharp decrease in electric equipment, raw materials and transportation equipment.

Following restoration of production bases, the rate recovered almost to double-digits from June to September, but fell again after October for three consecutive months due to the downturn in the Chinese economy and Europe’s debt crisis.

By product, Japanese shipments of chemical products and general machinery such as metal processing/textile machinery increased, while raw materials and electric equipment including electric circuits almost leveled off, and automobiles were down.

Breakdown by product category:
  • A sharp rise was seen in the exports of metal processing/textile machinery, manufacturing equipment for semiconductors and other devices and industrial robots, backed by China’s expanding industrial production, rising labor cost and manpower shortage.
  • A decline was noted in exports of nonferrous metal products including automobiles and refined copper, due to the shortage of parts caused by supply chain disruptions from factories damaged by the Japan disaster. Meanwhile exports of semiconductors and other electronic components and car parts leveled off.
  • Exports of construction/mining machinery, which rose sharply in the previous year, showed a decline in 2011 due to a decrease of real estate investments reflecting the impact of the Chinese government’s tight monetary policies. Food exports also dropped significantly due to China’s tightening regulations on food imports from Japan following the nuclear accident.

IMPORTS:
Imports surged, fueled by smart phones, emergency supplies
A steady increase was noted in Japanese imports from China in 2011. In addition to imports of electric equipment such as communications devices, clothing and accessories, general machinery, raw materials and foods also showed double-digit growth. Imports of items such as electric fans and batteries shot up as a result of demand to conserve energy following the March disaster.

Breakdown by product category:
  • Imports of smart phones surged with their increase in popularity. As for chemical products, imports of rare earths and rare metals declined in terms of number, while sharply rising in terms of value, backed by their soaring prices.
  • Imports of clothing and clothing accessories were up by nearly 20%, despite the recent trend for makers to shift production from China to other Asian countries seeking lower production cost. The growth was fueled by rising import unit value caused by high value added products manufactured in China and an increase in the imports of functional clothing designed to help conserve energy. Food imports rose by nearly 20%, backed by fading concern for Chinese food safety, and rising domestic demand for low price products.
  • Imports of electric fans, power generators, batteries, flashlights and portable radios soared, reflecting increased needs which have arisen from the electricity shortage and nation-wide power saving measures as well as demand for emergency supplies following the March 11 disaster.

China’s share of all Japanese trade dropped, the first decline in 21 years
The pace of increase in Japan’s trade with China grew by 14.3%, which was less than that of Japan’s overall trade, 14.7%. As a result, China accounted for 20.6% of all Japanese trade, dipping 0.1 point from the year earlier. This is the first such decline since 1990. While Japan’s share of exports to China grew to 19.7%, a record high, its share of imports from China decreased to 21.5%, a drop for two consecutive years reflecting significant expansion of imports from resource-rich countries. China, however, remains Japan’s largest trading partner in terms of import, export and total trade value.

Outlook for 2012:
Total trade to reach record high exceeding US$350 billion, while growth rate to decline
On the back of further slow growth in China’s economy triggered by factors such as the EU debt crisis, the Chinese government has announced plans to slightly loosen its monetary policies, which until now have steadily grown more stringent. Its growth rate for real GDP this year will likely decline and the falling economic growth may slow Japanese exports to China. Moreover, if Japanese firms affected by the March disaster continue shifting their manufacturing bases outside of Japan in efforts to restructure supply chains and cope with the strong yen, Japan’s exports will suffer further.

While the growth rate of imports from China is forecasted to continuously exceed that of exports to China, this is attributed to projected improvement in Japan’s economy partly due to demand related to post-disaster recovery efforts, and expanding overseas production by Japanese companies.

Although a slowdown, or even a decrease, in growth of exports from Japan is predicted, the total trade value with China will possibly exceed US$350 billion, setting a record high for three running years with a modest rise, backed by steady imports from China. In the trade balance between the two countries, there is a strong possibility that the degree of Japan’s deficit will increase for a second year in a row, amid the continuing signs of sluggish export growth.

EXPORTS:
  • Exports of industrial facility equipment, parts and raw materials to China are predicted to continue growing thanks to expansion of Japanese firms’ industrial production in China, in spite of increased local procurement of these same items.
  • Manufacturing production of cars and components, semiconductors and other electric components which were affected by the March disaster has already recovered. However, reflecting post-quake adjustment of the supply chain network and increase in overseas production in response to the strong yen, exports to China are predicted to either see a decrease or a modest rise at best.
  • If Europe’s debt crisis grows more strained, the growth in China’s exports of finished products to Europe will slow down, and that in turn may further impact on Japan’s exports of high value added raw materials and parts to China.

IMPORTS:
  • Imports of communications devices will likely see continuous growth with increasing domestic demand for smart phones.
  • With more Japanese firms transferring production sites for high value added products to China, a rise is foreseen in imports of electric equipment, car components, clothing and accessories, boosted by the increased import amount of higher value added products and growing production costs in China.
  • Imports of car components and semiconductors and other electric parts affected by the Japan disaster are expected to recover with the restoration of domestic production facilities of manufacturers of finished goods.
  • Reduced import costs induced by further appreciation of the yen may facilitate an even greater increase in imports from China.
  • Imports of chemical products will likely see sluggish growth as soaring costs of rare earths and rare metals show signs of losing steam.


※On a yen-basis, figures of Japan’s total trade with China rose by 3.9% to 27.5 trillion yen, with imports rising 9.1% to 14.6 trillion yen and exports declining 1.4% to 12.9 trillion yen.

※As the currency of settlement for Japan’s exports to Asia, US dollars and Japanese yen account for respectively 49.6% and 48.1%, while the figures reach 71.5% and 26.8% for Japan’s imports from Asia.
For more information, please contact:
China and North Asia Division, JETRO
Contact persons:Mr. Kunihisa Nakai or Ms. Rei Kobayashi
TEL:+81-(0)3-3582-5181 E-mail:org@jetro.go.jp

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