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JETRO Survey: Analysis of Japan-China Trade in the first half of 2013

Aug 20, 2013

Total trade sees a decline for the first time in four years on a first half-year basis due to China’s economic slowdown, while trade deficit with China becomes the largest ever

Converting yen-denominated statistics for imports (preliminary) and exports (revised) released by Japan’s Ministry of Finance in July 2013 to US dollars, the Japan External Trade Organization (JETRO) found that Japan’s total trade with China dropped 10.8% to US$147.3 billion in the first half of 2013, marking the first drop in four years on a first half-year basis since 2009, following Lehman’s fall.*

Imports from China fell by 6.1% to US$85.8 billion, marking the first drop since 2009, and exports to China dropped for the second consecutive year by 16.7% to US$61.4 billion.
As a result, Japan’s balance of trade logged a deficit of over US$24.4 billion, an increase of 1.4 times over the same period of the previous year, setting a new record on a first half-year basis.

Also, Japan’s total exports with the world decreased 12.6% from the same period of the previous year to US$358.1 billion. By country/region, Japan’s contribution ratio in exports to the world was the largest ever with minus 3.0%. The drop in exports to China became a major reason for Japan’s decreased exports.

Summary points:

Overview of the first half of 2013

1.Exports to China decrease for the second consecutive year on a first half-year basis
On the back of China’s sluggish rise in domestic demand due to its economic slowdown, a completion of a cycle of capital investment and a change in demand, a decrease was seen in Japanese exports of main items including general machines such as metalworking machines, construction and mining machines and electrical equipment such as semiconductors. Exports of automobiles, which showed a serious decrease after demonstrations, continue to drop, balancing out from the strong growth of the same period of the previous year.

2.Imports from China fall for the first time in four years on a first half-year basis
With imports, main items including manufactured goods such as iron and steel and general machines decreased. Imports of electrical equipment continued rising modestly due to a sharp decline of audiovisual products (including components) while communication devices such as smart phones and electronic components including semiconductors increased.

3.China’s share of total Japanese trade drops for the second consecutive year
The rate of decline of Japan-China trade exceeded that of Japan’s trade with the world (10.1% decline). As a result, China’s share of Japan’s total trade dropped for the second consecutive year by 0.1 points to 19.2% from the same period of the previous year.

Outlook for 2013

1.The Chinese government has been taking a stance toward emphasizing its structural reform over economic growth; it is unlikely to implement large-scale stimulus measures to create domestic demand. In addition, China’s slowing industrial production and consumption are forecasted to continue, thus Japan’s exports to China are likely to decline.
2.In spite of the stable demand for smart phones and signs of recovery in the Japanese economy, imports from China will likely see only a small improvement because of weakened price competitiveness in raw materials and intermediate goods due to the weak yen.
3.Japan-China trade throughout 2013 is likely to decrease for the second consecutive year.
4.The trade deficit is likely to surpass the previous record of US$44.3 billion set in 2012

Detail analysis

1. EXPORTS:
Exports of main items decline due to China’s economic slowdown
Owing to China’s sluggish rise in domestic demand due to its economic slowdown (its real GDP growth rate over the first half of 2013 was 7.6%), Japan’s exports of electrical equipment, general machines, manufactured goods and transportation equipment decreased. On the other hand, exports of chemical products picked up on the back of significant growth in organic compounds.

Breakdown by product category:
1.Due to slow growth in China’s industrial production, the rate of decline in exports of heavy electrical machinery, motors, and iron and steel rose. Moreover, exports of construction and mining machines showed a continuous drastic fall, led by the Chinese government real estate investment controls and slowing fixed asset investment.

2.Exports of metalworking machinery showed a sharp decline due to an enormous decrease of those of machining centers affected by the completion of a cycle of capital investment for manufacturing smart phones and tablet PCs, and balancing out from the significant increase of the previous year.

3.Changes in demand in China following the popularization of low price smart phones and tablet PCs caused a decrease in exports of expensive electronic components including semiconductors.

4.Due to slowing consumption in China, Japan's exports of audiovisual equipment such as expensive single-lens reflex digital cameras decreased. Also, a continued decrease was seen in exports of automobiles and automobile components, which were negatively affected by demonstrations and also by a drop in sales volume of Japanese automobiles in China.

2.IMPORTS:
Decrease in a wide range of items in spite of strong smart phone demands
An increase of Japanese imports from China in the first half of 2013 remained modest due to decreased sales of liquid crystal televisions, while imports of communication devices centering on smart phones and electronic components including semiconductors increased. Moreover, imports of a wide range of items such as general machines, manufactured goods and foodstuffs decreased after the previous year’s increase, and those of chemical products decreased for the second consecutive year.

Breakdown by product category:
1.Imports of high-value added communication devices continued to show a high increase due to the continuously expanding demand for smart phones in Japan. Also, imports of solar cells surged as demand for solar panels increased, and those of electronic components including semiconductors showed large-scale growth due to an increasing demand for smart cards.

2.With a continuous sales decrease of liquid crystal televisions in Japan, triggered by the end of Japan’s eco-point system, imports of audiovisual products showed a drastic fall. Moreover, those of iron and steel and non-ferrous metal saw a sharp decline, and food imports also decreased in many items.

3.Imports of clothing and clothing accessories overall decreased due to a continuing trend among manufacturers of non-seasonal and low-value added items such as undershirts to shift production from China to other Asian countries and regions in search of lower production cost, while high-value added items such as dresses and suits increased. In 2013, China’s share of imports to Japan decreased to 71.4% (74.4% in 2012) while Vietnam’s share increased to 8.5% (8.2% in 2012), and Indonesia’s share also increased to 3.3% (2.2% in 2012). Imports of labor-intensive items showed the same trend. For example, China’s share of wire harnesses decreased to 33.3% (38.1% in 2012) while Vietnam’s share increased to 30.7% (28.5% in 2012) and the Philippine’s share increased to 17.3% (16.5% in 2012).

3.China’s share of total Japanese trade drops to second place for the first time in the past five years, falling behind the US
The pace of decrease in Japan’s trade with China was more than that of Japan’s overall trade, 10.1%. As a result, China accounted for 19.2% of all Japanese trade, dipping 0.1 points from the 19.3% posted in the same period of the previous year. This has resulted in a continuous decrease from the previous year to less than 20%. China remains Japan’s largest trading partner in terms of import and total trade value, however exports from China dropped to second place for the first time in the past five years after the first half of 2008. Japan’s share of exports to China dropped to 17.2%, dipping 0.8 points and making it 1.1 points lower than the share of exports to the US. Japan’s share of imports from China increased to 20.9%, up 0.4 points from the previous year.

4.Outlook for 2013:
Trade deficit with China likely to become largest ever
Since the Chinese government has been taking a stance toward emphasizing structural reform over its economic growth, it is unlikely that they will implement large-scale economic stimulus measures and ease regulations of real estate investment. In addition, China’s slowing industrial production and consumption are forecasted to continue, thus Japan’s exports to China are likely to decline. On the other hand, Japan’s imports from China are expected to increase more than in the first half of 2013, as the Japanese economy is expected to recover toward the end of this year. The increase in imports will likely remain modest, however, due to the declining price competitiveness of Chinese products caused by the weak yen. Considering the above, Japan-China trade throughout 2013 is expected to decrease in comparison to that of 2012. The deficit rate will likely increase even further to exceed the US$44.3 billion of 2012 and reach a record high.

EXPORTS:
1.Considering that government-led investment demand in China seems to be limited, Japanese exports related to infrastructure investment such as construction and mining machinery are expected to remain stagnant. Moreover, industrial production in China is expected to grow at a sluggish pace and local procurement is likely to further expand. Therefore, exports of facility machinery, components and raw materials, which are used for production of finished goods in China, will continue to decline or level off.

2.Due to a slowdown in the Chinese consumer market, growth of consumer product exports centering on single-lens reflex digital cameras is expected be slow. The rate of decline of automobile and automobile component exports, which drastically fell due to demonstrations, is expected to drop compared to the previous year. However, with the decreasing sales volume of Japanese automobiles in China and advancement in local production, the exports are expected to decline.

3.If the weak yen continues, the price competitiveness of Japanese products will relatively rise in the Chinese market, and that may possibly boost exports of main items such as electronic parts and automobile components to China.


IMPORTS:
1.Imports of communication devices are likely to see continuous growth with strong domestic demand for smart phones although the speed of its expansion is expected to be slow compared to recent years. The production shift of automobile components to China may facilitate an increase in imports of those from China.

2.Japan’s demand for imports from China are expected to increase backed by Japan’s economic recovery. On the other hand, there is a possibility that rising import cost due to the declining price competitiveness of Chinese products, centering on manufactured goods such as iron and steel, raw materials such as chemical products and intermediate goods, caused by the weak yen may have a negative impact on the imports.

*On a yen-basis, figures of Japan’s total trade with China rose by 6.1% to 13.9 trillion yen, with imports rising 11.4% to 8.1 trillion yen and exports declining 0.6% to 5.8 trillion yen. From the April 1996 reports, the Finance Ministry began releasing trade statistics figures only in yen. Since then, JETRO has converted yen-denominated trade figures to US dollars, based on the rates posted by the Ministry.
According to the Ministry, as the currency of settlement for Japan’s exports to Asia in the first half of 2013, the US dollar, Japanese yen and Chinese yuan account for respectively 54.4%, 42.0% and 0.8%, while the figures reach 73.1%, 24.8% and 0.5% for Japan’s imports from Asia. The US dollar is the most-used currency for trade settlement.

For more information, please contact:

China and North Asia Division
Contact person: Mr. Kenji Shimizu or Mr. Mitsuhiro Kawano
Tel:+81-(0)3-3582-5181
E-mail: org@jetro.go.jp