Japanese Industry Holds Dueling Views of China
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Economic Relationship Presents
Opportunity, Market Challenges
By TODD ZAUN and SEBASTIAN MOFFETT
Staff Reporters of THE WALL STREET JOURNAL
TOKYO -- When a group of Japanese towel makers lobbied their government two years ago to curb imports from China, Toshihiro Yagi, president of closely held towel maker Toyo Teri, refused to go along.
Instead, Mr. Yagi tendered his resignation to the towel makers trade group and led a smaller group of manufacturers in demonstrations against import restrictions. Mr. Yagi saw the threat from China coming years earlier and set up a factory there in 1991, so any sanctions on imports from China would hurt his business. He argued that instead of seeking government protection, more Japanese towel makers should do as his company did and take advantage of China's less expensive labor to expand globally.
"To me, China is an attractive place because if you go to China, you see the whole world, including China, Japan, the U.S. and Europe, as one market, while if you stay in Japan, Japan will be the only market for you," he says.
The ambivalence of Japanese towel makers toward China epitomizes Japan's broader economic relationship with its biggest Asian neighbor. For every politician or industry group arguing that China is a threat, there seems to be another making the case that China's growing economic power is a huge opportunity for Japanese companies.
While farmers and textile makers complain that Chinese competition is driving them out of business, Japanese car makers and clothing retailers say their operations in China are their most promising areas of growth. Increasingly, Japan's China-bashers are being drowned out by voices of those with China fever.
That isn't to say there aren't plenty of people who still see China as a threat. Haruhiko Kuroda, a former high-ranking Finance Ministry official and an adviser to Prime Minister Junichiro Koizumi, has argued that a flood of cheap Chinese products is eroding prices, thereby contributing to Japan's deflation problem. Persistently falling prices constitute an important factor in Japan's inability to pull out of its long economic slump. Leaders of Japan's ruling party have called for a revaluation of the yuan, which would reduce China's currency advantage, to stem the flow of cheap imports into Japan.
Others in Japan worry that low-cost Chinese factories are sucking production away. China is the world's top producer of many electronics products, making 40% of DVD players in 2001, compared with 20% for consumer-electronics powerhouse Japan, according to Nihon Keizai Shimbun. Though Japan's main source of growth is exports, a 2002 book called "The Day When China Overtakes Japan," fretted that Japan's notorious trade surplus might disappear by 2004. "It's hard for exports to grow because of the increase in competing products from China and other parts of Asia," lamented the book's introduction.
But a growing band of economists say such talk is alarmist -- and wrong.
First, while Chinese exports are growing, much of the trade is driven by Japanese companies which, like Mr. Yagi's, have shifted some production to China to cut costs and boost profits. Takamoto Suzuki, an economist at the UFJ Institute, a Tokyo think tank, estimates that 60% of trade between Japan and China is conducted by Japanese companies.
In addition, economists say, the two countries have completely different industrial strengths: China provides inexpensive labor and its products compete largely on price; Japan boasts leading-edge technology. By comparing the value of exports to the U.S. within various product categories, such as TV sets, Japan and China only compete in 16% of product categories, says C.H. Kwan, an economist at the Research Institute of Economy, Trade and Industry, a government-affiliated think tank in Tokyo. That compares to 37% for South Korea's overlap with China, and 83% for Indonesia. Japan's relations with China "are complementary," Dr. Kwan says.
That presents an opportunity for Japan to do what economists have long been imploring: farm out simpler manufacturing tasks and focus on higher-value-added operations. Japan's world-class electronics and auto companies have been relocating production to China for years; Honda Motor Co. plans to make cars in China for world-wide export.
However, much Japanese industry remains instinctively loath to give up manufacturing, which was long a source of national pride and strength. That is especially true in the country's inefficient industries, which cater to the domestic market and cling to the protection of trade barriers.
Over the past couple of years, trade spats have erupted over leeks, mushrooms and neckties, as Japanese farmers and apparel makers feared that Chinese competitors would price them out of business. Mr. Yagi, the towel maker, works in such an industry, but he saw China as an opportunity: a source of less-expensive labor to help expand his business. He sells about half his towels outside Japan.
"The reallocation of labor-intensive manufacturing causes pain," says Tatha Ghose, global economist at Dresdner Kleinwort Wasserstein. "But it's healthy. Japan has learned to take advantage of China."
--Miho Inada contributed to this article
Write to Todd Zaun at todd.zaun@wsj.com and Sebastian Moffett at sebastian.moffett@wsj.com |
