How strong is China's "presence" for the Japanese economy?
The "2021 World Economic Trend" report released by the Japanese Cabinet Office recently explained how dependent Japan is on Chinese manufacturing with intuitive data.
The report uses pre-pandemic data from 2019 as an example to compare the structure of trade between major countries and China. The results show that Japan imports more goods from China than the United States and Germany. The report pointed out that among about 5,000 import categories, China's share (in terms of amount) exceeded 50%, Japan had 1133 (23.0%), the United States and Germany had 590 (18.1%) and 250 (8.5%) respectively.
A Chinese who has lived in Japan for many years told First Finance that there are too many Japanese friends who use Chinese electronic products, from Huawei and Xiaomi's mobile phones to Lenovo's computers. Not only a variety of physical products, but also more and more services and cultural and creative products launched in China have gradually penetrated into the Japanese market. "TikTok (Douyin Short Video Overseas Edition) has become even more popular among young people in Japan in the past two years." He said.
At the same time, China, which has recovered rapidly after the epidemic, has also imported a large number of industrial products such as non-ferrous metals, automobiles and plastics from Japan. From the past When Chinese tourists "bought" Japan, to today's more and more Chinese goods selling well in Japan, the Chinese and Japanese markets are more and more deeply tied. "Distance, consumption habits and even culture are all easily grasped by (Chinese) domestic sellers." said the above-mentioned Chinese.
These goods originate in China
The report argues that China's role in global value chains has changed as economic growth has taken place. From the perspective of imports from the United States, Germany and Japan, from 2009 to 2019, China's share in the number of imported products in various countries has hardly changed. Germany, for example, imported 9% of its total imports from China in 2009, and 10 years later, this percentage is about 8.5%, while Japan's share of imports from China has risen slightly, from 22.4% in 2009 to 23.3% in 2019.
So, which products that are closely related to the lives of Japanese people originate in China? The report takes the data of 2019 as an example, almost 99% of the laptops and desktops in the Japanese market that year originated from China; the proportion of mobile phone imports from China in that year was as high as 86%, a significant increase from 69% in 2009; computer spare parts imported from the Chinese market accounted for about 62%. Compared with these high-tech products, the dependence of clothing, shoes, etc. on Chinese manufacturing has decreased significantly in 2019 compared with 2009, to about 50%.
The above-mentioned Chinese also said that in addition to representative electronic products, in fact, in recent years, China's independent research and development of mobile games, Chinese brand clothing, as well as Alipay and shared bicycles that have become popular in China, have "conquered" the Japanese market and become the hot favorite of Japanese young people.
Not only imports, but also the Chinese market is also an export market that should not be underestimated by various industries in Japan. According to the latest data released by Japan's Ministry of Agriculture, Forestry and Fisheries, in 2021, Japan's agricultural exports rose by 25% from the previous year, exceeding one trillion yen for the first time, reaching 1.24 trillion yen (about 10.8 billion US dollars). Among export destinations, Chinese mainland ranked first with a market share of US$1.9 billion, followed by Hong Kong and the United States with exports of US$1.46 billion each. Therefore, on the whole, more than 1/3 of Japan's agricultural and aquatic products exports go to the Chinese market.
Japan's Ministry of Agriculture, Forestry and Fisheries believes that when the global epidemic was still fluctuating last year, the surge in Japan's agricultural exports was due to the Chinese market taking the lead in controlling the epidemic, and the demand of China's catering industry in the economic recovery stage was caused.
Cross-border e-commerce has helped China and Japan to accelerate import and export trade, and has also welcomed more and more participants. This year, Japan Airlines will also open up new businesses, using the social software "WeChat", which is most familiar to Chinese consumers, to provide a package of services such as listing and delivery for Japanese companies interested in selling goods in the Chinese market, and enter China's cross-border e-commerce market.
Southeast Asia "looks beautiful"
The report of the Cabinet Office of Japan pointed out that regardless of the country, there are many cases of imported products concentrated in China. But the report also issues a "soul torture question": When Chinese brands brush their presence in the Japanese market, is there an alternative import market in Japan? "The United States can also rely on the Canadian and Mexican markets to export a wide range of goods to it; Germany has shown a tendency to spread import demand from European countries; what about Japan?"
As early as the release of this data, the Japanese government had launched a "10 billion subsidy" program of up to 243.5 billion yen (about 13.5 billion yuan), calling on Japanese companies to reform their supply chains, such as moving back to Japan or relocating to Southeast Asia. However, the number of Japanese companies responding is very limited.
PwC China International Tax Partner Li Zicong told First Finance that the Japanese manufacturing sector moved part of its production capacity to Southeast Asian countries back four or five years ago, when most Japanese companies already had a "China +1" strategy, migrating some relatively low-end production lines to Southeast Asian countries, using local low-cost labor, "but in fact, over the years, the local development of Japanese companies in Southeast Asia after the relocation is also mixed."
For example, he said, some Japanese companies have found that the technical skills of local employees in Southeast Asia are not as good as those of Chinese employees. "For example, the production cost of Vietnamese enterprises may be 1/3 of that of the domestic one, but at present, China's labor force may have an advantage of 8 times that of vietnamese labor force in terms of output capacity, so the actual cost of adjusting the supply chain of enterprises to Southeast Asia is not necessarily really low."
In Li Zicong's view, judging the so-called production costs must not look at the absolute production costs, but look at the actual output power brought by local employees.
Last year, Japan's Rorze, which has long been engaged in the manufacture of semiconductor wafer transmission equipment, adjusted its overseas strategy and prepared to relocate its production base in Vietnam, which has been concentrated in recent years, to China. According to the company's plan, in fiscal 2022, the company plans to use leased factories in China to further promote mass production to meet the needs of users around the world.
According to Japanese media reports, the reason why Rorze chose the Vietnamese market in the first place was to value its low-cost labor. But the outbreak has disrupted businesses' plans. The continued spread of the epidemic in the local area has caused intermittent production in the company's factories in Vietnam. Therefore, in the context of the still severe global epidemic situation, countries with better epidemic prevention situations have obviously become "fragrant food". To this end, Rorze's subsidiary in China last year strengthened the construction of the workshop, and then adjusted and put into production according to the customer's requirements. Stable and continuous production capacity means lower costs and greater market share for growing companies. According to reports, Rorze's plan is to make two preparations: on the one hand, to build a new factory in Vietnam, and on the other hand, to establish a medium- and long-term industrial base in China.
Gone are the days of low labor costs
Over the years of deep cultivation in the Chinese market, the focus of the Chinese market's attraction to Japanese companies is also changing. PwC's previously released "2021 Japanese Enterprise Development Survey In China" pointed out that the number of Japanese companies in China has remained basically stable in the past five years. Even in 2020, when it was deeply affected by the epidemic, statistics showed that the number of Japanese companies in China exceeded 33,000, the highest in five years. From the perspective of business environment, Japanese companies are generally satisfied with the treatment and operating environment in China. According to the report, 65% of the companies surveyed believe that they enjoy the same or better treatment as domestic enterprises.
For the Japanese companies surveyed, low labor costs are no longer the primary factor for Japanese companies to develop in China, and only 21% of the surveyed companies agree with this proportion. On the contrary, 87% value the potential of China's huge consumer market. Among them, the integrity of the industrial chain, supporting measures for new business development, logistics convenience and financial subsidies are the top four important factors to consider when Japanese companies expand their investment in China in the future.
Junichi Sugawara, a senior researcher at The Mizuho Research Institute in Japan, previously said in an interview with the first financial reporter that a fact that cannot be ignored is that Japan is becoming more and more dependent on China in terms of industry. While diversifying their industrial chains, Japanese companies must also realize that in the future, they cannot only regard China as an export processing base, but more importantly, a market, a market for consuming the products produced by these enterprises.
He said that with the Regional Comprehensive Economic Partnership (RCEP) entering into force on January 1, China and Japan have reached a bilateral tariff concession arrangement for the first time, and more goods will flow more smoothly between the two countries in the future.
The Blue Book of the Japanese Economy also believes that Japan's positioning of the Chinese market has gradually shifted from a processing and manufacturing center and an export base to a consumption center. Judging from the data, bilateral trade between China and Japan is likely to decrease, because part of the supply chain is no longer completed through trade between countries, but the economic ties between China and Japan will not weaken.
According to data from the General Administration of Customs of China, in 2021, the total trade in goods between China and Japan reached a record high of US$371.4 billion. China has been Japan's largest trading partner in recent years, and Japan is China's fourth-largest trading partner after ASEAN, the European Union and the United States.