The Hindu Business Line : How Japan has benefited from China's growth

Best indicator
Between 1994 and 2004, while India's exports to the US grew by 12.5 per cent, its exports to China grew by a massive 50.12 per cent.
Asian countries that can leverage from China's growth would emerge clear winners

Chennai , July 1

Chinese goods are able to compete in global markets more because of improved productivity than lower wages, and have transformed China into the "export platform" of a pan-Asian supply chain.

As Chinese exports have accelerated, they have, in a chain effect, also "accelerated the process of Asia's economic integration. China now imports massively from the rest of Asia and beyond raw materials and intermediary components, and exports the finished products to the global markets."

These are the findings of a survey done for MasterCard International by a panel of economists led by Dr Yuwa Hedrick-Wong, that was released in Singapore recently.

BEST INDICATOR

He said the best indicator of the emergence of a pan-Asia supply chain with China as the hub can be seen in the region's export growth to China versus the US in the decade beginning 1994. Between 1994 and 2004, while India's exports to the US grew by 12.5 per cent, its exports to China grew by a massive 50.12 per cent.

Bigger beneficiaries were Taiwan (1.26 per cent to the US versus 75.86 per cent to China); Thailand (6.17 per cent- 32.33 per cent); Japan (2.09 per cent - 16.6 per cent); and Korea (7.02 per cent - 30.66 per cent).

As China sucks in the region's products, both for domestic consumption and exports, its trade deficit with regional countries, except India, is increasing. Between 1999 and 2003, Korea's trade balance with China was a surplus of $68 billion, that of Japan $19 billion, Malaysia and Russia $20 billion each and Thailand $13 billion. But in the same period India had a net trade deficit of $0.2 billion with China.

Clear winners

Dr Yuwa said Asian countries that can leverage from China's growth would emerge clear winners. Japan was already doing so, and had become a major beneficiary of regional integration and the rise of the China market. A fascinating aspect of the MasterCard survey is insight into how Japan has managed to leverage the China factor. "Today, there is not a single Toshiba TV set that is being manufactured in Japan; the Toshiba Corporation's entire TV production is based in China," he said.

ENGINE OF RECOVERY

Exports to China, the key driver of Japan's export growth in recent years, had turned out to be "the real engine of its sustained recovery. It has been estimated that exports to China accounted for 80 per cent of Japan's export growth in 2003; from 2001 to 2004, exports to China contributed about one-quarter of Japan's total GDP growth."

Suggesting that the label "Made in Japan" be replaced by `Made by Japan in China', the economist said that the Japanese corporate sector had shown how economic recovery could be driven without Government assistance and through the corporate profits route.

He said between 2001-03, the profit of Japan's listed companies rose by 71 per cent, with their collective turnover having increased by only 2 per cent.

"They have become truly lean and mean - a far cry from the corporate inefficiencies of the 1990s."

Japanese companies leveraged the China market both as a destination for exports and a lower-cost production base for global exports.

"It has been estimated that about a third of Japan's exports to China are related to Japanese exports to the US from China," added Dr Yuwa.

Advances in IT

Today businesses from different countries can drive such trends, supported by Government action in market liberalisation and tariff reduction, thanks to rapid advances in IT and software "that allow them to seamlessly manage highly complex multi-centre and multi-country operations. In this regard, India's rising role as the IT and software powerhouse is indispensable," said Dr Yuwa.

Hub of supply chain

He said successful businesses were those that could leverage efficient supply chains on a global basis, as is happening in the pan-Asia supply chain of which China is the hub.

Companies that can form synergies and joint ventures, quickly outsource to others who can do better what once was their internal functions, will emerge winners.

Nike shoes

Pointing out that all Nike shoes are manufactured by sub-contractors, the report says: "Companies like Nike have become like symphony conductors: they coordinate the activities of the musicians (sub-contractors) to create good music (quality products sold under an established brand) without themselves playing a single musical instrument (without owning a single factory).

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