“Special Procurement Demand in China” and its Influence Upon the Japanese Economy

|China

After the war, “special procurement demand” that was linked with China either directly or indirectly and had a significant influence on Japanese business trends arose on three occasions: “Korean special procurement demand”, which was generated by the Korean War (China and the US were the major opponents) in the 1950s, “Vietnamese special procurement demand”, which was generated by the escalation of the Vietnam War (China provided backing for Vietnam, the opponent of the US) in the 1970s, and “Chinese special procurement demand” arising from the renewed economic expansion in China in the early 21st century.

Unlike the previous two forms of special procurement demand, “Chinese special procurement demand”, which has been ongoing since 2003, is not “special procurement demand generated by war” but “special procurement demand generated by peace”, resulting from the peaceful rise of China. This “Chinese special procurement demand” has become a major force driving economic recovery in Japan, thereby benefiting many Japanese companies.

“Chinese Special Procurement Demand” to Continue up to 2010

It is generally believed that active domestic demand will last until the 2008 Olympic Games in Beijing and Expo 2010 in Shanghai, with high economic growth and a rapid rise in people’s standards of living. “Chinese special procurement demand” is mainly generated in the following two fields.

Firstly, there is the field of infrastructure-related public works projects. China will see a succession of large-scale projects being planned and constructed up to 2010. Total investment in infrastructure alone will climb to more than $2 trillion, with investment in just 17 infrastructure mega-projects, including the Beijing Olympics and the Shanghai Expo, forecast to account for $500 billion of this; Japanese companies should benefit considerably from this massive “Chinese special procurement demand”.

Secondly, there is special procurement demand in the field of personal consumption. Taking into consideration the two factors of high economic growth and the appreciation of the yuan, the outlook for per capita GDP suggests a rise from $1,090 in 2003 to $2,000 in 2010. It is expected that the increased affluence of the people will bring about a rapid expansion of personal consumption, symbolized by a boom in the “3Ms”: “my car” (ownership of a car), “my home” (ownership of a house) and a mobile phone.

China is the Real Power Behind Japan’s Economic Recovery

A recovery in the Japanese economy has been underway since last year, but the main force that has supported this recovery behind the scenes is actually Chinese special procurement demand.

According to trade statistics released by the Ministry of Finance, Japan’s total exports increased by 4.7% on a yen basis in 2003 (exports to the US decreased by 9.8%), with exports to China experiencing a record 33.3% increase compared with the previous year (43.6% on a dollar basis). Of the 2.4533 trillion yen increase in total Japanese exports, 1.658 trillion yen was accounted for by exports to China, a share of 67.6%. If we include the increase in exports to Hong Kong (280.2 billion yen), about 80% of the total increase is accounted for by China.

In addition, if we look at the interim results of listed companies in the period to March 2004, we find that most of the industrial sectors that performed well are in fact heavily involved in China’s economic expansion. Sectors such as iron and steel, machine tools, construction machinery, petrochemical products and marine transport have experienced marked increases in both sales and profits, supported by active demand in China, which is undergoing rapid economic growth.

In short, the time when all Japan had to do was focus on the US economy alone is definitely over; a new age has arrived, in which economic trends and industrial development cannot be discussed without mentioning the Chinese market.

From “the World’s Factory” to “a Vast Market”

China is transforming itself from “the world’s factory” into “a vast market”.

Looking at imports, the scale of the Chinese market has clearly been expanding rapidly. Imports, which totaled $295 billion (no. 6 in the world) in 2002, have increased by 39.9% to $412.8 billion, overtaking France, Japan and the UK at a stroke to become third in the world after the US and Germany. The prospect of China eclipsing Germany and surging into second place in the world is coming into view.

Looking at imports, the scale of the Chinese market has clearly been expanding rapidly. Imports, which totaled $295 billion (no. 6 in the world) in 2002, have increased by 39.9% to $412.8 billion, overtaking France, Japan and the UK at a stroke to become third in the world after the US and Germany. The prospect of China eclipsing Germany and surging into second place in the world is coming into view.

Countries such as Japan, the US and Europe will compete in order to secure a share of this $4 trillion pie that is “Chinese special demand”. How to obtain a bigger share of this vast pie is a key issue for Japanese companies and one that will influence the state of Japan’s economy.

[Translated by ERINA]