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Commentary by an Expert: China Not Blamed for Japan's Aggravated Deflation
2004/05/22

  

       On January 28, the Japanese Yomiuri Shimbun published an article entitled "China's Growing Exports Aggravate Japan's Deflation". While noting that in 2002 China surpassed the United States for the first time to become Japan's top commodity exporter, it quotes some domestic comments claiming that China's export of large quantities of low-cost commodities to Japan has, to a certain extent, aggravated its deflation.

       The article also has quoted the remarks of all official from the Japanese Ministry of Finance, who claimed that the exchange rate of the Renminbi (RMB) is much lower than its real circulation capacity, and that the growth of China's export is equivalent to exporting deflation to other countries.

       Chen Hong, research fellow with the World Economy and Politics Research Institute under the China Academy of Social Sciences, pointed out that as Japan's import trade takes up a small share of the GDP, its impact on the country's economy is quite limited. The export trade of China accounts for 20 percent of its GDP, while that of Japan makes up less than 10 percent of its GDP and the rate of imports is even lower. Japan's imports from China only account for 16 percent of its total import volume. Even if Japan's total imports are from China, the low rate is still not enough to affect Japan's domestic economy.

       Further more, Chen noted, the foreign trade relationship between Japan and China and Southeast Asian countries is quite special. A considerable part of the exports of China and Southeast Asian countries to Japan are primary products, such as raw materials, components and parts, which are processed into high-grade products to be exported to the United States and the European market. The United States is Japan's largest importer, and its economic recession has exerted the greatest influence on the Japanese economy. China's export to Japan is a component part of Japan's export trade. Japan's economic and consumption slump does not lie in the amount of imports from China, but in the amount of exports to the United States.

       In addition, the grade of competition between the export commodities of China and Japan are varied. The export of ordinary machine-building products is divided into three grades. China's exports with competitive advantages are machine-building products with a low technological level such as components and parts, and low-grade products of auto, household electrical appliances and electronic industries. The United States and Germany possess the sophisticated technology and are the main exporters of the products of these industries, including astronautical and aeronautical products, precision components and parts and precision machine tools. Japan mainly exports products with an upper-middle technological level. Hence, the increased exports of China to Japan do not compete with the latter's domestic and export commodities.

       According to the 2002 foreign trade statistics released by the Japanese Ministry of Finance, among the total commodities imported 'by Japan from China, fish, other aquatic products and manufactured goods recorded the highest growth rate. The statistics noted that one of the reasons for the rapid growth of China's exports to Japan in 2002 was that China imported raw materials and semi-finished products from Japan and then exported the processed goods to Japan. This indicates that, to a great extent, China's benefit from exports to Japan is limited to incomes from low processing fees.

       The root cause for the deflation in Japan is its sluggish economy, argued Chen. To reduce Japan's deflation pressure, it is necessary to undertake structural readjustment and industrial upgrading. The view that attributes Japan's deflation to the growth of China's exports is not new. If it is advanced by Japanese government officials, a certain political aim may be involved, said Chen. By putting the blame on China, they attempted to make China a scapegoat for their policy errors.

       China should deal with similar views in Japan, the United States and other countries cold-mindedly, said Chen. On the one hand, China should feel proud, as it has seized the spotlight worldwide following the development of its economy and the enhancement of its national strength. The Chinese economy is drawing increasingly extensive attention, no matter what attempts the watchers harbor. On the other hand, China should be clearly aware of the fact that its economic strength is still quite limited and has not yet reached the extent of affecting the economies of other countries. China's industrial structure and export products also face the pressure of upgrading, and most export commodities are labor-intensive products with a low technological level and poor profits. At present, it is imperative for China to continuously enlarge its domestic demand and maintain the steady growth of its economy. "It is of primary importance to develop our own economy."


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