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Japan: Why not in China?



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Code : ITF0011

Year :
2004

Industry : General Business

Region : :China japan

Teaching Note:Not Available

Structured Assignment : Not Available

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Introduction: Japan and China are two of the biggest economies in Asia. Even as there are signs that Japan, the second largest economy in the world, is coming over its decade long recession in 2003 Ė its real GDP grew by 6.4%in the last quarter of 2003, surpassing the U.S rate of 4.1%in the same period, China has emerged as an important economic partner for Japan. In 2003, Japanís trade with China accounted for nearly 70% of Japanís growth in exports1 . Japanese exports to China in 2003 increased 44% to $57.2 billion over 2002, the first time that Japanís exports to China were greater than those to the U.S. China was Japanís second largest trade partner in 2003 behind only to the U.S, while Japan was the biggest trade partner of China. Japan was also themain source nation fromwhichChina absorbed foreign investment and new technologies. Japan has also been the biggest provider of governmental loan and gratuitous assistance to China2 . While China has abundant low cost labour, and a huge purchasing potential given the rising income levels (up 6.4% in 2002) among its 1.2 billion consumers, Japan has the capital, technology, and an extensive distribution networks. However, in 1999-2001, China accounted for only 3% of Japanese Foreign Direct Investment (FDI), and little over 4%in 20023 . Even though, historical and political relations between the two countries have impinged on their economic relations, there is little rationale in Japan limiting its investments in China given that the resources between the two countries are largely complementary and Japan could have made substantial gains from China by using it as a global production platform.

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