SINGAPORE – Japan’s automobile industry will shrink in the long run due to fierce competition from China, the World Bank said in a report released Thursday.
“Our analysis projects a contraction of automobile production in Japan and the newly industrializing economies,” the World Bank said in its report “East Asia Integrates.”
The 264-page report released by the World Bank’s Singapore office says China’s current plan to restructure its auto industry following its 2001 accession to the World Trade Organization is expected to make it a more efficient assembler of vehicles and eventually an exporter, leading to a contraction in production in other newly industrializing economies of the region as well as Japan.
“This prospect could provoke a major reorganization of the industry across the region,” it says.
In addition, the report says China will also make inroads into Japan’s position as a key center of production-sharing operations in East Asia.
It notes that although Japan will maintain its position as a hub, originating about one-third of all regional exports of components for assembly, “China is finding niches,” with its exports of parts and components rising by almost $20 billion from 1996 to 2001.
Another sector to be hard hit is the textile and apparel industry. It says the garment industries in Japan, Taiwan, South Korea and Hong Kong “will be squeezed,” especially in the North America and European Union markets.
The report says the abolition of import quotas on Chinese textiles and apparel in key markets in 2005 will make China a formidable competitor.
It says the growth of these countries’ textile exports to India and Southeast Asia, including to Vietnam and the Philippines, are also expected to drop as their garment industries are also hit by competition from China in third markets.
However, the report also says that a major impact of China’s entry into the WTO is that China will become a more attractive location for Japanese investments, mainly because “some of the concerns about China’s weak legal and administrative environment for foreign investment are likely to be addressed in line with WTO accession.”
It says that overall, the industrialized and newly industrialized economies in East Asia will benefit from China’s accession to the WTO.
The report does not take into account the expected impact of the SARS epidemic.
“We are currently viewing SARS as a temporary shock whose impact has been more on the demand side and therefore affected service, tourism, retail,” said Homi Kharas, the World Bank’s chief economist. “But it’s much too early to think whether SARS has affected supply-side and investment decisions.
“Right now, that impact would be quite small compared with the demand-side impact.”
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