• Kyodo News

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For the first time ever, China, excluding Hong Kong, displaced the United States as Japan’s biggest trading partner on an annual basis in fiscal 2006, the Finance Ministry said Wednesday.

The development, shown in the ministry’s monthly trade report, signals China’s growing clout in the global economy and the deepening economic interdependence between Japan and China.

Japan’s exports to China soared 21.2 percent to a record 11.315 trillion yen in the fiscal year, while imports from the country increased 13.0 percent to a record 14.113 trillion yen, the ministry said in a preliminary report.

“Given recent growth in Japan’s exports to China and imports from the nation, this trend will continue,” a ministry official said.

Including Hong Kong, China has been Japan’s largest trade partner since fiscal 2004.

Japanese companies have been shifting production to China in recent years, hoping to take advantage of the cheap labor and to establish a strong foothold in the rapidly growing Chinese economy.

The two economies have also strong links through direct investment.

The nation’s customs-cleared trade surplus widened 16.4 percent in fiscal 2006 from the previous year to 9.054 trillion yen, following a 31.4 percent fall in fiscal 2005, the ministry said.

Exports grew 13.4 percent to a record 77.461 trillion yen and imports gained 13 percent to 68.407 trillion yen, another record-high figure, according to the ministry.

Japan’s trade surplus with the United States rose 13.5 percent to 9.096 trillion yen in fiscal 2006, the second-largest-ever level. The largest surplus, 9.666 trillion yen, was logged in fiscal 1985.

But the ministry official brushed aside concern that the nation’s huge trade surplus could become a fresh source of friction between Tokyo and Washington.

“The U.S. trade deficit with Japan is the third-largest after that with China and the European Union, while Japan’s surplus (with the United States) was the largest in fiscal 1985,” he said. “So we assume that our trade surplus would not be so outstanding and would not have much repercussions.”

In March alone, the nation’s trade surplus surged 73.9 percent from a year earlier to 1.634 trillion yen.

Exports in the month climbed 10.2 percent to 7.511 trillion yen, while imports were flat at 5.878 trillion yen, the ministry said.

The trade data are measured on a customs-cleared basis before adjustment for seasonal factors.

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