Business / Economy

Japan keeping wary eye on impact from slowing China economy, white paper says

Kyodo, JIJI

Japan is on the lookout for any negative impacts the slowing Chinese economy and U.S.-China trade tensions are having on its economic recovery, a government report said Tuesday.

China’s slowdown has already impacted Japanese domestic production and exports to the world’s second-largest economy, according to the white paper on the economy and finances for fiscal 2019.

China, hit by contracting demand for smartphone parts, remains in a trade dispute with the United States and the spat between the world’s two biggest economies is threatening to curb global growth, the annual paper said.

“Special attention should be paid to uncertainties over overseas economic policies and situations, including the slowing Chinese economy, the impact of U.S.-China trade issues and Britain’s (planned) exit from the European Union,” it said.

In an economic assessment earlier this year, the government said that the world’s third-largest economy was likely in the midst of its longest expansion phase since the end of World War II, on the back of improving labor and wage conditions. But the white paper made no reference to that view.

The paper recommended that Japan should improve productivity to raise wages and address its serious labor shortage, steps that should both help boost consumer spending.

In April, the government went some way to dealing with the labor issue by introducing new visa statuses to allow companies to hire more foreign workers. It is also seeking to increase women’s participation in the labor market, and is encouraging elderly people to remain in the workforce.

Japan’s ingrained work culture and employment system, which includes excessive working hours and a seniority-based salary system, should be reviewed to attract more foreign workers, the paper said.

As the consumption tax is scheduled to be raised from the current 8 percent to 10 percent in October, the report said it is imperative to closely monitor what impact the tax increase will have on household income and spending — key pillars of domestic demand.

Given that spending by people in the 39 and younger age bracket remains weak, raising their salaries and increasing opportunities to spend more money by reducing long working hours are also necessary to spark consumption, it said.

The fiscal 2019 edition of the Annual Report on the Japanese Economy and Public Finance was submitted by economic revitalization minister Toshimitsu Motegi to a Cabinet meeting the same day.

The annual report also highlighted the need to pay attention to the effects that future developments in the Chinese economy may have on production and exports including those of information-related equipment and machine tools, both of which are becoming increasingly dependent on China.

According to the report, the rate of dependence on China’s final demand reflected in production value in 2015 stood at 14.4 percent for the information and communications equipment sector and 10.2 percent for electrical machinery, including semiconductors, with both doubling from the levels seen in 2005.

The rate for chipmaking equipment and other general machinery also doubled, to 9.7 percent.

Of some $2 trillion in industrial goods exported by China in 2015, $34.6 billion was added value created by Japan through exports of parts to the neighboring country, the report said.

If the United States imposes additional tariffs on Chinese products, the move may have a negative effect on Japan through the supply chain due to an expected drop in exports from China, the report warned.

It, however, noted that the Japanese economy itself is expected to continue recovering moderately, led by domestic demand.

Learning lessons from a last-minute rise and subsequent fall in consumption that occurred before and after Japan raised the consumption tax rate from 5 percent to 8 percent in April 2014, the report stressed that it is important for the government to level off consumption around the time of a planned consumption tax increase from 8 percent to 10 percent in October.