JETRO Announces that Japan's Trade with China Sets Seventh Straight Record in 2005.

Tokyo, Japan, Feb 22, 2006 - (JCN Newswire) - Japan's trade with China in 2005 surged 12.7% year-on-year to US$189 billion, setting a new record (in value terms) for the seventh year in a row, according to a report released today by the Japan External Trade Organization  (JETRO). While the overall trade figure increased, both imports and exports grew at a less robust pace in 2005, with growth figures for each at 15.7% and 8.9% respectively, down from 25.3% and 29.0% in 2004.

1. Japan's export growth to China slowed, due to sluggish demand for semiconductors and expanded local production by Japanese automakers in China Japan's exports to China increased for the seventh straight year in 2005, gaining 8.9% year-on-year to reach US$80.36 billion. The growth rate, however, slowed in 2005, due to sluggish exports in the electric and general machinery field-an area that has accounted for a large share of Japan's total exports to China in recent years. The slowdown was also the result of a weakened semiconductor market in the first half of 2005, which led to an 8.7% decline (in value) in exports of integrated circuits (the export quantity in this category, however, increased in 2005). Also, as Japanese automakers in China increased production of units for the domestic market, exports of finished automobiles from Japan to China dropped sharply, slipping 21.4% compared to last year. Exports of power generating machines (including car engines) and auto parts, however, were up 32.0% and 9.0% respectively. With facility/infrastructure investment leveling off in China, Japan's exports declined in construction machinery (down 27.5%), heating and cooling equipment (down 16.7%); and only slow growth was recorded in metal working machinery (including machine tools), which grew by 15.5% in 2005.

Overall, Japanese manufacturers operating in China, in particular makers of personal computers and digital home appliances, continued to expand their production bases in 2005. Manufacturers also aggressively increased local procurement of parts and materials, with a growing number of Japanese firms

procuring from Japan only essential items that are difficult to source locally. Due to price hikes in crude oil and other raw materials, solid growth (in value) was recorded in Japan's exports to China of plastics (up 19.1%) and steel (up 15.7%). Exports in these categories, however, declined (in volume), by 6.3% and 16.4% respectively, suggesting that Japan's exports to China would have grown even slower in 2005 in the absence of oil and raw material price hikes.

Chinese demand for made-in-Japan digital cameras and home video cameras continued to grow in 2005, accounting for the surge in Japan's exports to China of visual apparatuses (up 167.2%) and parts for audio/visual apparatuses (up 12.4%).

2. Japanese imports from China topped the US$100 billion mark, driven by growth in IT-related product demand Japanese imports from China in 2005 rose 15.7% year-on-year to US$109 billion, increasing for the seventh straight year and marking the highest figure since such statistics were first recorded in 1947. This surge was

fueled by solid growth in imports of personal computers, printers & other office equipment (up 19.0%), and digital mobile music players & other audio/visual equipment (up 28.7%), as IT-related companies completed inventory adjustments and consumer spending in Japan picked up in line with the country's strong economic turnaround. Textile imports from China grew 5.3%, helped by a spike in imports of winter clothes (from November) due to unseasonably cold weather at the end of 2005. Imports of steel, semiconductor & electronic parts and scientific/optical equipment all rose in 2005 (at 27.6%, 22.1% and 8.1% respectively), in part due to increased

imports from Japanese manufacturers in China, who have spent the last few years working to expand production capacity at their facilities there.

3. Japan's trade deficit with China grew to its highest level in 2005

Japan's trade deficit with China grew to a record US$28.66 billion in 2005, increasing for the second straight year, as Japan's imports from China grew and exports remained sluggish. Japan's largest bilateral trade deficit in 2005 was again with China.

4. China's share of Japan's total imports continued to expand in 2005

China's share of Japan's imports continued to expand across several commodity categories in 2005. Specifically, China alone accounted for more than 50% of Japan's imports of vegetables, textile products, household goods & toys, personal computers & office equipment, and audio-visual equipment & digital home appliances.

5. Japan's trade with China expected to exceed the US$200 billion mark in 2006, and set yet another record

Although some uncertainty remains over the growth of Japan's exports to China--due to increasing production capacity of manufacturers in China, in particular Japanese steel and auto makers--Japan's overall trade with China is likely to exceed the US$200 billion mark in 2006, and set a new record for the eighth straight year. On the back of a global economic upswing, Japan's exports to China in 2006 are expected to grow in the fields of electronic equipment, chemical products and precision machinery. Japan's export growth to China will also be fueled by increased shipments of high-end parts, mainly to Japanese auto manufacturers working to ramp up production in China, and surging demand for energy-saving plant and machinery, in line with China's environment policy. Japan's imports from China are also expected to show steady growth in 2006, as Japanese consumer spending is expected to remain strong, in line with Japan's continued strong economic performance. As Japanese manufacturers continue to boost production capacity in China-and increase their horizontal division of labor business model for the two countries-Japan's imports from China are expected to further increase in 2006.

*Figures are based on dollar conversions of yen-denominated statistics released by the Japan Ministry of Finance.

About Japan External Trade Organization (JETRO)

JETRO, or the Japan External Trade Organization, is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world. Originally established in 1958 to promote Japanese exports abroad, JETRO's core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small to medium size Japanese firms maximize their global export potential.

Source: Japan External Trade Organization (JETRO)

Contact:

Japan External Trade Organization (JETRO)
Public Relations Division
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