Agence France Presse

Tokyo, January 30:

Political ties between Japan and China have cooled to a new chill as the increasingly confident countries wrangle over their past and scarce energy resources, but their economic relations have grown hotter than ever. China replaced the United States as Japan’s biggest trading partner for the first time in 2004, a sign of Beijing’s expanding presence in the global economy which is too strong an allure to be set back by politics. With its massive labor force and expanding consumer market, China has become the main assembly center for a growing number of Japanese firms, including many whose goods are ultimately destined for third countries. The trend makes China indispensable to Japan’s recovering economy, meaning that any political obstacles to trade would come at Tokyo’s own peril, analysts said. “China’s influence on the Japanese economy is getting bigger. Our trade relations with China are so closely linked and interdependent,” said Yoshimasa Maruyama, economist at Mizuho Research Institute. Japan’s trade with China, including Hong Kong, reached 22.2 trillion yen ($214 billion) in 2004, outpacing the 20.5 trillion yen with the US, according to figures from the finance ministry. The number of Japanese firms registered in China stood at 16,236 in 2002, up 65 per cent from 9,840 in 1994, said Japan External Trade Organization, the state-backed trade promotion body. “Japanese manufacturers are shifting production to China to take advantage of cheap labor costs while strengthening their global competitiveness,” said Tomomichi Akuta, senior economist at UFJ Institute Ltd. Japanese firms are also shipping tons of quality auto, hi-tech and other industrial parts to China as the goods are not locally procurable. Of Japan’s overall exports to China last year, electrical products, including semiconductor parts, accounted for 26.3 percent at 2.1 trillion yen in 2004, up 12 percent year-on-year.

Sony Computer Entertainment Inc., for example, used to make its popular game console PlayStation II in Japan but the bulk of the production is now in China, with the company using its home base only for the game machine’s important semiconductor chips.

“We started shifting production to China in the spring of 2002 and completed that process in the summer of 2003. The move was to cut production costs and it was a big plus for us,” said company spokesman Daisuke Nakada.

Fuji Xerox Co. Ltd. said it would transfer 90 percent of its copy machine production to China by the end of 2006. Sales of copy machines account for 65 percent of the company’s total revenue.