[2024 Financial Forum] Japanese Companies Say "Most Important Export Market is the US"

13th Asia Financial Forum
"Japanese Companies Prefer the US as an Export Market to Diversify Risks"
Japanese Companies Overseas Maintain Rather Than Expand Business in China

Ito Hirotoshi, Director of the International Economy Division at the Japan External Trade Organization, is attending the '2024 Asia Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul, giving a lecture on the topic of 'Trends in Japan's Trade, Investment, and Supply Chains.' Photo by Kang Jin-hyung aymsdream@

"In a survey conducted last year by JETRO, Japanese companies identified the United States as their most important export destination. For the first time in 2023, the US surpassed China."

Hirotoshi Ito, Director of the International Economy Division at the Japan External Trade Organization (JETRO), said this on the morning of the 9th at the Westin Chosun Hotel in Jung-gu, Seoul, during the '13th Asia Financial Forum.' He analyzed that as industrial competition accompanied by subsidies intensifies globally and nationalist policies are introduced, Japanese companies have come to prefer the US over China as an export destination to diversify risks. Director Ito participated in Session 1 of the forum and presented on 'Trends in Japan's Trade, Investment, and Supply Chains.'

Director Ito noted that global trade has been slowing down recently and that Japan's trade patterns are also changing. He said, "Recently, the global GDP growth rate and trade growth rate have been almost the same, or trade growth has been lower than GDP growth," adding, "Over the past two years, global trade has become fragmented, with active trade occurring mainly among countries sharing similar political colors."

He emphasized that global investment trends are shifting significantly around semiconductors. He stated, "Before COVID-19, more than half of semiconductor investments were directed to China," and "After COVID-19, the US, Germany, and Japan have become the main global destinations for semiconductor investments." This means Japan has taken on a more important position in semiconductor investment than in the past.

He also mentioned that China has been aggressively increasing imports of semiconductor manufacturing equipment recently. Director Ito said, "The top five importers of semiconductor equipment are China, the EU, South Korea, Taiwan, and the US," and "As of the second half of last year, only China has been increasing its imports of semiconductor manufacturing equipment." Regarding the reason for China's concentrated imports, he analyzed, "Before regulations by major countries like the US on semiconductor manufacturing were strengthened, China seems to have adopted a strategy of importing a large amount first and then establishing production bases."

He pointed out that subsidy competition among major countries is also intensifying. He said, "The Japanese government secured a 2 trillion yen budget for semiconductor subsidies last year," and "The Japanese government supported about half of Taiwan TSMC's $20 billion subsidy project." The US and the EU are also supporting semiconductor manufacturers through large-scale semiconductor subsidies.

Japanese Companies Prefer the US Over China as Export Destinations to Diversify Risks

Director Ito cited a survey conducted by JETRO targeting 3,000 companies headquartered in Japan (85% of which are small and medium-sized enterprises) to present the current business status of Japanese companies.

He said, "In the item asking which countries are good export destinations for Japanese companies, the US surpassed China for the first time in 2023." Among 222 companies that participated in the survey for two consecutive years, less than 60% of those who answered China last year still answered China recently. More than 40% changed their answers from China to the US, Taiwan, India, Vietnam, and others. Director Ito analyzed, "The relationship between Japanese and Chinese companies is very strong, but despite that, this result reflects companies' stance on the need to diversify risks."

When asked about promising countries for future business expansion (multiple answers allowed), India's rise was clear. Among large companies, 30% answered that India is very promising. Attention to India as an emerging market is increasing.

On the other hand, preference for expanding business in China declined. The proportion of companies planning to expand or consider expanding business in China was 26.8%, the lowest level compared to the past 10 years. Companies that said they would reduce or withdraw from Chinese business were about 7.5% and 1%, respectively. There is no trend of significantly expanding business in China, but companies show a stance of maintaining their Chinese business. Companies that said they would reduce Chinese business cited "increased geopolitical risks" as the biggest reason.

Also, 43.4% of companies answered that the recent yen depreciation has become a negative factor for Japanese export companies. Generally, yen depreciation is thought to enhance Japan's export competitiveness, but it is not necessarily having a positive effect. He said, "Interviews with companies that answered negatively revealed that they conduct trade settlements in yen, so there is no merit, and that the yen depreciation has increased import costs such as oil prices, which rather disadvantages exports."

Japanese Companies Overseas: "Chinese Business Will Be Maintained Rather Than Expanded"

Ito Hirotoshi, Director of the International Economy Division at the Japan External Trade Organization, attended the '2024 Asia Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul, and gave a lecture on the topic of 'Trends in Japan's Trade, Investment, and Supply Chains.' Photo by Kang Jinhyung aymsdream@

In a survey of Japanese companies operating overseas (7,600 companies in 83 countries), when asked about their intention to expand business at each base in the future, Japanese companies in India, Brazil, Vietnam, and South Africa showed high expansion intentions. In contrast, less than 30% of Japanese companies in China answered that they would expand. This is the first time in 20 years that China's figure has fallen below 30%. Director Ito explained, "The business outlook for China is becoming uncertain, but many still answered that they would maintain rather than reduce their Chinese business."

Director Ito pointed out, "Japanese companies face various issues such as supply chain disruption risks due to geopolitical factors, nationalist industrial policies with subsidies in various countries, labor shortages, and increased costs due to yen depreciation. How to reorganize supply chains in the future to diversify these risk factors is a new challenge for Japanese companies."