Japan Promotes Growth in an Increasingly Integrated Asia

Business/Government/Assignment Editors

NEW YORK -- July 26, 2005

The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting Japanese free trade agreement (FTA) and economic partnership agreement (EPA) negotiations, including potential discussions with Australia on the occasion of Prime Minister Howard's visit to Japan this week. It can be viewed at:

http://www.kwrintl.com/library/2005/focus40.html

A summary is presented below:

• Asia Remains Vibrant Despite Appearance of Potential Obstacles

Asia grew at an impressive 7.3% in 2004, marking the region's best growth performance since the Asian financial crisis of 1997-98. Some analysts question whether this growth is sustainable. In addition to stagnant growth in Europe, Asian economies have to grapple with the potential of lower growth in China and the U.S. Although these concerns are not trivial, Asia's fundamental strength remains in place. Investors also remain largely underweight the region on both a direct and portfolio basis. This leaves substantial room for valuation increases as this deficiency is addressed.

• Political and Social Tensions Divert Attention from Asia's Growth Story

To some extent, investors have become more cautious toward Asia due to a myriad of political, economic, and social factors. These issues are very real and warrant careful attention. Even though most go back decades, or in the case of territorial disputes, even centuries, they do have the potential to impact trade and investment flows. These obstacles, however, at least for now, have not diminished economic activity, but rather to a search for alternative locations within the region.

• Asian Economic Growth Leading to Increased Regional Integration

Despite the challenges, Japan's Ministry of Economic, Trade, and Industry (METI) estimates by 2020, Asia will have a 25.5% share of world GDP versus 19.3% in 1990. Consumption is rising, and Asian consumers are reported to be far more confident about 2005 than those in America and Europe.

As a result, while U.S. and European managers and investors have long recognized Asia's ability to produce export products, the region is now seen as a huge market for commodities and consumer goods. Less widely appreciated is that Asia is quickly becoming a hub for advanced R&D, as well as higher-end products such as automobiles, consumer electronics and a range of technological applications and services.

Asian governments are supporting these trends by investing in education and infrastructure, offering favorable tax and regulatory treatment, and reducing tariffs and other barriers. These measures, as well as Asia's underlying attractiveness, are helping to facilitate record numbers of cross-border transactions, as well as rising trade and investment flows into the region.

• Japan Helping Drive Asia's Attractiveness as Business and Investment Destination

Japan has been a key player in helping to promote Asian integration. This is being achieved through investments by private firms, as well as government grants to develop regional infrastructure, service operations and production capabilities. Japan also serves as a major customer for Asian products. Last year, in fact, China became Japan's largest trade partner, supplanting the U.S. Current data also indicates business with ASEAN represented 14.7% of total Japanese trade in 2003.

• Exposure to Asia is Essential for Internationally-Focused Firms and Investors

Despite political, social, economic, demographic and other challenges, it is clear the region represents an increasingly attractive and important component of global markets, which internationally-focused corporations and investors neglect at their own risk.

Japan Offers Entree Into Developing Asia as Well as Significant Domestic Potential

As Asia's largest economy, Japan will continue to play a major role in the developments now taking hold. Given its importance, companies and investors looking to enter this dynamic region would be wise to pay attention to what is happening there. This is true not only in terms of the ramifications of Japanese activities in developing Asia -- but also in respect to the significant opportunities now arising as a result of the restructuring, reform and changing market conditions now taking place within its domestic economy.

 Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.   For additional information on economic and financial trends in Japan, please contact Akihiro Tada, Executive Director of JETRO NY at Tel: 212-997-0416, Fax: 212-997-0464, E-mail: Akihiro_Tada@jetro.go.jp