Tokyo, Aug 24, 2011 (JCN Newswire via COMTEX) -- According to a report released on August 16th by the Japan External Trade Organization (JETRO), Japan's total trade with China rose 17.9% year-on-year to 163.2 billion USD in the first half of 2011, setting a new record on a first half-year basis. This figure was the second highest on a half-year basis after the 163.5 billion USD registered in the second half of 2010. Japan's exports to China rose 14.3% to 78.2 billion USD while its imports from China rose 21.4 % to 84.9 billion USD. The increase in imports surpassed that of exports which was affected by the Great East Japan Earthquake. Japan's trade with China posted a 6.7 billion USD deficit, up 4.3 times year-on-year.

Japan's trade with China posted positive growth also on a monthly basis in the first half of 2011, compared to the same term in 2010. The growth was attributed to an increase in exports to China on the back of the country's continuing economic growth and rising imports from China caused by an increasing domestic demand in Japan for Chinese finished goods and parts.

The growth in Japan's trade with China was larger than that for the country's overall trade (8.0%). As a result, the share of Japan-China trade rose 0.5 points to 20.6% of Japan's total trade from 20.1% in the previous year. Of the figure, the share of Japan's exports to China set a record: reached 20.0% of the country's total exports for the first time on a first half-year basis, while the share of Japan's imports from China slightly decreased 0.4 points to 21.1% of the total imports on a year-on-year basis. China, however, remains Japan's largest trading partner in terms of imports, exports and total trade.

Japan's exports to China in the first half of 2011

In the first half of 2011, Japan's exports to China set a record on a first half-yearly basis. Fueled by an expanding domestic demand in China as well as an increase in Chinese exports to Japan, the US and Europe; an increase was noted in exports of machinery equipment, parts and materials for production of finished goods in China. However, as exports of automobiles, automobile parts and nonferrous metals were affected by the earthquake, the growth rate in Japan's total exports decreased considerably, compared to the same term in 2010.

Japan's imports from China in the first half of 2011

Japan's imports from China also marked a record in the first half of 2011 on a half-year basis. This improvement was due to an increase in imports of telecommunication equipment to cover growing demand for smart phones. Imports of foodstuffs also increased. In response to the electricity shortage and measures concerning power saving, in addition to rising demand for emergency supplies, the imports of electric fans, power generators and batteries surged.

Outlook for 2011

1. Growth rate in Japan's exports to China is predicted to decrease from 2010 due to the influence of the Chinese government's tight monetary measures and the slowing growth in the first half of the year caused by the March 11th disaster.

2. Japan's imports from China will likely maintain the growth marked in the first half-year.

As the switch to digital TV broadcasting has been completed in Japan, a decrease will possibly be seen in imports of LCD TVs. However, the overall growth will likely continue due to increased local production in China and rising imports of smart phones.

3. Considering these factors, Japan's total trade with China will possibly surpass the record marked in 2010.

4. Since 2006, the increase in Japan's exports to China has surpassed that of Japan's imports from China. Due to the slowing growth of exports affected by the earthquake, there is a possibility that Japan's trade deficit with China will increase on a year-on-year basis for the first time since 2005.

I. Exports - Due to the disaster, exports of automobiles, semiconductors and electronic parts plummets

Since the beginning of 2011, Japan's exports to China had been rising on the back of China's economic growth (real GDP growth rate of 9.6 %). However, after the earthquake on March 11th, the growth in exports of electrical machinery, manufactured goods and transportation equipment was slowed or turned to be decreased and the growth rates plummeted to 5% or less in April and May. Meanwhile, exports of machinery such as metalworking or textile machinery showed high growth. Increase in exports of chemical products also maintained double-digit growth.

Features by export items

1. Reflecting a rise in industrial production in China, exports of semiconductors, manufacturing equipment for flat panel displays, machine tools and textile machinery showed high increase. In reaction to rising labor costs and a shortage of manpower in China, exports of industrial robots showed high growth. In addition to these factors, increasing direct investment in China by Japanese companies boosted the exports of machinery.

2. Due to expanding demand for smart phones in the global market, an increase was seen in Japan's exports of flash memory and relevant parts such as inductors and materials including polyethylene terephthalate for production in China.

3. Exports of automobiles and automobile parts dropped due to the supply chain disruption caused by the earthquake. A decrease was also seen in exports of non-ferrous metals such as refined copper. The growth rate in exports of semiconductors and electronic parts, Japan's major export goods, dropped as well. These factors curbed the growth of total exports.

Exports of foodstuffs also plunged due to China's strengthened import restrictions in the wake of the nuclear power plant accident.

4. The growth in exports of construction and mining machinery slowed compared to its rapid increase in the previous year. This was attributed to the decrease in real-estate investments under China's tight-monetary policies

II. Imports - Boosted by increasing demand for smart phones, and demand for emergency goods also helps the raise

Japan's imports from China in the first half of 2011 grew steadily. In addition to the growth in imports of electrical machinery such as telecommunication equipment, a sharp increase was noted in imports of electric fans and batteries.

Features by import items

2. Due to measures concerning the electricity shortage and power saving, as well as the increased need for emergency supplies, a boost was seen in imports of electric fans, power generators, batteries, flashlights and portable radios.

Meanwhile, flat growth was seen in imports of electronic and semiconductor parts manufactured in China's back end process. This was attributed to the decrease in front end products exported from post-disaster Japan. Growth in imports of automobile parts also slowed because of the decrease in production in the disaster-affected factory.

3. Production sites of clothing and accessories continue to be relocated from China to other Asian countries due to lower cost. Yet imports of these items showed growth of over 20%. This was attributed to their rising import unit values as China produces more high value-added products.

Imports of foodstuffs marked double-digit growth due to easing concerns over Chinese food safety and Japan's increasing demand for low-price products.

III. Outlook for 2011 - Highest record could be set, but with slow growth

As the consumer price index has been rising, the Chinese government has been implementing tight monetary policies such as raising the reserve requirement ratio and interest rate. Such measures will possibly weaken demand in China, mainly that for real-estate investment and slow the growth rate in Japan's exports, mainly of infrastructure- related goods.

As Japan's trade with China posted high growth in both imports and exports in 2010, those of 2011 are expected to be lower than the previous year.

Yet Japan's trade with China will possibly set a record for the two consecutive years since 2010. One reason is that the Chinese economy is expected to continue to grow in 2011. Another reason is that exports affected by the earthquake will be fully restored after this autumn with the recovery of production facilities in Japan.

Meanwhile, as the growth in Japan's exports slowed after the disaster, Japan's trade deficit with China will likely increase for the first time since 2005.

Exports:

1. With expectations that China's industrial production will continue expanding, exports of machinery equipment, parts and materials for production of finished goods in China will likely increase, along with opportunities for local procurement of the products.

2. Exports of automobiles and automobile parts, as well as electronic parts including semiconductors were affected by the earthquake. As machinery equipment for the production is expected to be fully restored after this autumn, the exports of the items will likely improve.

3. In the case that the global economy seriously declines due to the downgrade of the US government bonds and Europe's sovereign debt problems, the growth in China's exports of finished goods will slow down. As a result, Japan's exports to China of high value-added materials and parts will likely be affected.

4. If strengthened Japanese Yen accelerates Japan's production activities in China or China's imports from third countries or regions, Japan's exports to China of the relevant items may decrease.

Imports:

1. As the demand for smart phones is expected to continue to expand, imports of telecommunication equipment will possibly increase. As the prices of rare earths and rare metals are predicted to surge on a year-on-year basis, the import value of chemical products will possibly increase.

2. The switch to digital TV broadcasting has been implemented throughout Japan except for in disaster-affected regions. As a result, the domestic demand for LCD TVs is expected to decrease, causing slower growth or decline in the imports of the items.

3. Imports of parts for electronics, semiconductors and automobiles were affected by the earthquake. Yet they are expected to recover as Japan's production equipment is restored.

4. The production of high value-added goods is shifting to China. This will likely increase the added values of import goods as well as the imports of electronic machinery, automobile parts, clothing and accessories.

5. The decrease in import costs backed by the strong Yen will likely cause further increase in Japan's imports from China.

* Figures are US dollar conversions of yen-denominated statistics for imports (provisional) and exports (fixed) released by Japan's Ministry of Finance in July 2011. On a yen-basis, Japan's total trade with China rose 5.9% to 13.4 trillion yen in the first half of 2011, with exports rising 2.7 % to 6.4 trillion yen, and imports rising 9.0% to 7.0 trillion yen.