China Becomes Japan's Top Trade Partner

TOKYO April 26, 2007; AFP reported that Japan said Wednesday that China became its top trading partner for the first time since World War II, unseating the United States in the past fiscal year despite strained ties between the Asian giants.

The new milestone came as Japan reported the first rise in its overall trade surplus for two fiscal years, and a sharp increase in March that underpinned optimism in the outlook for Asia's largest economy.

Japan's total trade with mainland China came to 25.43 trillion yen (214.8 billion dollars) in the year to March, against 25.16 trillion yen with the United States, the finance ministry said in a statement.

"This reflects the gradual shift of production by Japanese firms to China. I think the trend of growing trade with China will continue," said finance ministry official Koichi Nose.

The United States is still Japan's largest export destination but Japanese exports to China have been growing in recent years, while imports are strong.

Including Hong Kong, China overtook the United States as Japan's biggest trading partner in 2004.

Japanese manufacturers have been shifting more of their production operations to China, seeking cheap labour costs and a foothold in the fast-growing Chinese economy.

"For Japan, a very large market has emerged next door," said Senshu University economics professor Hideo Ohashi.

The two economies have strong links through direct investment while the flow of goods has increased sharply, ensuring that trade relations between the two Asian giants are likely to remain strong, he added.

Japan was also China's largest trading partner for 11 consecutive years until 2003 but was then overtaken by the United States and European Union.

Diplomatic relations between the two Asian giants became severely strained in recent years over war-time memories and territorial spats.

Japan's overall trade surplus rose 16.4 percent in the year to March to 9.05 trillion yen, the first annual rise in two years, as exports gained 13.4 percent while imports increased 13.0 percent.

In March alone, Japan's trade surplus soared 73.9 percent from a year earlier to 1.63 trillion yen (13.8 billion dollars) on strong exports of cars and electronics parts and a decline in oil import costs.

Exports rose 10.2 percent in March while imports were steady.

"The latest trade figures show exports are robust and Japan's economy is on track to steady growth," said Noriaki Haseyama, economist at Daiichi Life Research Institute.

"One thing that should be watched is that the pace of growth in exports to the United States is slowing but at the same time, I'm not very worried as the US economy is expected to make a soft landing," said Haseyama.

Japan's trade surplus with the United States in March grew 1.4 percent to 805.3 billion yen, with exports up 2.4 percent and imports up 3.5 percent.

Minoru Nogimori, economist at Nomura Securities, said a cooling of the US housing sector should not affect Japanese exports significantly.

"Although some housing-related figures are weak in the United States, it doesn't mean that overall US consumption demand will deteriorate. Japan mainly exports consumer goods and US demand for them are still resilient," he said.