Effects of China's Auto/Home Appliance Subsidies on Production in Japan

◆The slowdown in the global economy has impacted Japan’s economy through stagnation in Japan’s exports and industrial shipments for export, raising concerns over production in Japan, which had recently traced a moderate recovery supported by domestic demand. China introduced a subsidy package in May that raises hopes for a positive impact on production in Japan through increases in exports.

◆We have estimated the effects of subsidies in China on production in Japan based on Japan- China Input-output Tables (METI) and came to two conclusions: (1) the subsidies will have a small impact on production in Japan, and (2) the impact is insufficient to change the course of Japan’s exports to China, which have been on a downtrend. We also found that compared to subsidy programs in China, public works measures there will have a larger impact on production in Japan.

◆While subsidies in China will have only a limited impact on production in Japan, they should be beneficial for Japanese companies with production bases in China. With regard to the automobile industry, although the ratio of overseas production has risen, the industry maintains global competitiveness. Thus, the shift to production abroad does not currently mean a “bad” hollowing out for the industry.