JAPAN: COMING HOME TO ASIA

Japanese business is rediscovering Asia. After more than four decades of depending on the U.S. market to absorb their products, Japanese manufactureres are again counting on Asian consumers and suppliers.

Trade between Japan and the rest of Asia continues to expand at a record pace. In fiscal 1992, Japan's exports to the region rose 14 percent over the previous year, against only a 7 percent increase to the United States. Imports

from America fell 3 percent, while those from Asia were up 6 percent.Before World War II, Japan's economy was closely linked to Asia. Statistics

from the mid-1930s show that about 60 percent of Japan's trade was conducted in the region. Roughly speaking, 40 percent was with Korea and Taiwan - which were Japanese colonies at that time - followed by China and Southeast Asia at 20 percent each. Japan also relied heavily on Asia for raw materials.

After the war, trade with the region diminished and the U.S. market became most important. In 1970, for example, export-import dealings with Asia accounted for less than 30 percent of Japan's total trade.

Now, that figure has swelled to about 40 percent, edging out America as our No. 1 trading partner. Temporarily disrupted, the prewar patterns are reasserting themselves.

The reason is clear. Many Asian economies are growing at a remarkable rate. They need foreign goods and they are strong exporters.

The Asia-Pacific region, since Karl Marx's time labeled "stagnant" and supposedly lacking the basic prerequisites for modernization, is now developing faster than any other. Rapid industrialization has led to a qualitatively different relationship with Japan.

Before the Pacific War, Asia supplied Japan with raw materials, foodstuffs and textiles. Today, Japan buys a wide range of sophisticated products.

In fiscal 1992, the single largest category of imports by Japan from four newly industrialized economices - South Korea, Taiwan, Hong Kong and Singapore - was machinery. A quarter of the imports from these "little dragons" were such products as office machines, audio gear and semiconductors.

Japan bought large amounts of oil and liquefied natural gas from members of the Association of Southeast Asian Nations (Asean), but purchases of machinery

from Thailand, Malaysia and Indonesia also rose sharply.

Clothing and other textile products made up 35 percent of the goods imported from China. Machinery is now 7 percent of the total, greater than the ratio of such raw materials as timber, raw cotton and soybeans.

Industrial products have replaced raw materials as the new mainstay of imports form the region. The old vertical division of labor, with Japan as the core processor, has shifted to a horizontal one between many manufacturers.

Japan's direct investment has propelled the shift. Companies building factories in the newly industrialized economies and Asean countries have imported machinery from home. They have also begun to purchase parts and products from their subsidiaries abroad.

Asia will become even more important to Japan. Two aspects of the new division of labor warrant our attention.

First, it is multidimensional. In the past Japan was the sole exporter of capital. But in recent years South Korean and Taiwanese investors have put money into Indonesia, the Philippines, China and Vietnam.

Second, there is a ripple effect throughout the region. Japan rebuilt its economy and grew rapidly in the 1950s. The newly industrialized economies took off during the 1960s and 1970s, and Southeast Asia was next in the 1980s.

Now it's China's turn, with a 12 percent surge in national output 1992. With a population of 1.2 billion, China's development will have a tremendous impact on neighboring countries.

In 1986, Vietnam introduced market incentives, under the Doi Moi program, and its economy is growing at about 7 percent a year. Vietnam has a diligent, literate population of 70 million and rich oil and mineral resources.

A new trend emerged in the 1980s as adjacent locales gradually formed economic "zones." There's the so-called South China Triangle, composed of Hong Kong, Guangzhou and Taiwan, for instance. Another is the Yellow Sea Zone, which includes Shangdong province in northern China, the west coast of South Korea and northern Kyushu.

There's also the huge Japan Sea Rim, spanning the Far Eastern and coastal areas of Russia, the three northeastern provinces of China, Mongolia, North and South Korea and Japan. If these economic zones become more integrated, they might eventually evolve into an immense East Asian economic community.

Given the momentum of development throughout the region, and this network of interdependent relationships, the future for Japan lies not with the United States but with Asia.

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