Tourism Recovery Helps Japan Grow in First Quarter | Kanebridge News
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Tourism Recovery Helps Japan Grow in First Quarter

Gross domestic product rose at 1.6% annualised pace in January-March period

By MEGUMI FUJIKAWA
Thu, May 18, 2023 8:47amGrey Clock 2 min

TOKYO—Japan’s economy showed a bigger-than-expected upswing in the first quarter, helped by a recovery in tourism that offset sluggishness in some leading economies.

Japan has just begun to benefit from post pandemic pent-up demand of the kind the U.S. experienced more than a year ago. Tokyo waited until last October to remove border controls for overseas tourists and lifted restrictions on big events earlier this year.

The world’s third-largest economy after the U.S. and China expanded 0.4% in the three months to March from the previous quarter, government data showed Wednesday, slightly above forecasts.

The Japanese economy grew at an annualised rate of 1.6%, outpacing 1.1% growth for the same quarter in the U.S., where high inflation and rising interest rates hit consumers. In China, another top market for Japanese-made goods, recent economic indicators such as the youth unemployment rate and retail sales have pointed to a sluggish recovery.

Economists say the main growth driver in Japan remains domestic demand. Spending is likely to pick up further after recent wage negotiations resulted in the biggest pay increase in three decades. The pace of inflation has slowed recently thanks to the government’s measures to ease the impact of higher energy prices and declines in import prices.

Overall consumer prices in Japan rose 3.2% from a year earlier in March, compared with 4.9% inflation in the U.S. in April.

In the January-March period, private consumption in Japan increased 0.6% from the previous quarter. Government travel subsidies boosted spending on hotels and restaurants.

Economy Minister Shigeyuki Goto said the economy would likely continue a modest recovery, supported by higher wages and corporate investment.

“We will realise sustainable economic growth led by private demand,” he said.

In another positive sign, the number of foreign tourists is quickly approaching the pre pandemic level, and those tourists are spending more than they did before the pandemic.

Spending per international visitor in the January-March quarter was ¥212,000, equivalent to $1,553. That was 44% more than the average visitor spent in the same period in 2019, according to the Japan Tourism Agency.

While domestic spending is likely to stay healthy this summer, the risk of slower growth in the U.S., China and elsewhere looms over the Japanese economy.

“Goods exports and production will struggle so long as the global economy flirts with recession,” said Stefan Angrick, an economist at Moody’s Analytics.

Japan’s exports dropped 4.2% in the first quarter from the one before it due to slowing growth abroad triggered by monetary tightening in the U.S. and other countries as well as weaker chip demand.



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China’s EV Juggernaut Is a Warning for the West

Competitive pressure and creativity have made Chinese-designed and -built electric cars formidable competitors

By GREG IP
Thu, Jun 8, 2023 4 min

China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world’s largest auto exporter.

How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.

Start with industrial policy—the use of government resources to help favoured sectors. China has practiced industrial policy for decades. While it’s finding increased favour even in the U.S., the concept remains controversial. Governments have a poor record of identifying winning technologies and often end up subsidising inferior and wasteful capacity, including in China.

But in the case of EVs, Chinese industrial policy had a couple of things going for it. First, governments around the world saw climate change as an enduring threat that would require decade-long interventions to transition away from fossil fuels. China bet correctly that in transportation, the transition would favour electric vehicles.

In 2009, China started handing out generous subsidies to buyers of EVs. Public procurement of taxis and buses was targeted to electric vehicles, rechargers were subsidised, and provincial governments stumped up capital for lithium mining and refining for EV batteries. In 2020 NIO, at the time an aspiring challenger to Tesla, avoided bankruptcy thanks to a government-led bailout.

While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies. To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify. They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.

To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills. State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.

Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specialising in the Chinese auto industry.

Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”

Thanks to that competition and focus on execution, the EV industry went from a niche industrial-policy project to a sprawling ecosystem of predominantly private companies. Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.

When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

Manufacturers of gasoline cars are product-oriented, whereas EV manufacturers, like tech companies, are user-oriented, Le said. Chinese EVs feature at least two, often three, display screens, one suitable for watching movies from the back seat, multiple lidars (laser-based sensors) for driver assistance, and even a microphone for karaoke (quickly copied by Tesla). Meanwhile, Chinese suppliers such as CATL have gone from laggard to leader.

Chinese dominance of EVs isn’t preordained. The low barriers to entry exploited by Chinese brands also open the door to future non-Chinese competitors. Nor does China’s success in EVs necessarily translate to other sectors where industrial policy matters less and creativity, privacy and deeply woven technological capability—such as software, cloud computing and semiconductors—matter more.

Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”

Western companies themselves are likely to respond by deepening their presence in China—not to sell cars, but for proximity to the most sophisticated customers and suppliers. Jörg Wuttke, the past president of the European Union Chamber of Commerce in China, calls China a “fitness centre.” Even as conditions there become steadily more difficult, Western multinationals “have to be there. It keeps you fit.”

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