COVER STORY • 1

White Paper on
International Economy &Trade 2022 – Outline

By Policy Planning & Research Office, Trade Policy Bureau, Ministry of Economy, Trade and Industry (METI)Part I. Economic Risks Posed by Geopolitical
Uncertainty, and Trends in the Global Economy
Chapter 1. Increasing Geopolitical Uncertainty & Economic
Risks in Relation to the Global Economy
Section 1. The impact of Russia’s aggression against
Ukraine on the global economy

Russia’s aggression against Ukraine is an act that undermines thevery foundations of the international order, and one that Japancannot tolerate under any circumstances. With the G7 leading theway, developed countries have expeditiously imposed
unprecedentedly large-scale economic sanctions on Russia –including in the energy sector – and have been swiftly reviewing theireconomic and political relations with the country. This has led to agreater concern about economic fragmentation than at any othertime since the Cold War, and may add further impetus to structuralchanges in the global economy, where multipolarity is already on therise due to the growing emphasis on self-centrism and economic
national security. It may thus prove to be a historic turning point forthe current international economic order. On the other hand, many
emerging and developing countries have been holding back on
economic sanctions and other radical action, instead adopting aneutral stance regarding economic and political relations with
Russia.
Although Russia’s and Ukraine’s economies do not constitute alarge part of the global economy, they are among its leading
producers and exporters of certain products, notably energy, food,and important minerals. Countries that rely on importing those
products from them face the risk of supply disruptions. Furthermore,with little prospect that the Ukrainian situation will abate in the nearterm, the prices of international commodities including food andenergy are soaring. Therefore, countries that are highly dependent on
imports are particularly concerned about the impact on their citizens.
The Japanese government is examining the analysis of andresponses to risks related to the secure supply of important goods
not just in terms of the situation in Ukraine, but also from a mediumto long-term perspective and in terms of protecting citizens’ daily
lives and security. To this end, it has established a Task Force on
Strategic Goods and Energy Supply Chains that, headed by theminister of economy, trade and industry, is establishing appropriate
directions for measures (Charts 1-4).
https://www.jef.or.jp/journal/

Section 2. Increasing global supply constraints

Supply chains are being disrupted by the asymmetrical recovery of
the global economy from the Covid-19 pandemic, and by distortionsof the supply-demand balance caused by rapid fiscal measures toaddress the crisis; on top of this, they are also being disrupted by the
lockdowns in China and by Russia’s invasion of Ukraine. Logistics
costs are skyrocketing, with notable factors being a tight supplydemand balance with containers in marine transport, a shortage ofworkers in land transport, a tight situation with air cargo space dueto the decrease in passenger flights, and rising fuel prices across theboard. Crude oil prices were already rising sharply due to
expectations of a recovery in oil demand as the global economy
recovers from Covid-19, and to rising demand as an alternative
resource in the face of soaring natural gas and coal prices. However,concerns that Russia’s invasion of Ukraine will reduce the global
supply have caused prices to soar even further. Highly dependent on
overseas energy sources and with its currency weakened, Japan isexperiencing ever worsening trade conditions. Amid all this, there is
yet another trend affecting energy and food security: rising prices ofcommodities such as fertilizer and food, driven by factors such as
crop failures due to abnormal weather, and a sharp shift in demandfor energy and other resources as the world moves toward
decarbonization (Chart 5).
Section 3. Effects on emerging economies of the US’s
normalization of its monetary policy

Around the fall of 2021, the United States and many othercountries set about normalizing their monetary policies, withmeasures including slowing down asset purchasing and raising
policy interest rates. The narrowing gap between their own andemerging countries’ interest rates is accelerating the flow of funds to
the US, and this is raising concerns that the flow of funds out ofemerging countries will weaken their currencies. There are fears thatweak currencies in emerging countries will adversely affect theireconomies by increasing the burden of repaying foreign currency
debts issued in those currencies, and accelerating inflation throughincreased import prices. Emerging countries’ central banks areraising their policy interest rates to defend their currencies andcounter rising inflation, which is notably being driven by tight supply
and demand conditions and high resource prices as well as bycurrency depreciation. The potential economic impact of thesemeasures is the focus of considerable concern. In light of past
Japan SPOTLIGHT • September / October 2022

3

CHART 1

Stance on the aggression of some countries
TurkeyWhile criticizing
aggression, mediates
cease-fire negotiations anddoes not participate in USand EU-centric sanctions.
“We implement sanctions
approved by the UN”(foreign minister).

Brazil“We do not take sides
with either side, remain
neutral, and co-operate
as much as possible.
We oppose sanctions
that would have anegative impact on
Brazil” (president). As to
exclusion of Russia from
G20, “We clearly
disagree” (foreign
minister).

China“While no pre-determined banned
areas in China-Russia co-operation,
there are bottom lines. Bottom lines
mean principles of UN Charter, andofficial and basic principles ofinternational laws and relationship”(ambassador to US).

Kazakhstan
Intends “omnidirectional
diplomacy” in relation toneighboring countries.

MexicoWhile criticizing
aggression, remains
neutral without
implementing
sanctions.
Saudi Arabia
Emphasis on role of OPEC +(including Russia) in oil market
stability (Prince MBS). Under
negotiation of denominating
part of oil exports to China in
RMB (renminbi).

※Blue shaded countries are ones
specified as Unfriendly Countries
by Russia (as of March 24)

South Africa
Proposed
humanitarian
resolution without
reference to Russia.

Indonesia“G20 host country
invites all of theparticipating
countries and thishas been an
unchanging rulesince thebeginning” (special
advisor to foreign
minister).

India“As India’s purchase ofa month’s energy isequivalent to a half-day
worth of Europe’spurchase, it is about
how Europe will react”(foreign minister).
Singapore
One of the only countries in ASEAN to sanction
Russia (specified as an unfriendly country).
“Should not mechanically judge that China is
on wrong side about aggression” (prime
minister).

Note: Provisional English translation

Source: Media repots
CHART 2

CHART 3

Exports of wheat & corn (2020)

Global crude oil production (2020)
Total: 88.4 million barrels per day(US$ billion)

4

Canada

0.2

6.0

4.9

1.7

2.7

2.1
0.0

2.0

1.1

0.2

0.0

1.0

0.3

Brazil, 3.4

UAE, 4.1

CHART 4

CHART 5350

US, 23.7

Fertilizers

300

Energy250

Food

Metals & Minerals

200

Algeria, 2.1
Norway, 2.9

Russia, 16.6

Saudi Arabia, 2.9

Precious metals

150
100

Source: BP Stat

4 Japan SPOTLIGHT • September / October 2022

Note: Dashed line is average for 2019.

Source: World Bank

2022/42022/12021/102021/72021/42021/1

2020/102020/72020/42020/1China, 5.0

2019/10

Qatar, 4.4

2019/40Iran, 6.5

2019/150

Australia, 3.7
Canada, 4.3

Commodity price indices(Average for 2019=100)

Total: 3.9 trillion cubic meters

Others, 27.8

Canada, 5.8

Iraq, 4.7

China, 4.4
Source: BP Stat

Global natural gas production (2020)

Russia, 12.1

Iran, 3.5

Source: UN Comtrade(%)

Saudi Arabia,
12.5

Kuwait, 3.0

2019/7US

0

0.4
Russia2

3.6

US, 18.6

Others, 27.8

Poland

4.5

(%)

Corn

Kazakhstan

6.3

No.4

Argentina

6.3

6

No.5

Germany

7.9

Australia

8

No.1 9.6

Ukraine

10

Wheat

France12

CHART 6

CHART 770,000300

World Trade Uncertainty Index

World debt outstanding

60,000250

50,000200
Emerging
economies

40,00030,000Government

150

Firm

Household

Total

GlobalAdvanced
economies

20,000100

Note: GDP weighted average

Source: World Uncertainty Index (WUI)

financial crises and other experiences, many emerging countries
have been increasing their foreign currency reserves and taking
other steps, and the resulting improved economic fundamentals haveeased the pressure of large cash outflows. Thanks to this, the impact
remains limited for now. On the other hand, uncertainty is increasing
due to the soaring food and energy prices triggered by Russia’s
aggression against Ukraine, and to concerns that they will lead toeconomic, social, and political instability (Chart 6).
Section 4. Rapidly rising government and private-sector
debt worldwide

The global debt balance was already increasing after the financial
crisis, as a sustained decline in long-term interest rates acted intandem with economic fluctuations. However, Covid-19 has pushed
it up even further. The pandemic has caused government debt toincrease significantly due to policy factors such as major economic
measures to counter the crisis and has caused corporate debt toincrease due to factors such as measures to secure financing.
Household debt has also been increasing due to mortgage-related
factors, on top of the economic difficulties of the pandemic. Ifnational central banks’ normalization of their monetary policies
progresses rapidly to curb inflation, the debt burden could increase.
The trends in inflation and interest rates will therefore need to bemonitored closely going forward (Chart 7).

Chapter 2. Global Economic Trends & Measures Taken forMid- to Long-Term Growth
Section 1. Normalizing global economy to look beyond theCovid-19 impacts

While the global economy still faces uncertainty – with downside
risks due to issues such as soaring inflation caused by supply
constraints and rising international commodity prices brought about
by the Ukraine situation – it is expected to continue to return to

0

2021

Q1

2022

2020

Q4

2019

Q3

2021

2018

Q2

2017

Q1

2016

Q4

2015

Q3

2020

2014

Q2

2013

Q1

2012

Q4

2011

Q3

2019

2010

Q2

2009

Q1

2008

50

10,0000(As percentage of GDP)

Source: BIS

normal from the Covid-19 pandemic. As the global economy looks
beyond the impacts of Covid-19, the following points are emerging
from the process: the resilient demand for face-to-face interactions
hand-in-hand has continued despite the rapid expansion of online
business; trends in government debt, including contingent liabilities;
trends in international investment to seize business opportunities,
such as an increasing number of cross-border M&As in thepharmaceutical industry; the impact of fragmented trade due toregional differences in the pace of economic recovery; and theimpact on demand for housing and offices in the real estate market
created by the increasing diversity of working styles, as illustrated by
the spread of teleworking. Other aspects include the gaps in
employment rates between highly skilled and medium-to-low-skilledworkers and in human capital caused by the digital divide; the impact
on precious and strategic resource procurement of the shift to agreen economy; and the importance of business dynamism (Chart
8).
Section 2. Trends in the US economy

In the US, major fiscal measures have stimulated consumption,and the economic recovery from Covid-19 is progressing well as aresult. The resumption of economic activities is improving theunemployment rate, and the skyrocketing demand for personnel inthe wake of the Covid-19 recession has ushered in a major era ofnegotiations, with voluntary retirees on the increase as part of thetrend of reviewing working conditions. There are also signs ofstructural changes in the labor market; for example, there are more
applications to start a business than before Covid-19, especially inthe non-store retail sector. Moreover, inflation is progressing at
historic levels, and the FRB has made curbing it a top priority. The
rise in inflation is now abating, and nominal wages have risen toreflect the staff shortages and higher prices. However real wages are
falling, suggesting that future economic growth could be
suppressed.
Japan SPOTLIGHT • September / October 20225

China will need to overcome many challenges if its growth is tocontinue in the medium to long term. The demographics indicate theseriousness of the situation: the 2020 population census showed atotal fertility rate of 1.3, which was below the UN’s low-variant
projection (1.45). Some are pointing out that large amounts ofresources are being invested in state-owned enterprises despite theirinefficiency. Government subsidies are being provided to a wide
range of companies – private enterprises as well as state-owned
ones – with a particular focus on the 10 sectors of Made in China
2025. These are possibly being used to make up deficits, fund R&D,
and invest in capital. Financial risk is also a source of concern: with
non-financial corporate debt riding high and household debt rapidly
joining it, local government finances are heavily dependent on realestate-related income. The real estate situation has also been getting
cooler since the latter half of 2021 due in part to the regulations, andsome have pointed out that related loans and other aspects are also
at risk. Income gaps also remain, and although the government ischampioning a policy of “common prosperity”, real estate taxes –which it hopes will effectively counter these issues – look likely totake a long time to materialize.
In light of these circumstances, and mindful of the National
Congress of the Chinese Communist Party coming up in the fall, theMarch 2022 National People’s Congress announced that economic
stability is now the highest priority. It has set a target of around 5.5%
for the economic growth rate in 2022 and cites an aggressive fiscal
policy and a moderate monetary one as the keys to achieving it.
However, the hurdle to success is high (Charts 9-10).

CHART 8

Real GDP forecast changes(%)
10

Saudi Arabia

8

ASEAN-5

6

EmergingDeveloping
Economies

4
2

Advanced
Economies

0
-2

2022

2021

2020

2019

2018

2017

2016

-6

2015

-4

Note: Numbers in parenthesis are changes from previous forecasts in January 2022.
Dotted lines are forecasts as of January 2022 and real lines are forecasts as of April
2022.

Source: IMF World Economic Outlook April 2022

Section 3. Trends in the European economy

The European economy is on a recovery trend, supported bylarge-scale fiscal measures. However, the future looks increasingly
uncertain, with the economy facing significant inflation particularly inthe energy sector due to Russia’s aggression against Ukraine.
Aiming to strengthen its industrial competitiveness and reduce its
dependence on foreign countries, the EU is rolling out industrial
policies that emphasize strategic autonomy,
making “green” and “digital” the core pillars of
CHART 9its economic recovery. At the same time, it isGovernment subsidies related to Made in China
leading the way in rulemaking in areas of shared
2025
values such as climate change and human rights(Billion yuan)
(%)
120
60
and is also striving to establish new global
Announcement of Made in China 2025
standards.
(2015)
50

100

Section 4. Trends in China’s economy

The Chinese economy in 2021 achieved a highgrowth rate at the beginning of the year but
slowed down from the middle onward due tovarious factors, notably floods, a resurgence in
Covid-19 infections, semiconductor shortages,
real estate regulations, and high resource prices.
This trend continued for three consecutive
quarters. There is concern that the slowdown willcontinue in 2022 as well, due not only to theresurgence in infections leading to the zero
Covid-19 policy and the sluggish real estatemarket due to the aforementioned regulations,but also to factors such as the strict epidemic
control in Shanghai and other major cities, andthe skyrocketing resource prices and turmoil inthe supply chains brought about by Russia’s
invasion of Ukraine.
6 Japan SPOTLIGHT • September / October 2022

80

Share of Made in China 2025 (right axis)

40

60

30

40

20

20

10

0

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0

Next generation information technology industry

New materials

Energy-saving/New energy cars

Bio pharmaceutical/High performance medical devices

Power generation facilities

High-end machine tools/robots

Advanced rail transit facilities

Marine operation facilities/high-tech ships

Aviation/Aerospace facilities

Agricultural machinery

Share of Made in China 2025 (right axis)

Notes: 1. The data of companies that are considered to fall under “Made in China 2025” are aggregated. The
amount may be overestimated due to data restrictions. For example, detailed industrial sectors may be
widely selected. The whole subsidies of the company may not be necessarily related to the initiative. On
the other hand, there is a possibility that the companies may not be included if the activities are carried out
across multiple sectors.
2. The share of the initiative declined in 2020, partly because some of the subsidies might be used formeasures against Covid-19.

Source: Public information of each company

Section 5: Trends in India’s and Southeast Asian economies

Countries in this region are shifting from a “zero Covid-19” stanceto a “with Covid-19” one. Foreign immigration restrictions are also
gradually being relaxed, and trade and investment activities are
expected to liven up as tourism-related industries recover from theirunavoidable recent sluggishness, and the flow of businesspeople
gets back into full swing. Close attention will need to be paid to risk
factors such as the increase in inflationary pressures due the
Ukrainian situation and other causes, the effects of the US’s

CHART 10

A comparison between the uppergroup & the lower group of subsidy
receipt(Share of companies with deficit)(%)
25

normalization of its monetary policy, and the impact of China’s
resurgence of Covid-19 and the resulting measures to limit economic
activity. As well as addressing the Covid-19 pandemic, it will also be
important to take action with a view toward growth thereafter.
Related to this, progress is expected on medium- to long-term
issues, with a major focus on achieving sustainability that includes
the following: responding to climate change; and adding value to theeconomy and increasing industrial sophistication by, for example,
encouraging investment and promoting the fourth industrial
revolution through the digital economy and digital technology. It is
hoped that the nations of Asia will work as one toward sustainablegrowth, with Japan as a fellow partner in the region.

Chapter 3: Long-Term Prospects for the Global Economy
Section 1. Long-term demographics and economic growth4

A variety of factors affect nations’ industrial structures andeconomic development, and while natural resources are a factor thatcannot be changed, population is an important factor that, to someextent, can be influenced through policy measures such as
immigration policies and benefits for childbirth and childcare. The
UN’s medium-variant projection predicts that the global population
will continue to rise in the long term, but one estimate also has it
peaking in 2065, and sustained declines in birthrates will play adecisive role. While the Covid-19 pandemic is not exacerbating therecent trend of declining birthrates at the moment, it could affectfamily planning by reducing incomes, employment rates, andopportunities to encounter between men and women.
The two main indicators of a population’s composition are its labor
force population and its aging rate. An increased labor force
population is predicted to increase demand for durable goods,
because it means a higher proportion of the population will belong toage groups that have a comparatively high marginal propensity toconsume. Attention is also turning to how a rising aging rate leads tothe formation of markets that revolve around elderly consumers(so-called “silver economy markets”), because it means a higher
proportion of the population will belong to age groups that haveample financial assets, and therefore high purchasing power. The
current population increase will lead to the formation of megacities
in developing countries, and especially China and India, and the
majority of new sub-megacities will also emerge in the developing
countries. It is estimated that developing the infrastructure to
support the sustainable development of these megalopolises will
demand US$38 trillion from 2020 to 2030. Leveraging private-sector
funding will therefore be particularly essential in order to finance
them.

2

Section 2. Increasing global trends

20

Upper group

Lower group

15
10
5
0

PrivateState (Central)*State (Local)*(Ratio of R&D expenses to sales)(%)
8Upper group

6

Lower group

4

2

0

Private*State (Local)*(Ratio of capital investment to sales)

(%)
10
8

State (Central)*Upper group

Lower group

60Private*State (Central)

State (Local)*

Notes: 1. A comparison between the upper group and the lower group, in terms of intensity,
the ratio of subsidies to sales.
2. The mark “*” means a significant difference between the two groups statistically.

Source: Public information for each company

The Covid-19 crisis has caused four trends to accelerate globally:
digital transformation, mounting geopolitical risks, growing
emphasis on shared values, and an accelerating shift in industrial
policy by governments. These will influence future international
relations and global economic trends, and for companies give rise to
Japan SPOTLIGHT • September / October 20227

significant business uncertainty and change their sources of value
added.
In particular, with regard to geopolitical risks and shared values,
differences between national governments’ international rulemaking
and policy positions are causing them to form into rule-defined
blocs, and the affected markets are following suit. In addition, themovement among governments toward stronger industrial policies isdriving the formation of large markets in specific sectors (forexample, aerospace, semiconductors, and green-related industries)
in the US, Europe, and other major countries and regions. This could
give rise to differences between companies in terms of opportunities
to seize these markets, determined by the policy positions in the
countries where the companies are located.

Placed in this situation, it will be important for companies toincrease their earning power by actively working to transform theirbusiness models and industrial structures to leave behind theirtraditional focus on reducing costs and offering cheap products, andinstead prioritize differentiation, high added value, and efficient
operations. In addition, in light of the four trends that Covid-19 has
accelerated, they will need to create business models and industrial
structures that create added value in the new capitalism, promoting awide range of efforts, from corporate transformation by means ofdigital transformation, to incorporating government-created demand,
to shifting to radically new business models that take economic
security, social impacts, and common values, and convert them into
added value in their core businesses (Charts 11-14).

CHART 11

Products & services created by digital transformation
Data

Technology
Driving
Control

Accident-Camera
Information

Mobility service by unmanned
Autonomous driving etc.

Production
Management

Accident-Near Miss
Accident

Improvement of safety and productivity
by early detection of abnormalities
and/or signs, and upgrading of
insurance and rating

Biological

New Drug Discovery, Functional food,Advanced Materials Manufacturing,
Bioenergy etc.

Drug development
Nursing

Health Care,
Nursing

Personalized medicine, Nursing Care
Plan for Independence etc.

Energy Demand
Equipment Control

Customer

Energy Demand Response, Monitoring
Service etc.

FintechPurchasingCommercial
Financial Market

Credit by transaction and settlement
data, Advancement of AssetManagement Advisory Services etc.

Bioinformatics
CommonBase
Technology(AI, IoT,
Robot)

Innovative Product and Service

Genome Editing

Source: METICHART 12

Increased uncertainty
Geopolitical Risk Index
600

400

500

9.11

500

Gulf War

Global400

Iraq War

Invasionof Ukraine

300
200

300 AsianJapan

GlobalFinancial
CrisisEuropean
Debt Crisis

US-China
Trade
Friction
BrexitInvasion on
Ukraine

0

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

9.11

US

Covid-19200
100

8 Japan SPOTLIGHT • September / October 2022

Invasionof Ukraine

Currency Crisis

100

Source: Economic Policy Uncertainty

Economic Policy Uncertainty Index(Index value)

CHART 13

Carbon neutral declaration by major countries
CO2 Emissions
Share

2019•2020•2021

10%

US

16%

Japan

4%

China

29%

■ Declaration at the same

5%

India

7%

2050 2060 2070

■ Zero gasoline(compared to 2013)and HV vehicle
sales■ 50% reduction(compared to1990)■ President Joe Biden■ 50-52% reduction
declared along with rejoining(compared to 2005)
the Paris Agreement on first■ Electric vehicle sales to
day as president.
50% (excluding HV)time as the publication of
the European Green Deal
(December 2019).

■ Prime Minister Yoshihide■ 44% reduction■ 46% reduction■ 100% electrification■ President Xi Jinping declared ■ 65% reduction■ Limit new car sales

Suga declared in his policy
speech (October 2020).
at UN General Assembly(September 2020).

Russia2035

Timing of carbon neutral
target declaration(2018 Results)

EU

2030

(compared to 2013)

per unit of GDP(compared to 2005)■ President Vladimir Putinof new car sales
by 2035

to environmentallyfriendly vehicles(EV, HV, etc.)

Modi declared at COP26(November 2021).

CN
CN

CN
CN

declared at Russia Energy
Week (September 2021).

■ Prime Minister NarendraCN■ 33-35% reduction(compared to 2005)■ Zero gasoline

vehicle sales

CN

Source: media reports

CHART 14

Industrial Policy Shifts in Countries and Regions
Supply chain resilience■ Executive Order on Ensuring the

Future Is Made in All of America by
All of America’s Workers• Strengthening of US products in government
procurement■ Executive Order on America’s
Supply Chains• Report on vulnerability and policy
recommendations for four key products(semiconductors, storage batteries, criticalminerals, pharmaceuticals) and six categories(including defense, telecommunications,energy, transportation)■ Creating helpful Incentives for the
Production of Semiconductors(CHIPS) for America Act• Promotion of factory location, equipment
installation support and R&D in US
Source: US Government publications

Updated Industrial Strategy(May 2021)(1) Strengthen single market resilience(2) Deal with the EU’s strategic
dependencies(3) Accelerate twin transitions

European Industrial Alliance■ European Battery Alliance (October 2017)■ European Clean Hydrogen Alliance(July 2020)■ European Raw Materials Alliance(September 2020)■ Alliance on Processors and Semiconductor
Technologies (July 2021)■ European Alliance for Industrial Data,
Edge and Cloud (July 2021)
Source: European Commission publications

Made in China 2025

■ Established 10 focus areas andachieve 70% self-sufficiency
by 2025⇒ Eliminate choke points in the supply chain
Step 1 (2025):
Become a major manufacturing power
Step 2 (2035):
Become a mid-tier global manufacturing
power
Step 3 (2049):
Join the top class of global manufacturing
powers through innovation leadership

Source: State Council of China publications

Japan SPOTLIGHT • September / October 2022

9

Part II. Trade That Accommodates Changes in the
Economic Structure, Technology, Geopolitics, andValues: Challenges and Opportunities
Chapter 1. Resilient Global Value Chains That Reflect
Common Values

imports and face significant risks of supply chain disruption. This isbeing done both by establishing domestic production bases and by
diversifying overseas ones. Also, in the fields of sensitive andemerging technologies, the speed of progress and diversification ofowners are giving rise to increasingly varied and complex forms ofoutflows, and countries are responding by strengthening theircontrols on export and investment (Chart 17).

Section 1. The reality and challenges of global value chains

In tandem with the trend of tariff reductions through economic
Section 3. Toward visibility for shared values and thecreation of sustainable global value chainspartnership agreements, the development of global value chains is
Recent years have seen rising interest in “shared values” related toprogressing worldwide, particularly with regard to trade insustainability and inclusion such as decarbonization and humanintermediate goods between neighboring regions, where transport
costs are low. In Asia, a complex system ofinternational division of production is being
established. As part of this, Japan has expanded
CHART 15
its forward participation in terms of supplying
Country share in Japan’s outstanding direct
investment (manufacturing sector)
intermediate goods, and also its backward(%)(Trillion yen)participation in terms of receiving intermediate90
15
goods from overseas. China’s exports to the US
also include Japanese value added, but theirChinashare of exports is declining due to factors suchas expansion into the region by parts suppliers,
60
10and improved technology among local
companies. Meanwhile, China’s value-added
inputs in Japan’s exports to the US are increasing
Thailand
rapidly. Recent years have seen issues such as30
5supply constraints due to geopolitical risks,SingaporeIndia
pandemics, and natural disasters increase,
Republic of Korea
Indonesia
Vietnamaffecting both forward and backward
participation. To address these challenges,
0
0
2005
2010
2015
2020
Japanese companies are reviewing their
World (right axis)
China
ThailandSingaporeIndia
production bases and supply sources in
Republic of Korea
Indonesia
Vietnamanticipation of escalating confrontation between
Source: Ministry of Finance “International Investment Position of Japan”
the US and China. Moreover, given that some
CHART 16countries hold a large share of intermediate
Procurement sources of Japanese overseas
goods supply, work is underway to build moremanufacturing affiliates in Asia
resilient supply chains, including diversifying(Trillion yen)supply sources and shifting to using local ones
60
(Charts 15-16).
Global Financial Crisis(2008)

Section 2. Economic security and making
supply chains resilient

The scope of security is rapidly expanding into
the economic and technological fields, driven byrising global uncertainty caused by the Covid-19
pandemic, together with the escalating
geopolitical risks posed by Russia’s aggression
against Ukraine, the US and China’s battle fortechnological supremacy, and other major issues.
Against this background, demands for economic
security are increasing. Notably, supply chainsare being made more resilient, particularly for
essential items that are highly dependent on
10 Japan SPOTLIGHT • September / October 2022

50

40

Other
Europe30

North
America

Asia

Local (others)

20
Local (Japanese affiliates)
10
Japan
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Basic Survey on Overseas Business Activities (Ministry of Economy, Trade and Industry)

CHART 17

Share of import partners in 2020
Photosensitive semiconductor devices(%)

Philippines,
3.9

US, 3.1

Others,11.2(%)

Others, 4.8

Taiwan,3.5

Palladium(unprocessed and powdered)

China, 66.6

UK, 4.3
US, 6.3

Singapore,
9.1

Republic of Korea,
4.8
Taiwan,
6.0
Malaysia,
7.6

Lithium-ion battery(%)

Republic ofKorea,
13.5

Germany, 1.0
Others, 2.5

Russia,43.3

South Africa,
42.6

China,
66.1

Source: GTA etc.

rights, and supply chain management is being called on to address
the challenges of ascertaining and disclosing information related tothem. Therefore, the following are now becoming critical issues forcompanies: making their supply chains entirely visible, andpreventing problems and responding to them in a timely andappropriate manner when they arise. Digital technology will be aneffective tool here, and there are expectations that, using Europe’s
leading progress on data collaboration as a reference, Japan and therest of Asia will come together to form an advanced supply chain
management system, and create value by means of establishing an
Asia-wide infrastructure for data sharing.

Chapter 2. Road Map to Economic Growth & a Global Trade
Structure That Will Adapt Through Innovation

CHART 18

Cross-border data flow (by regions)(Tb/s)
1000
800
600
400
200
0

2016
Asia-Pacific

2017

2018

EuropeAmericas

2019

2020

Arab states

Africa2021
CIS

Note: Number for 2021 is a forecast. Category of regions is referred from ITU.

Section 1. Technology and trade

The rapid digitalization of various goods and services is expanding
digital trade – including in data – and cross-border data flows are
increasing rapidly, with Asia at the center of progress. While
companies that collect data both domestically and internationallyhave been confirmed to be highly productive as a result of doing so,with digital protectionism intensifying in some countries, it is
becoming increasingly important to understand the trends in digitalrelated regulations. While emerging technologies such as robots andAI are enabling streamlining and value creation, the need to addressincreasingly complex rules and have increasingly advanced technicalliteracy are emerging challenges. As disparities within countries
grow wider than those between countries all around the world, using
emerging technologies instead of labor could further polarize labormarkets and skills gaps. It will therefore be important to invest in
human capital and in R&D toward technologies that will complementlabor, and also to review employment and education systems with aview toward changes in the times (Chart 18).
Section 2. Creating new economic opportunities via Asiawide startups

With their own rapid growth fueling macroeconomic growth,

Source: ITU

startups have the potential to be a new driving force supporting
future employment, incomes, and finances. In addition to procuring
large amounts of funding and enjoying rapid growth in the US andChina, startups are also doing so in emerging Asian countries,
notably India and the nations of Southeast Asia. In particular,
startups and platform businesses in emerging Asian countries do notjust have advantages in terms of scale: they are also deploying
various business strategies that both solve social issues throughdigital technology and that are tailored to the regional and customer
characteristics of their target markets. As the digital economy in Asia
continues to expand significantly, Japan will also be expected tocreate new economic opportunities through co-creation with the restof the region, in order to capture the latter’s growth potential. For
example, the digital transformation (DX) support and other efforts
should be utilized as opportunities to work with Asian startups andcollaborate with them on data. In addition to securing the Data Free
Flow with Trust (DFFT), Japan will need to tackle the issues
surrounding globalization, digitalization, and domestic startups, toensure that the rest of Asia will choose Japan as a co-creation
partner (Chart 19).
Japan SPOTLIGHT • September / October 2022

11

Section 3. Intangible assets and economic growth

The markets for industries related to frontier technologies such as
the Internet of Things (IoT) and robots are expected to expand
rapidly. In order for companies to play active roles in markets wherehigh technological capability is required, it will become increasingly

CHART 19

World venture capital investment(Billion $)
800
700
600

US

China

India

Japan

Other Asia

EuropeOthersWorld total

671.0

500

4.6

400

346.7

300

important for them to invest not only in tangible assets such asmachinery and structures, but also in intangible assets, including
R&D and human capital so as to increase the skills and productivityof their employees. Comparing the major developed countries’ trends
regarding investment in intangible assets, one of the characteristics
of Japan is that R&D accounts for a high proportion of suchinvestment, while the proportion directed into human capital andorganizational capital is low. While directing a high proportion of
intangible asset investment into R&D can be expected to help
Japan’s manufacturing industries remain diverse, strategic
investment in human capital and other intangible assets will be
important in order to increase labor productivity (Chart 20).
Note: This is a reprint of the White Paper on International
Economy and Trade 2022 (Outline) published on METI’s website(https://www.meti.go.jp/english/report/data/gIT2022maine.html) on
June 28, 2022.

3.5

200
100
0

2018

2019

2020

2021

Source: KPMG “Venture Pulse 2021 Q4”

CHART 20

Components of intangible asset investment

US

Germany

FranceUK

Germany

FranceNote 1: Organizational capital includes expenditures on legal, accounting, head office, and management consulting services, and a part of executives' remuneration.
Note 2: Human capital includes expenditures for on- and off-the-job training.

Source: RIETI and INTAN-Invest

12 Japan SPOTLIGHT • September / October 2022

UK

2017

2018
2018

2017

Expenditures onlegal, accounting,consulting services

2016

2014

2013

2012

2011

2010

2009

2008

2007

2006

2004

2003

2002

2005

US

2015

UK

Organizational capital

Japan

2016

2014

2013

2012

France2015

Germany

2011

2010

2009

2008

2007

2006

2005

2004

US

(% of intangible asset investment)
45
40
35
30
25
20
15
10
5
0
2001

2018

2012

Japan

Expenditures on
employee training

2013

2011

2010

2009

2007

2006

2005

2004

2003

2002

2001

2000

Japan

2008

Human capital(% of intangible asset investment)
16
14
12
10
8
6
4
2
0

UK

2000

France2017

Germany

2016

US

2015

Japan

2014

6

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

8

2003

10

2002

14

12

2001

16

R&D

(% of intangible asset investment)
40
35
30
25
20
15
10
5
0
2000

Intangible asset investment(% of real value-added)
18