X.

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

An Input-Output Analysis of the Economic Dependence between

Japanese Enterprises and Non-Japanese Enterprises in China and Japan1
byTeng Jian* and Fang Wenhuf

Abstract

The purpose of our research is firstly to create an International Input-Output Table for ana
lyzing Japanese enterprises in China, and secondly to examine the dependence between
China and Japan by using this original table. This paper focused on the activities of Japa
nese enterprises in China and reconstructed an 1-0 table with constant prices covering 1995
and 2000. We elucidated that the type of Japanese enterprises is "Chinese and Japanese Private Consumption Dependent Type", In addition, we presented further explanations on theclassification of the "Chinese and Japanese Private Consumption Dependent Type" by sec
tors.

Introduction

As the purpose of the study, we mainly focused on foreign direct investment (FDI),
which is an international capital movement which changes the interdependent relation
ships such as trades or technology transfer between investing countries and receiving
countries, and the structure of both sides' demand and supply. Thus, it has a great influence on both investor and receiver countries.

According to our investigations, it can be briefly said that FDI in China by Japa
nese companies has showed an expanding tendency since 2000 after the doldrums in
the late 1990's and reached 6.53 billion dollars in 2005 with a 19.8% rise compard to
the previous year. On the other hand, it is observed that in 2002 as a peak year of thenumber of Japanese enterprises in China reached 177 with a 22.0% increase comparedto the previous year. In this point, the purpose of our research is firstly to create a
1995-2000 Linked International Input-Output Table for Analyzing Japanese Enterprises
in China (Linked Japanese Enterprises Analysis I-O: LJEAI-O) and secondly to exam-i

This research is funded by the Grant-in-Aid for Scientific Research (C) (Grant # 17530179, 2007) ofJapan Society for the Promotion of Science. We would like to appreciate all the valuable comments
we received from some attendees including Mr. Faye Duchin (chairperson) when we presented a partof this research at the 16th International Input-Output Conference (2007, Istanbul-TURKEY).
Graduate School of Humanities and Social Sciences, Okayama University,
1-1 Tsushima-Naka 3-Chome Okayama 700-8530, Japan, teng@e.okayama-u.ac.jp
Department of Intercultural Studies, Keiwa College,
1270 Tomizuka Shibata-shi, Niigata 957-8585 Japan, fang@keiwa-c.ac.jp

34

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

ine the economic dependence between Japanese enterprises and non-Japanese enter
prises in China and Japan by using this original table.
Most of the studies which analyzed the economic relationship between China andJapan such as Munakata (2001), Ito (2003), and Kwan (2005) focused on the approachby theoretical and statistical analysis. In addition, due to the restriction of the delayeddevelopment of the China-Japan 1-0 Table, analysis of the recent China-Japan relation
ship using the International 1-0 Table is extremely rare. Yamada (2002) analyzed theinfluence of Japan's FDI by using the International I-O model. However, the subjects
of Yamada's study were Japanese enterprises in the U.S.A. Also, the reconstructed U.S.
A.-Japan International 1-0 Table has a drawback in comparing current prices of two
different time points (1990 and 1995). As a different point of this study, we focusedon the activities of Japanese enterprises in China and reconstructed an 1-0 table withconstant prices covering 1995 and 2000. In addition, Narita (1994) and MITI (1998)
analyzed the influence of FDI on investing countries by using the 1-0 table, that is, theinfluence that the economic activities of Japanese enterprises abroad has on Japan. In
contrast to the preceding studies mentioned above, we developed the original 1-0 tablebased which we identified the structure of Japanese enterprises in China for the firsttime.

This report consists of the following four sections.

The first section clarifies

the framework of this study. Then, the second section explains how to project the
LJEAI-O in order to analyze Japanese enterprises in China. The third section examines

the dependence between Japanese, China (non-Japanese enterprises) and Japan by us
ing this original table. Lastly, the summary of this study is given along with the concluding remarks.

1 Framework of the StudyAs the approach of our study, the structure of the International 1-0 Table can be shownas y and z are selected countries (y, z = C, J. C is China, and J is Japan), y are the restof countries (excludes Japan and China). Then, the following correlation is formulated
according to the International I-O Table between China and Japan.
HXyz+HFyz+5lL" = Xy(i)

Y>Xyz+BAz+WTAz+DAz+Vz =Xz

(2)

z

z

z

v '

where

Xyz, Fyz : Intermediate input , final demand of countries (y, z and y)
If1: Export of country y to country y

BAZ: International freight and insurance for import of country z's intermediate sec
tions

WTAZ

: Import of country z's intermediate sections from the Rest of the WorldDAZ: Custom duties and import commodity taxes of country z's intermediate sec

Vz: Value-added of country z

tions

An Input-Output Analysis of the Economic Dependence between Japanese Enterprises and Non-Japanese Enterprises in China and Japan

35

Table 1: The Format of the 1995-2000 Linked International Input-Output Table
for Analyzing Japanese Enterprises in China (LJEAI-O)
Intermediate Demand

Final Demand

Exportto the

Total

China

Japan

Rest ofOutput

prCcC

pCcJ
pcjj

LCcy
LCcy

XCc

pQC

FJC

Fn

LJ?

XJ

Non-

JapaneseJapanese
Enterprises
Enterprises

Non-Japanese Enterprises in China

XCC

Japanese Enterprises in China

XCJc

Japan

XJCc

XCcj
Xca
xjcj

Japan

World

XCcJ
xQJ
XJJ

Freight and Insurance

BACc

BAQ

BAJ

BFC

BFJ

Rest of World

WTACc

WTACj

WTAJ

WTFC

WTFJ

Tariff and Import Commodity Taxes

DACc

DACj

DAJ

DFC

DFJ

Intermediate Input

EAa
yCc

EAq

EAJ

EFC

EFJ

Vcj

VJ

Xa

XCj

XJ

Value-added

Total Input

Xci

Notes

RF
WTF
DF

: International freight and insurance for import of final demand sections: Import of final demand section from the world: Custom duties and import commodity taxes of final demand sections

Xy, Xz : Domestic production of country y and country z (gross output and gross input)

On the other hand, non-Japanese enterprises in China are Cc, and Japanese enter

prises in China are Cj, 2when selected countries/companies are e, f, z (e, f - Cc, Cj,
J\ z = C, J) and formulas (1) and (2) can be rewritten as follows;
2xe/+2F"+2z/7 =xe
f

z

(3)

r

5±Xef+BAf+WTAf+DAf+Vf = Xf

(4)eTable 1 shows the format of the LJEAI-O.

2 Projection of LJEAI-O
2.1 Materials Used for Projection

The 1990-1995-2000 Linked China-Japan International Input-Output Table (LCJI-O) is

used in projecting the LJEAI-O. This table has 33 industrial sectors and standardizes
each year's price valuation in USD, then converts them in real terms by the price basis
2 Hereinafter "Non-Japanese enterprises" and "Japanese Enterprises" mean enterprises in China if nototherwise specified.

3 See Teng and Fang, 2006 for details of the 1990-1995-2000 Linked China-Japan International InputOutput Tables.

36

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

inflator of 2000.3

Also, materials of the Wagakuni Kigyou no Kaigai Jigyou Katsudou (Report on
Overseas Activities of Japanese Enterprises) (hereinafter called "WKKJK") by the MinTable 2: Converter for the Sector Classification of 1995-2000 Linked Interna

tional Input-Output Table for Analysis of Japanese Enterprises in
China (LJEAI-O)
LJEAI-O

LCJI-OWKKJK

No. (33-Sector Classification)

No. (16-Sector Classification) No. (18-Sector Classification)
01 Agriculture, Forestry and Fishery 01 Agriculture, Forestry and Fishery 01 Agriculture02

Forestry

03

Animal Husbandry

04 Fishery
02

Mining02

Mining05

Coal Mining

06

Crude Oil and Natural Gas

07

Metal Mining

08

Non-metal Mining

03

Food and Tobacco

04

Food and Tobacco

09

Food and Tobacco04

Textile, Clothing and Leather

05

Textile10

Textile05

Timber, Furniture, Manufac

06

ture of Paper and Printing

Timber,Manufactureof

11

Clothing and Leather

12

Timber, Furniture

Paper

13 Manufacture of Paper and Printing

06

Oil and Coal

14

Oil and Coal

14

Oil and Coal07

Chemical Products

07

Chemical Products

15

Chemical Products

08

Smelting of Metals

09

Non-ferrous metals

18

Smelting of Metals

08

Ferrous metals

09

Machinery

10

Machinery

20

Machinery

10

Electric Machinery

11

Electric Machinery

21

Electric Machinery

22

Electronic

11

Transport Equipment

12

Transport Equipment

23

Transport Equipment

12

Measuring Instruments

Measuring Instruments

24

Measuring Instruments
15 Other Manufacturing Goods 25 Other Manufacturing Goods

13 Other Manufacturing Goods

13

16

Rubber Products

17

Non-metal Mineral Products

19

Metal Products

27

Construction

14

Construction

03

Construction

15

Trade

16

Trade

30

Trade

16

Other Services and Others

17

Services

32

Other Services

33

Public Administration

28

Transportation

29

Communication

31

Banking and the Insurance

18

90

Total

OthersTotal

26Electricity, Gas and Water

90

Total

An Input-Output Analysis ofthe Economic Dependence between Japanese Enterprises and Non-Japanese Enterprises in China and Japan37

istry of Economy, Trade and Industry (the former Ministry of International Trade andIndustry) are used in projecting the activities of Japanese enterprises. Data in theWKKJK such as Japanese enterprises' sales by countries, sales by buyer and supplier,and enterprises' costs and profits are especially functional for this study. However, fordata by countries, aggregation and disclosure of data of Japanese enterprises in China
started from 1994. Due to this constraint of materials, 1995 and 2000 are used as the

subject years for the analysis in this study.
For sector classification, the WKKJK has 18 industrial sectors, and the LCJI-O

has 33 industrial sectors. As a result of consolidating sectors of the WKKJK and the
LCJI-O, the number of sectors of the LJEAI-O ends up as 16 (see Table 2).
For prices in the WKKJK, the currency unit of Japanese enterprises' data is con
verted from local currency to Japanese yen. In this study, nominal prices of Japaneseenterprises in yen terms are reevaluated to USD terms by using the yen exchange rate
against USD. Moreover, the price basis inflator of 2000 is created and used for con
verting nominal values of 1995 into real terms.

2.2 Projection of LJEAI-O(1) Japanese Enterprises' Output
The output of Japanese enterprises means the price-aggregate of products pro
duced by production activities in China and it is very important for controlling both therows and columns of I-O tables. However, due to the constraint of materials, Japaneseenterprises' sales by industrial sectors in the WKKJK are used as the output by indus
trial sectors in this study (see Table 3). Also, as commercial sales differs from the con
cept of commercial domestic output (commercial margin) in I-O tables, general admin
istrative and selling expenses (rent expenses, packaging and transport expenses, payroll,and depreciation of fixed assets) and operating profits of Japanese enterprises are ag
gregated and used as the trade's output, (see Table 4).
(2) Japanese Enterprises' Input and Value Addeda) Japanese Enterprises' Total Input and Total Value Added
In this study, Japanese enterprises' total input and total value added are deter
mined as follows.

Japanese enterprises' total input (ETAcj: row vector by section column) is calcu
lated by subtracting payroll and depreciation of fixed assets from Japanese enterprises'
cost of sales in the WKKJK (consumption of goods and services were used for manu
facturing and sales of products).

Total value added (VCj: row vector by section column) is calculated by subtracting

total input from total sales. For classified items of value added, payroll and deprecia
tion of fixed assets are divided based on the data of the WKKJK. Then, payroll anddepreciation of fixed assets are subtracted from total value added (sum of column values), and the remaining amount is defined as other value added including operating
surplus and net taxes on production.

However, in projection by industrial sectors, the total amount of payroll, deprecia
tion of fixed assets and operating profits in selling expenses of trade is regarded as this
sector's total value added. Then, the total input of this sector is calculated by subtract
ing total value added from domestic output.

38

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

Table 3: Sales by Buyer, Japanese Enterprises (in Current Prices)(1000US $)Year

SectorAgriculture, Forestry and Fishery
MiningExport to theSales to China

Export to Japan

81873

72581

4444

158899

96

4646

0

4742

Rest of the World

Total

Food and Tobacco

96598

27546

4029

128174

Textile, Clothing and Leather

75377

45938816468

551233

Timber, Furniture, Manufacture ofPaper and Printing

28184

1488

0

29673

Oil and Coal

11099

9685

0

20785

Chemical Products

155018

17266

72783

245067

1995 Smelting of Metals

116532

11663

5922

134117

Machinery

77886

251478218488547852

Electric Machinery

100237187633410637572942462

Transport Equipment

1283606

79864

97183

1460653

Measuring Instruments

56794

135371138571330736

Other Manufacturing Goods

81980

67276

142728291984

Construction

29609

553

43

30204

Trade

8975233620463754731635041

Other Services and Others

11957314725

6413436141141192391909

21399538645981

Total

Agriculture, Forestry and Fishery

0

0

0

0

Mining00

00

Food and Tobacco864962

13692124524

1026408

Textile, Clothing and Leather

132606515096973929203228681

Timber, Furniture, Manufacture of Paper and Printing

1885682598

3693

194859

Oil and Coal

20933

2765

2431

26130

Chemical Products

14060872036561912031800946

2000 Smelting of Metals
Machinery

1617092

1433332723672032792

11140582308834

8930134315904

Electric Machinery

93393627778027

7268925

24386313

Transport Equipment

39806074279482838454692400

Measuring Instruments

81866916391202424332700223

Other Manufacturing Goods

1560898

6945074641182719523

Construction

1937371113

2171

197021

Trade

11531228567539243192934195

Other Services and Others

1658161544790358690256164125242321

16250063

11324653

52817038

Totalb) Division by Countries

Japanese enterprises' total input (ETAcj) calculated in the previous section is divided longitudinally into the three groups, "Input from China", "Input from Japan",and "Input from the Rest of the World" by the following method.

Table 4: Output of TVade, Japanese Enterprises (in Current Prices)(1000US$)

GeneralAdministrative

Selling Expenses
D
Rent

PackagingandTransport
Packaging andn___ °^g

Total

Payro11 Depreciation Profits
1995
60536
4848
797
12970
734
-6540
73345
2000 1598042
14715616437840515985488
533972 2934195
Sources: Ministry of Economy, Trade and Industry (2003), Ministry of International Trade and In
dustry (1998)

First, input (valued at CIF: duties and imposition on imports deducted) is divided
into "Input from the Rest of the World (WTACj)" and "Input from the Target Area
(China and Japan)" based on the local supply rate (ratio of purchase amount from supplier) in the WKKJK (see Table 5). Then, international freight and insurance premiums(BACj) are subtracted in order to match "Input from the Target Area" with producers'
prices in the I-O table. Finally, based on the local supply rate in the WKKJK, "Input
from the Target Area" valued at produces' price is divided into "Input from China(XCCj)" and "Input from Japan (XJCj)".
(3) Input from Non-Japanese Enterprises and Japanese Enterprises in Chinaa) Sales of Intermediate Goods to China by Japanese Enterprises
First, "Sales of Intermediate Goods to China by Japanese Enterprises (XCjC)" isseparated from Intermediate Demand of Domestic China (Xcc). Yamada (2002) used aratio of Japanese enterprises in economic activities of the U.S.A. in order to separate
economic activities of Japanese enterprises in the U.S.A.-Japan International I-O Table.
A similar method was used in this study that is as follows.
Sales of Intermediate Goods to China by Japanese Enterprises (row total column

vector of XCjc+XCii) = Intermediate Demand of Domestic China (row total column vec
tor of Xcc)* x Ratio of Sales to China by Japanese Enterprises (column vector) in Total
Sales to Domestic China (X^+F^)(5)b) Input Between Japanese Enterprises

Next, by longitudinal section, "Input from Japanese Enterprises (column total of
XCij)" is separated from input from China into Japanese enterprises. This process is toproject transactions between Japanese enterprises.
Input from Japanese Enterprises into Japanese Enterprises (column total row vec
tor of Xc") = Input from China into Japanese Enterprises (column total row vector of
XCcj+XCjj)* x Ratio (column vector) of Input and Purchase Amount of Japanese Enterprises' Goods in Input and Purchase Amount in Domestic China (Xcc+Fcc)(6)c) Input from Japanese Enterprises into Non-Japanese Enterprises

By longitudinal section, "Input from Japanese Enterprises (column total of XCjc)"
is separated from input from China into non-Japanese enterprises.
Input from Japanese Enterprises into non-Japanese Enterprises (column total row
vector of Xcjc) = Input from China into non-Japanese Enterprises (column total row

indicates a square matrix with the vector lined diagonally (also applied below)

4^
O

Table 5: Purchase Value and its Composition by Sectors, Japanese Enterprises (in Current Prices)3

Table 5-1 Purchase Value(1000US$)
2000

1995

SectorAgriculture, Forestry and Fishery
MiningFrom China From Japan

Fron the Restof the World

Total

SupplyFrom China

From Japan

Fron the Rest

Totalof the World

Supply1045085220

0109728160490

1995

16118

178603

43

0

0

43

1216

464

195

1874

Food and Tobacco

59622

2881

829

63332

5140586189

123281643528

Textile, Clothing and Leather

52031

20496549266

306262792929818076

3996662010671

Timber, Furniture, Manufacture of Paper and Printing

6762

3891

0

10653

112248

14503

5651

132402

Oil and Coal

457

574

4029

5061

8806

1531

4046

14382

1113093

Chemical Products

50436

10217

16862

77514

567913401281

143899Smelting of Metals

66734

35881

11184

1138008272716860441390551652371

Machinery

Electric MachineryTransport Equipment
Measuring Instruments
Other Manufacturing Goods
Construction
Trade

Other Services and Others
Total

125324115671

62386

3033811821045

1212007

303962333701441088711709976164582198341

601137661814337012879

19205688

41874351162036285

9666491111849124923495203

2456287

37402

70168

14394025151011617431031224

46664

2239631

47906

21539

12577

82022

7895704055862128701408026
15979443471448

27653

32

0

27684

15522904565

27268814412153158

46996613084467

15772293

14614689

34510

5358

2647

42515

1733692292363627123265317823749865

80677990

171570323031361009622502846128853902

Sources: Ministry of Economy, Trade and Industry (2003), Ministry of International Trade and Industry (1998)

28074223>3fc>

Table 5-2: Composition of Purchase(Total Supply=lQQ)
1995

SectorFrom China

From Japan

2000

Fron the Rest

Totalof the World

SupplyFrom China

From Japan

Fron the Rest

Totalof the World

SupplyAgriculture, Forestry and Fishery
Mining95.24
100.00

4.76
0.00

0.00
0.00

100.00100.00

89.86
64.85

1.12
24.75

10.40

100.00Food and Tobacco

94.14

4.55

1.31

100.00

79.88

0.96

19.16

100.00

Textile, Clothing and Leather
Timber, Furniture, Manufacture ofPaper and Printing

16.99
63.47

66.92
36.53

16.09
0.00

100.00100.00

39.44
84.78

40.69
10.95

19.88

100.00Oil and Coal

9.03

11.34

79.62

100.0061.23

Chemical Products

65.07

13.18

21.75

100.00Smelting of Metals
Machinery
Electric MachineryTransport Equipment
Measuring Instruments
OtherManufacturing Goods

58.64
41.31
18.69
43.32
14.87
58.41

31.53
38.13
53.27
52.93
27.90
26.26

9.83
20.56
28.04
3.75
57.23
15.33

100.00100.00100.00100.00100.00100.00Construction

99.88

0.12

0.00

100.00

Trade

58.02

30.67

11.31

Other Services and Others

81.17

12.60

6.23

Total

34.12

45.80

20.08

100.00Note: This table was calculated based on the table 5-1

9.02

rV

100.004.27

100.00

10.65

28.13

100.00

51.02

36.05

12.93

100.00

50.07
54.57
31.30
45.27
51.87
56.08

41.52
36.32
32.19
50.86
46.04
28.81

97.14

0.00

100.0030.10

100.00

65.34

35.76

8.42

100.009.11

100.0036.51

100.00

•8

-a
3.

8

3.88

100.002.08

100.0015.12

100.002.86

100.00

36.28

33.62

100.00

11.02

23.64

100.00

34.80

29.44

100.0042 Journal ofApplied Input-Output Analysis, Vol. 13 &14, 2008*of XCcc+XCjc)* x Ratio (column vector) of Input and Purchase Amount of Japa-

vectorneseEnterprises' Goods in Input and Purchase Amount in Domestic China(7)d) Input from Japanese Enterprises into Japanese Enterprises and Non-JapaneseEnterprises.

We made balance adjustments by the RAS method using the following data suchas sales ofintermediate goods to China by Japanese enterprises (row total column vec
tor of XCjC), input from Japanese enterprises into Japanese enterprises and non-Japaneseenterprises (column total row vector of XCjj and XCjc), and corresponding input coeffi
cients in the LCJI-O determined in the preceding section. Then, we projected all fac
tors in the matrix of input, Xcjc and Xc\ from Japanese enterprises into Japanese enter
prises and non-Japanese enterprises.

e) Input Between Non-Japanese Enterprises in China and Input from NonJapanese Enterprises in China into Japanese Enterprises

First, sales of intermediate goods to China by non-Japanese enterprises (XCcC: column vector) is calculated by subtracting "sales of intermediate goods to China by Japa

nese enterprises (XCjC)" from intermediate demand of domestic China (Xcc) by lateralrow section. Next, input between non-Japanese enterprises in China (XCcc: row vector
of column total) is calculated by subtracting "input from Japanese enterprises (row vec
tor of column total of XCjc)" from input of non-Japanese enterprises from China by lon
gitudinal column section. Similarly, input from non-Japanese enterprises into Japaneseenterprises in China (row vector of column total of XCcj) is calculated by subtracting"input from Japanese enterprises (row vector of column total of XCjj)" from input ofJapanese enterprises from China. Lastly, by using data such as corresponding input coefficients in the LCJI-O, we projected factors in the matrix of input from non-Japaneseenterprises into non-Japanese enterprises and Japanese enterprises as well as non-Japanese enterprises, that is XCcc and XCcj, by the method similar to d).
It is important to note that we used Xcc, XCJ, XJC and XJJ in the LCJI-O for the coefficients in projecting the factors in the matrix of input, XCcc, XCcj, XCjc and XCjj. It isbecause of the assumption that the input structures of non-Japanese enterprises andJapanese enterprises in China, between non-Japanese enterprises and between Japaneseenterprises are similar to those of Chinese enterprises and Japanese enterprises, be
tween Chinese enterprises and between Japanese enterprises in the LCJI-O.
(4) Input from Japanese Enterprises into Japana) Sales of Intermediate Goods to Japan by Japanese Enterprises
First, by lateral section, sales of intermediate goods by Japanese enterprises are
separated from China's sales of intermediate goods to Japan and the separation method
is as follows:

Sales of Intermediate Goods to Japan by Japanese Enterprises (row total column

vector of XCjJ) = China's Sales of Intermediate Goods to Japan (row total column vec
tor of Xa)* x Ratio of Sales to Japan by Japanese Enterprises in China's Total Sales toJapan (column vector)(8)b) Input from Japanese Enterprises into Japan
Next, by longitudinal section, input from Japanese Enterprises is separated from
input from China into Japan. That is, Input from Japanese Enterprises into Japan (column total row vector of XCjJ) = Input from China into Japan (column total row vectorof XCJ) x Ratio of Purchase Amount of Japanese Enterprises' Goods in Japan's Total

Import ofChinese Goods (column vector)*c) The Matrix of Input from Japanese Enterprises in Japan

Lastly, we made balance adjustments by the RAS method using the following datasuch as sales of intermediate goods to Japan by Japanese enterprises (row total column

vector of XJ), input from Japanese enterprises into Japan (column total row vector of

XJ), and corresponding input coefficients in the LCJI-O in the preceding sections a)
and b). Then, we projected factors in the matrix of input from Japanese enterprises into

Japan, XCjJ.
(5) Calculation of Final Demand Sectiona) Sales of Final Goods to China by Japanese Enterprises and to Japan
Sales of final goods to China by Japanese Enterprises (F^) and sales of final

goods to Japan (FCjJ) are calculated by subtracting sales of intermediate goods to China
by Japanese enterprises (XCjc) and sales of intermediate goods to Japan (XCjJ) from sales
to China by Japanese enterprises and sales to Japan.
b) Purchase of Final Goods by Items from Japanese Enterprises by China and Ja
pan

We calculated sales of final goods to China by industrial sectors by Japanese en
terprises and sales of final goods to Japan (row total column vector of F0^ and F^) inthe preceding sections. Sales of final goods by final demand items to Japan, that is, thepurchase of final goods by final demand items from Japanese enterprises by China andthe purchase of final goods from Japanese enterprises by Japan (column total row vec

tor of F^ and F^) are calculated pro rata to the ratios by final demand items of China
and Japan.
c) The Matrix of Final Demand of Japanese Enterprises
We projected factors in the matrix of final demand (sales) to China and Japan by Japa

nese enterprises, FCjC and F°JJ, using the following data such as sales of final goods byindustrial sector by Japanese enterprises, sales of final goods to Japan (row total column vector), purchase of final goods by items from Japanese enterprises by China,purchase of final goods by items from Japanese enterprises by Japan (column total row
vector), and final demand purchase factor (ratio of purchase by industrial sectors = purchase of final demand by industrial sectors / total final demand) of China and Japan in
the LCJI-O.

(6) Projection of Export to the Rest of the World
It is necessary to divide enterprises in China involved in Export to the Rest of theWorld (excludes Japan) into Japanese enterprises and non-Japanese enterprises. Here,the Export to the Rest of the World of Japanese enterprises in the WKKJK are regarded as the Export to the Rest of the World in the LJEAI-O. The Export to the Restof the World of non-Japanese enterprises is calculated by subtracting the Export to theRest of World of Japanese enterprises from China's Export to the Rest of the World in
the LCJI-O.

Based on the above-mentioned procedure, we projected the economic activities ofJapanese enterprises in 1995 and 2000 and created the LJEAI-O dividing economic ac
tivities in China included in the LCJI-O of the same period into Japanese enterprises
and non-Japanese enterprises. Table 6 shows the estimated LJEAI-O (one sector).

Table 6: 1995-2000 Linked International Input-Output Table for Analysis of Japanese Enterprises in China (at 2000 prices, one sector)

4^4^(1000US$)

Table 6-1 (1995)
Intermediate Demand

China

Non-Japanese EnterpriseJapanese Enterprise

Non-JapaneseJapanese

EnterpriseEnterprise1043203176

Japan

1927486>

Final DemandChina

14591942

China

701182656

Statistical

Total

Discrepancy

Output139675235-3142943

1912263945
69573148234221128

Export to the RestJapanof the World

14826393

2012957

19974

76274212372551182932

17414550Japan12379283

17717753589391412

78963634248001612

381660468-6879786

Freight and Insurance

3149484338588437660210992251345811

97896535

1000175255806530

42030011

120063405

Rest of World

Tariff and Import Commodity Taxes

Intermediate Input

2673835

11906016427241

73212501160604464

5887863

3881356469

754177634

4385420152

Total Value-added

751659481

10694524352864659

Total Input

1912263945

69573148234221128

O

Rp

to
o
o

Table 6-2: (2000)
Intermediate Demand

Final Demand

China

^, .
China

T
Japan

Non-JapaneseJapanese

EnterpriseEnterprise

Non-Japanese Enterprise 1787621351

15370121

14280746

17604572

438958640761414500703

62956563765944734

Freight and Insurance

27016059

6774937

30101821

10494992

13850643

Rest of World

104943538

8003590229782968

49514659

148268628

China

Japanese EnterpriseJapan

Tariff and Import Commodity Taxes
Intermediate Input

Japan

r

60250571031501

30725952

1787168037914763

4077243834

1069973035

4789425183

1100613727

14902275

4820282936

Total Input

3058325008

52817038

8897526770

Total

Export to the Rest
_ . „, .,Output226086075
11324653
493233502

3054008

3058325008

052817038
8897526770

of the World

992610875
19301832
7198792
9842449
8366548 4598161631

1957711281

Total Value-added

Statistical

Discrepancy

11023996

An Input-Output Analysis of the Economic Dependence between Japanese Enterprises and Non-VnP. p-^ .n nhm ^ ^45

3 Analysis of Economic Interdependence of Japanese Enterprises
In this section, we look at the economic activities of Japanese enterprises in China andtheir recent change by using the LJEAI-O.

3,1 Demand Structure and Cost Structure

The output value of Japanese enterprises increased approximately eightfold from 6.957
billion dollars in 1995 to 52.817 billion dollars, and the value added increased approxi
mately 15 times from 1.069 billion dollars in 1995 to 14.902 billion dollars in 2000

(see Figure 1). These far exceed the growth rates of non-Japanese enterprises in China
and that of Japan for the same period. This is because an increasing number of Japa
nese trading enterprises have expanded into Chinese market, and their working profits
have improved. In order to join the WTO, China has phased out restrictions on thesales activities of foreign enterprises in China as well as on investment ratio of foreign
enterprises in its distribution industry. As a result of this, the number of Japanese trad
ing enterprises that were either established or made investments in China between 1995

and 2000 amounted to 212; a 43.2% increase from 148 enterprises between 1989 and1994. Also, the fact that the operating profits of Japanese trading enterprises in China
returned to the black in 2000 (533.97 million dollars) from the red in 1995 (- 6.54 million dollars) has made a great contribution to the growth of this section.
The amount of production for the demand to China of Japanese enterprises in2000 is 25.2 billion dollars, which makes up 47.8% of the total amount (see Table 7).
In addition, the amount for intermediate demand is 18.0 billion dollars (34.2%). It has

Figure 1: The Economic Growth Rates, 2000 (1995=1.00)
16.0
14.0
12.0

-

10.0

8.0
6.0

4.0

-

2.0
0.0

•:•:•

!

T

Non-Japanese Enterprise•

Domestic Products

E:::::::::|||||||||||
Japanese Enterprise

CD Value-added

Japan

4^
as

Table 7: Gross Output Value and its Composition by Sectors, Japanese Enterprises
Table 7-1 Gross Output Value(1000US$)
Demand to Chin

Export to the Rest of

Demand to Japan
Intermediate Demand

1995

Agriculture, Forestry and Fishery

2000

1995

2000

Intermediate Demand
1995

1995

2000

1995

2000

1995

2000

Total Output

O

the World
2000

75795

0

39922

0

67193

0

49317

0

4114

0

147102

128

0

116

0

6210

0

6146

0

0

0

6338

0

Food andTobacco

82207

86496229320

315031

23443

136921

13187

65674

3429

24524

1090791026408

Textile, Clothing and Leather
Timber, Furniture, Manufacture of Paper and Printing

61726
26359

132606541404

874697376190150969751231

15986913486

392920451402322868118856823301

171726

1392

2598

973

1593

0

3693

27751

194859

Oil and Coal

15666

20933

15073

20363

13670

2765

13347

2687

0

2431

29336

26130

Chemical Products

1474631406087131244129815916424

20365611460

13021069236

1912032331241800946

Smelting ofMetals

89439

1617092

89907

1604104

8951

1433338756

1381674545

2723671029352032792

Mining0Machinery

61188

1114058

41222

790413

197562230883471969

8005521716458930134303954315904

Electric Machinery

974341

9339362694531681507185182977780274245083670560

10340117268925

2860182

24386313

Transport Equipment

13813743980607714839232726785947

42794831146

1424721045852838451571905

4692400

Measuring Instruments

91700

81866973361

670539218573163912039599

2661622237402424335340122700223

Other Manufacturing Goods

55180

1560898

49675

143894345283

69450725151

29641796069

464118

1965332719523

Construction

34419

193737

3998

23632

643

1113

643

0

49

2171

35111

197021

Trade

39379

115312231799

91818915885

8567535436

44738916474

92431971738

2934195

Other Services and Others

1338211658161

53217

77539516479

5447909873

285863713586901503722561641

Total

327018525242321

2032930

18043530

1945674

16250063

7627426407614174145511324653

695731452817038

9p

Ul
ON

to

LO

ON

>—*

to
'-'

o

o
o

o
o

d
o

o
o

d
o

p

o

d

o

o

o

d

o
o

o

•—'

j—'

4^

*—•

4^
00

o

d

o
o

o

d

o
o

-j

d

-o

>—l

oo

bo

o

d

o
o

o

d

o
O

00

VO

00

O

VO

4^

On

bo

VO

to

4^

•-J

00

-J

o

d

o
o

o

d

o
o

Ui

d

On

ON
Ul

ON

2

LO

00

VO

»—

oo

vo

00
LO

o

d

o
o

o

d

o

o

bo

vo

to

Ul

o

d

o
o

o

d

o
o

ON
VO

to
o

00

VO

bo

I—i

LO

Ul
Ul

00

to

ON

LO

Ul

d

Ul

4^

^

On

£
bo

o

Ul

Ul
LO

o

d

o
o

o

d

O
O

4^
O

LO

,_

to

4^

4^

o

00

On

Ul

oo

Ul

d

-o

o

_.

>_.

o

d

o
o

O

d

o
O

to

ON

O

H_l

o

^

to
vo

LO

o

d

o
o

o

d

o
o

o

Lo

vo

o

d

o

00

to

o

^J
to

VO

t.

Ui

4^

Ul
00

vo
to

4^

Lo

o

o

Ul

i—*

ON

ON
«o

d

4^

^

Ui

VO
o

s
o

d

o

d

o
o

C3

d
o

,

to

,

vo
vo

JO

Ul

vo

4^

Ul

Lo

o
o

o

d

o
o

VO
O

>—t

o

d

o

to

p
bo

Ul

^*

LO

LO

^O
ON

Lo

ON

4^

4^

to

t—»

Lo

Ul

d

o

d

o
o

o

d

o
o

VO

Lo

to

4^

^_»

LO

4^
o

ON

VO

d

to

4^

Lo

LO

•—

vo

4^

•—'

to

vo

00
LO

O
ON
vo

d
•—'

po
LO

VO
LO
00

to

d

LO
00

to
-J

4^
4^
00

-o

-o
•-J

•—'

bo

bo

4^

o
o

1

o

d

1

o

p
d

1

.

VO
-J

vo
ON

1

1

00

o
o

1

o

d

1

O

bo

to

1

.

Ul
LO

LO
LO

i

1

00

ON

Ul

VO
--J

VO

I
1
1
1

^J
^-*

to
ON

to

|

1—'

VO

H

-O

4*>

1

LO

to

On

OO

Ul

*-*

Ul

to

d

Ul

Lo

-j

CD

3"

31

Cfl*

o.

§

Cfl

S1

c

o

3.

>

VO
-J

00
LO

p*

Ul
LO
00

p
o
o

o

«o

o

Lo

-o

<J
•«J

d

*~*

4^

ON
-O

t—

p

d

vo
ON

00

-j
00

4*>
00

-o.

4^

_-

o

vo

i—
to

•—'

vo

LO

^

to
vo

VO
Ul

to
-j

00

4^

Ul

O

On

VO

4^

oo

LO

h—

VO

LO

VO

4^

CD

1-

s

D-

p
3

3
era

a*

era

p
3

3_

3'

o-

31
O

1 o5

i

1

5

i

W

w

00

Ul
LO

EL

><

n

to
0
0
0

vo
vo
Ul

0
0
0

to

VO
vo
Ul

to
0
0
0

vo
vo
Ul

to
0
0
0

vo
VO
Ul

to
0
0
0

VO
VO
Ul

O

8O

Ul

VO
VO

O

2:

CD

o
CL

D

g-

#

3

c

c

u

?L
0

B.
0

£

ct £J

CD

3

CD

n

o

ft

e

<B

e

©

I

©

©

©

B

©

Lp uBdBf pm Buro u| sasudi^uH *m*r«N P« s9Sudj3,u3 3S,u5dBf umjsq a3u3pu3d9a OBuoaoaa aqi jo sis^uy indin0-)ndui

o

d

o
o

d

o
o

d
o

o

o

p
d

•—'

Ul

•£.

d

o

o

t

LO

Ul

to
to
LO

vo
ON

o

d

Ul

d

to

VO

d
to
1—'

H—

lo

o

o

O

Ul

#^to

o

bo
o

bo
LO

Ui
00

ui

«o

VO
ON

Ul

to
H-

-J

ON

O

©

^
-o

to
o

4^

ON
O

LO

VO

Ul

to
Ul

2

LO

to
-J

Ul

o

4^

to
vo

LO

J_u

-j

^

o

i—•

bo

to
to

4^
O

vo
o\

to

o

to
-J
VO
«o

VO
VO

to
VO

00
LO

to
-o

to
4^

4^

vo

o

4i>
ON

t—>

Ul
to

,_»

LO

lo

LO

J_i

00

vo

LO

VO

Ul
00

^o

00

to

vo

to

4^

4^

4^

^

LO

Ul

to

Lo

Lo

to
Ul

t—'

Lo

1:

Ul

LO

to
to

tO
VO

-j

Ul

Ul

O

to

bo

LO

bo
LO

LO

4^
O

lo

vO

LO
LO

LO

O

<|

<|
VO

-J

to
Ul

LO

4^

O

<l

00

oo

LO

Ul

00

VO

4*.

VO

LO

ON

4^
-J

VO

O
o

1

4^
O

to
ON

o

to

ON
LO

00

d

d
«o

o

Q.
C
Cfl

LO

00

O

§
i.
o.
o

d

bo
vo

vo
VO

o

d
00

On

00

4^
to

^

Cfl*

p.

o

o

-^

LO

a.
3
era

<l

00

<3

CD

3"
5'

3

5'

3"

3
CD

O

00

00
oo

_

3

CD

CD
3

3

3

c

i

W

31

o

3.

% 3^

-O

to

O
o
O-

O

3

3.

c

C

3.

O

Cfl

3

^—

VO
oo

Lf\

4^

oo

o

P.

3

O

C

3.
p
3

a
p
Cfl

§

4^

5?

8

O

D-

P
3

Cfl

CD

o

1.

00

cd

O

&

o
3

0)

en

O

s>
D-

O

tj po

p.

uy

48 Journal of Applied Input-Output Analysis, Vol. 13 &14, 2008

Table 8: Composition ofGross Input, Japanese Enterprises(Total Input=100)
1995

2000

27.70

29.10

0.29

0.83

25.47

11.92

Freight and Insurance

4.87

12.83

Rest of World

14.38

15.15

1.71

1.95

Intermediate Input

74.41

71.79

Total Value-added

25.59

28.21

Total Input

100.00100.00China

Non-Japanese EnterpriseJapanese EnterpriseJapan

Tariff and Import Commodity Taxes

also shown a significant increase from 29.2% in 1995 to 33.3% in 2000. We can saythat Japanese enterprises play a role of a supplier who provides intermediate goods andcapital goods that are essential to industrialization in China. Compared to other devel
oped countries, the main characteristic of Japanese industries until the mid-80s was the"Full Set", which means they had sufficient production capability ranging from raw
materials, intermediate goods to final goods. Due to the sharp appreciation of the yen
in the wake of the Plaza Accord in 1985, Japanese enterprises gradually shifted fromdomestic production to foreign production. Japanese enterprises, which have capability
to produce a wide variety of industrial products under the "Full Set" industry structure,
play the role of an important supplier who provides industrial goods to China. It isalso important to mention that 30.8% of the production of Japanese enterprises is forthe demand to Japan and 21.4% for export to the rest of the world (excludes export toJapan, same for the following).
By industrial sectors, the production of Japanese enterprises for China increased inmost industrial sectors from 1995 to 2000. On the other hand, for production for Ja

pan for the same period, the amount decreased for Food and Tobacco, Textile, Clothingand Leather, Timber, Furniture, Manufacture of Paper and Printing, and Oil and Coal,
while it increased for Machinery, Electric Machinery, Transportation Equipment, Meas
uring Instruments, Trade, Other Services and Others4. Export to Japan is shifting fromlabor-intensive industries to more sophisticated capital/technology-intensive industries
and service sectors.

The intermediate input ratio of Japanese enterprises in 2000 is 71.8%, 2.6 points
down from 74.4% in 1995, while the value added ratio increased by the same amount(see Table 8). The intermediate input from Japan in particular decreased by 13.6 points
from 25.5% to 11.9% for the same period. This is largely due to the increased ratio ofinternational freight and insurance (from 4.87% in 1995 to 12.83% in 2000).5
However, since no figures are available for the agriculture, forestry and fisheries industry and themining industry, their changes are unknown.
International freight and insurance in the LCJI-O is calculated by subtracting the demand of the LCJI
-O (intermediate demand + final demand), that is, Rest of World (import from the world) and Tariff /Import Commodity Taxes from the demand of the Chinese I-O table and the Japanese I-O table (in-

An Input-OutputAnalysis ofthe Economic Dependence between Japanese Enterprises and Non-Japanese Enterprises in China and Jaoan^g
3.2 Production Repercussion

In this section, we examine the production repercussion effect of economic activities ofJapanese enterprises by using the inverse matrix coefficients of the LJEAI-O. The columns of the matrix indicate the production volume of each sector induced by one unitof final demand in the column sections. The subtotals of these column values (the induced production volume ofeach sector) indicate the total production volume induced

by one unit of final demand (Total Repercussion Effect), and we can obtain the average
induced production volume (Average Repercussion Effect) by dividing the total in
duced production volume by the number of industries.

The industry-wide average repercussion effect in 2000 is 2.7 for non-Japanese en
terprises, 2.3 for Japanese enterprises, and 2.1 for Japan (see Table 9). Compared to
1995, we observe no significant change for non-Japanese enterprises (2.6) and Japan(2.1), while the repercussion effect (2.5) of Japanese enterprises decreased. The pro
duction repercussion of the final demand of Japanese enterprises on trading partners(0.1 billion dollars x the inverse matrix coefficients) in 2000 is 84.41 million dollars

for non-Japanese enterprises, 16.31 million dollars for Japan, and 12.04 million dollars
for Export to the Rest of the World, all of which decreased compared to 1995.
Table 9: Average Repercussion Effect, Japanese Enterprises
1995

Non-Japanese JapaneseEnterpriseEnterprise

2000

Japan

Non-Japanese JapaneseEnterpriseEnterpriseJapan

Non-JapaneseEnterprise

2.408

0.927

0.015

2.477

0.844

0.016

Japanese
Enterprise

0.004

1.002

0.000

0.018

1.011

0.002

Japan

0.043

0.310

1.979

0.029

0.163

1.930

Rest of World

0.149

0.182

0.101

0.101

0.120

0.082

Average

2.612

2.484

2.104

2.654

2.260

2.054

China

3.3 Production Inducement Coefficients

While China has become the "Factory of the World" by expanding its production scale

and improving productivity, it also attracts worldwide attention as the "Market of thetermediate demand + final demand).

Freight and Insurance=Demand of China and Japan-Demand of the LCJI-O-Rest of WorldTariff /Import Commodity Taxes

Intermediate demand and final demand of China and Japan can be obtained from the Chinese IO table and the Japanese I-O table.

International freight and insurance calculated as such may contain statistical discrepancies. In
addition, it is possible that the projection of the LJEAI-O may be biased because we applied the ra
tio of international freight and insurance in the LCJI-O above in projecting the international freightand insurance of Japanese enterprises.

50 Journal ofApplied Input-Output Analysis, Vol. 13 &14, 2008

World" with the largest population in the world and rapid increases in income. Japa

nese enterprises also value the potential of China and are advancing into the Chinese
market aggressively. Here, we divide final demand into three parts, "Final Demand of
China", "Final Demand of Japan", and "Export to the Rest of the World", and examine
how much the domestic production values of which industry increases by one unit of
final demand in some final demand by using the production inducement coefficients.
Table 10 shows the induced production values of Japanese enterprises by 0.1 billion
dollars of final demand (0.1 billion dollars x production inducement coefficients, samefor the following) by using the LJEAI-O. According to this table, the value of domestic

products induced ofJapanese enterprises by "Export to the Rest of the World" in 2000
is 2.58 million dollars, nearly six times the figure of 1995 (0.45 million dollars). The
induced production by the "Final Demand of China" in 2000 is 1.79 million dollars,nearly five times the figure of 1995 (0.37 million dollars). The induced production by
the "Final Demand of Japan" is significantly small compared to "Export to the Rest of
the World" and the "Final Demand of China" but grew almost eightfold from 0.04 million dollars in 1995 to 0.31 million dollars in 2000.

Table 10: Induced Production (per 0.1 Billion Final Demand), Japanese Enterprises(10Q00US$)
Final Demand of China
1995

36.8

2000

Rates( 1995=1.00)

Final Demand of Japan

Export to the Rest of the World

4.2

45.1

178.5

31.0

257.8

4.85

1A5

5/72

Japanese enterprises advancing into China, the world's huge production base, haverecorded a significant increase in the production induced by the demand of "Export to
the Rest of the World" and "Export to Japan (Reverse Import)". At the same time, do
mestic demand in China as a huge consuming area of the world is greatly contributing
to the expansion of the induced production of Japanese enterprises in China. Espe

cially, capital- and technology-intensive industries in Japan with comparative advantage
compete to enter into the Chinese market by establishing joint ventures with Chinese
enterprises.

When we look at the induced production of Japanese enterprises by final demandin 2000 by industrial sectors, we find, for "Export to the Rest of the World", the effectof Electric Machinery amounts to 1.54 million dollars, which makes up 60.0% of theentire industry (see Table 11). For the "Final Demand of China", the induced amountis 0.24 million dollars for Electric Machinery and 0.13 million dollars for Transportation Equipment, the sum of which makes up 53% of the total induced amount by thisfinal demand. The percentage of the sum of Electric Machinery and Transportation
Equipment decreased from 73% in 1995 to 53%, but the induced production amount ofthese two industries by the "Final Demand of China" is predominantly large. For the
induced amount by the "Final Demand of Japan", Electric Machinery, Machinery, andMeasuring Instruments make up 63-71% of the entire industry from 1995 to 2000. It
should be also noted that the inducement effect on Textile, Clothing and Leather by theAn Input-Output Analysis ofthe Economic Dependence between Japanese Enterprises and Non-Japanese Enterprises in China and Japan

51

Table 11: Induced Production (Per 0.1 Billion Final Demand) by Sectors, Japa
nese Enterprises(10000US $, Total sectors=100)
Final Demand of

Final Demand fo

Export to the Rest

China

Japan

of the World

Value

Agriculture, Forestry and Fishery

Ratio

0.9

Value

Ratio

Value

Ratio

2.55

0.1

3.48

0.2

0.54

0.0

0.31

0.0

0.02

Mining0.0

0.00

Food and Tobacco

1.0

2.83

0.1

1.29

0.1

0.30

Textile, Clothing and Leather

0.6

1.74

0.9

20.53

0.6

1.24

Timber, Furniture, Manufacture of Paper and Printing

0.3

0.76

0.0

0.13

0.1

0.20

Oil and Coal

0.2

0.44

0.0

0.71

0.1

0.17

1.12

1.9

4.15

Chemical Products

1.5

4.13

0.0

1995 Smelting of Metals

0.9

2.45

0.0

0.52

0.5

1.11

0.4

9.80

3.8

8.37

57.96

Machinery

0.7

1.94

Electric Machinery

9.9

26.88

1.7

41.20

26.1

46.40

0.2

4.73

3.7

8.24

Transport Equipment

17.1

Measuring Instruments

0.7

1.81

0.5

11.83

5.1

11.29

Other Manufacturing Goods

0.6

1.54

0.1

2.34

2.1

4.72

0.0

0.09

0.5

1.03

Construction

0.4

1.13

0.0

0.09

Trade

0.4

1.11

0.0

0.92

Other Services and Others

1.6

4.28

0.0

1.00

0.3

0.57

100.0036.8

100.004.2

100.0045.1

Agriculture, Forestry and Fishery

0.0

0.00

0.0

0.00

0.0

0.00

Mining

0.0

0.00

0.0

0.00

0.0

0.00

2.9

4.28

0.3

0.96

0.8

0.32

Food and Tobacco

3.76

Total

Textile, Clothing and Leather

3.4

5.02

2.9

10.34

9.7

Timber, Furniture, Manufacture of Paper and Printing

0.5

0.72

0.0

0.08

0.6

0.22

0.1

0.04

Oil and Coal

0.1

0.09

0.0

0.02

3.8

5.48

0.4

1.49

7.3

2.84

Chemical Products

2000 Smelting of Metals

4.3

6.24

0.3

0.92

10.1

3.92
6.92

Machinery

3.1

4.58

3.9

13.93

17.8

23.5

34.32

12.5

45.03

154.0

59.74

Electric Machinery

9.0

3.47

Transport Equipment

12.7

18.46

0.7

2.65

Measuring Instruments

1.7

249

3.1

11.18

8.3

3.23

Other Manufacturing Goods

4.0

5.79

1.3

4.51

12.9

5.00

0.2

0.06

17.9

6.96

Construction
Trade

Other Services and Others
Total

0.6

0.93

0.0

0.06

3.0

4.40

1.5

5.30

5.0

7.22

1.0

3.53

9.0

3.51

100.00257.8

100.0068.6

100.0027.9

52 Journal ofApplied Input-Output Analysis, Vol. 13 &14, 2008

"Final Demand of Japan" is relatively large (10%~21%). This largely depends on thedevelop-and-import scheme of Japanese enterprises. The Japanese textile market must
produce abig inducement effect on Japanese enterprises expanding into China stextile
industry such as UNIQLO (Unique Clothing Warehouse: UNI-CLO=UNI-QLO).
3.4 Production Inducement Distribution Ratios(l)Production Inducement Distribution Ratios by Country
We look at what kind of final demand induces domestic production of Japaneseenterprises by using production inducement distribution ratios (see Table 12). The pro
duction inducement distribution ratio of Japanese enterprises by the "Final Demand of
China" in 2000 is 36.2%, half of that of non-Japanese enterprises (77.8%), while theproduction inducement distribution ratio by "Export to the Rest of the World" is
35.7%, twice that of non-Japanese enterprises (19.4%). This tells us that the production of Japanese enterprises in China has relatively high dependency on China's "Export to the Rest of the World" (China as the "Factory of the World") rather than "Final
Demand of China" (China as the "Market of the World") compared to non-Japaneseenterprises. The production inducement distribution ratio of Japanese enterprises by
the "Final Demand of Japan" is 28.1%, which far exceeds that of non-Japanese enter

prises (2.8%). This is a distinctive characteristic of Japanese enterprises. Distribution
ratios of Japanese enterprises by "Export to the Rest of the World" and the "Final De
mand of Japan" amount to 63.8%, which makes it clear that the production of Japaneseenterprises is export-dependent. We can draw a triangle using three kinds of production inducement distribution ratios of Japanese enterprises in 2000 as the three sides:the "Final Demand of China", the "Final Demand of Japan", and "Export to the Restof the World" (see Figure 2). This figure indicates that non-Japanese enterprises arestrongly pulled to the direction of the "Final Demand of China", and Japan is strongly

pulled to the direction of the "Final Demand of Japan". Therefore, a scalene triangle
is formed. On the other hand, Japanese enterprises form a regular triangle with almost
equal degrees of dependence on the "Final Demand of China", the "Final Demand ofJapan", and the "External Demand". For the triangle graph for 1995, we can observe
the same characteristics as that for 2000. However, when comparing 2000 and 1995,
the degree of dependence on production inducement by the "Final Demand of China"
for both non-Japanese and Japanese enterprises decreased (non-Japanese enterprises A
1.9 points, Japanese enterprises A3.7 points), while "Export to the Rest of the World"increased (approximately 2 points up).
(2)Production inducement distribution ratios by country and industrial sector
When we look at the production inducement distribution ratios by country and in
dustrial sector, we can say that many Japanese enterprises heavily depend on the "Final
Demand of China" (exceeds the figure of the entire Japanese enterprises with 36.2%),
which can be classified as the "Chinese Final Demand Dependent Type" (see Table
13). However, some industries e.g. Measuring Instruments, Machinery, and Textile,
Clothing and Leather, have a high degree of dependence on the "Final Demand of Japan", and Trade, Electric Machinery, and Smelting of Metals heavily depend on "Export to the Rest of the World". These industries are all export-dependent types. The
statistics in 1995 also show a high degree of dependence on the "Final Demand of&

Table 12: Production Inducement Distribution Ratios, Japanese Enterprises&(Total Final Demand=100)
Final Demand of Japan

Final Demand of China

Private

China
1995

China

Japan

PrivateFixed Capital Change in

Fixed Capital Change inExport to
Rest of World

Formation

36.96

10.63

27.86

4.27

3.33

2.36

0.14

0.80

0.02

16.95

39.93

18.64

2.41

15.68

3.20

26.18

18.58

0.43

7.00

0.18

33.89

0.46

0.14

0.02

0.27

0.04

89.52

47.80

12.09

29.22

0.41

10.02

Non-JapaneseEnterprises

77.80

38.23

9.83

29.84

-0.10

2.79

2.00

0.11

0.68

0.00

19.41

Japanese
Enterprises

36.19

18.59

2.75

14.91

-0.06

28.11

18.50

0.54

9.25

-0.18

35.69

0.49

0.16

0.02

0.32

0.00

87.60

48.74

13.92

24.91

0.02

11.91

79.72

Japanese
Enterprises

Stock

Other

Consumption Consumption
Non-JapaneseEnterprises

Japan

2000

Other

Consumption Consumption

Formation

Stock

Cl.

2

1

54 i»»rn»l of Applied Input-Output Analysis, Vol. 13 &14, 2008
Figure 2:

Production Inducement Distribution Ratios by Countries, 2000
Non-Japanese Enterprises
Final Demand of
China

100,

Exportto the Rest of

Final Demand of

the World

Japan

Japanese Enterprises
Final Demand of
China

100/

Export to the Rest of

Final Demand of

the World

Japan

Japan
Final Demand of

China

100

Export to the Rest of

Final Demand of

the World

Japan

China" for many Japanese enterprises, which also indicates characteristics of the "Chinese Final Demand Dependent Type". Mining and Petroleum and Coal had a high degree of dependence on the "Final Demand of Japan" in 1995, but the degree decreased
in 2000. This may be attributable to the stricter regulations for these industries due tothe tight energy demand and supply. Also, Other Manufacturing Goods, Measuring In
struments, Machinery, and Chemical Products had a high degree of dependence on"Export to the Rest of the World", but the degree decreased in 2000.
(3)Production Inducement Distribution Ratios by Final Demand Items
When we look at the production inducement distribution ratios by final demand
items, the production inducement distribution ratio for "Private Consumption of China"
is the highest (38.2%) for non-Japanese enterprises, which can be classified as theAn Input-Output Anaiysis of the Economic Dependence between Japanese En.erpnses and Non-Japanese Borises in China and Janan 55

Table 13: Production Inducement Distribution Ratios by Sectors, Japanese Enterprises

luiai imai aemana=iuu;

Final Demand of China

Final Demand of Japan

Export to the Rest of
the World

1995

2000

1995

2000

1995

Agriculture, Forestry and Fishery

2000

48.22

0.00

43.10

0.00

8.67

0.00

Mining

2.06

0.00

89.72

0.00

8.23

0.00

Food and Tobacco

72.00

80.13

21.57

13.98

6.43

5.89

Textile, Clothing and Leather

10.68

29.94

82.84

47.94

6.48

22.12

75.12

71.98

8.28

5.94

16.60

22.08

Timber, Furniture, Manufacture ofPaper and Printing
Oil and Coal

42.09

64.88

44.10

9.63

13.81

25.49

Chemical Products

49.18

58.00

8.78

12.28

42.04

29.72

25.25

35.74

Smelting of Metals

65.61

57.66

9.14

6.60

Machinery

12.55

20.62

41.54

48.67

45.90

30.71

Electric Machinery

26.07

26.77

26.20

27.28

47.73

45.96

Transport Equipment

82.13

77.09

5.49

8.61

12.37

14.30

Measuring Instruments

9.47

17.31

40.51

60.48

50.02

22.21

21.78

40.71

21.69

24.63

56.53

34.67

Other Manufacturing Goods
Construction

89.72

89.90

4.41

4.43

5.87

5.67

Trade

42.81

28.60

23.26

26.75

33.92

44.65

Other Services and Others

79.01

53.80

12.08

20.44

8.91

25.76

Total

39.93

36.19

26.18

28.11

33.89

35.69

"Chinese private consumption dependent type" (see Figure 3). On the other hand, forJapanese enterprises, the production inducement distribution ratios for "Private Con
sumption of China" (18.6%) and "Private Consumption of Japan" (18.5%) in total(37.1%) exceed that by "Export to the Rest of the World" (35.7%), which can be classified as the "Chinese and Japanese private consumption dependent type". Behind thisbackground lies the system of international specialization where developing countries
mass produce labor-intensive goods, and developed countries engage in R&D and pro
duce goods with high added value. Japanese enterprises produce labor-intensive goods
such as food item and textiles as well as some electronic goods that use obsolete tech

nologies. They sell these goods in China and reverse import them to Japan. They play
the role of a supplier who provides goods for private consumption in China and Japan.
Figure 4 shows production inducement distribution ratios by Chinese and Japanese fi
nal demand items and the total ratio of Chinese and Japanese final demand items. Ac

cording to this figure, the characteristics of Japanese enterprises are clear.
When we look at the Japanese enterprises of "Chinese and Japanese private con
sumption dependent type" by sectors (top eight sectors), they can be classified into

four categories with regard to the production inducement distribution ratios (see Table
14).

Type I (high degree of dependence on both Chinese and Japanese Private Con
sumption from 1995 to 2000): Food and Tobacco is the only industry that belongs to56

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

Figure 3: Production Inducement Distribution Ratios by Final Demand Item andCountries9 Final Demand, 2000.
Final Deman of Japan
Non-Japanese Enterprises

Final Demand of China

Non-Japanese Enterprises

Private Consumption

Private Consumption

50

50/

Change in

Other
Consumption

Stock

Change in
Stock

Other

Consumption

Fixed Capital Formation

Fixed Capital Formation

Final Demand of China

Final Demand of Japan

Japanese Enterprises

Japanese Enterprises

Private Consumption

Private Consumption

50/

50
40

Change in
Stock

Other

Change inConsumption

Stock

Fixed Capital Formation

Other

Consumption

Fixed CapitalFormation

Final Demand of China
Japan

Final Demand of JapanJapan

Private Consumption

Private Consumption

50

50

Change in
Stock

FixedCapital Formation

Other

Change inConsumption

Stock

Other

Consumption

Fixed Capital Formation

An Input-Output Analysis ofthe Economic Dependence between Japanese Enterprises and Non-Japanese Enterprises in China and Japan

57

Figure 4: Production Inducement Distribution Ratios by Chinese and Japanese Fi
nal Demand Items, and the Total with Chinese and Japanese Final De
mand Item, 2000
Non-Japanese Enterprises
Private Consumption(FC01)
Other Consumption(FC02)

FC04+FJ04

Fixed Capital Formation(FC03)

FC03+FJ03

FC02+FJ02

Change in Stock(FC04)

FC01+FJ01

Private Consumption(FJOl)

Other Consumption(FJ02)

Export tothe Rest of theWorld

Change in Stock(FJ04)

Fixed Capital Formation(FJ03)

Japanese Enterprises
Private Consumption(FCOl)
Other Consumption(FC02)
FC04+FJ04,

Fixed Capital Formation(FC03)
FC03+FJ03

Change in Stock(FC04)

FC02+FJ02

Private Consumption(FJOl)

FC01+FJ01

OtherConsumption(FJ02)

Export to the Rest ofthe World

Change in Stock(FJ04)

Fixed Capital Formation(FJ03)
Japan

Private Consumption(FCOl)
Other Consumption(FC02)
FC04+FJ04,

Fixed Capital Formation(FC03)
FC03+FJ03

FC02+FJ02

Change in Stock(FC04)

Private Consumption(FJOl)
FC01+FJ01

Export to the Rest ofthe World

Change in Stock(FJO^)

OtherConsumption(FJ02)^Fixed Capital Formation(FJ03)

58 Journal of Applied Input-Output Analysis, Vol. 13 &14, 2008

this category, and its production is the most dependent on Chinese and Japanese Private Consumption.

.

Type II (high degree of dependence on either Chinese or Japanese Pnvate Con

sumption in 1995, but high degree of dependence on both Chinese and Japanese Private Consumption in 2000): Textile, Clothing and Leather had a high degree of dependence on Japanese Private Consumption, while Other Services and Others had ahigh degree of dependence on Chinese Private Consumption in 1995. However, these
two sectors had a high degree of dependence on both Chinese and Japanese Private

Consumption in 2000. This means that production in these sectors shifted from the"Chinese or Japanese private consumption dependent type" to the "Chinese and Japa
nese private consumption dependent type".

Type III (high degree of dependence on both Chinese and Japanese Private Con
sumption in 1995 but high degree of dependence on either Chinese or Japanese Private
Consumption in 2000): Oil and Coal had a high degree of dependence on both Chineseand Japanese Private Consumption in 1995, but in 2000 the degree of dependence on
Chinese Private Consumption became higher while that on Japanese Private Consump
tion went down. Trade had a high degree of dependence on both Chinese and Japanese
Private Consumption in 1995, but in 2000 the degree of dependence on Japanese Private Consumption remained high while that on Chinese Private Consumption went

Table 14: Production Inducement Distribution Ratios of Japanese Enterprises by
Private Consumption and Sectors (top eight sectors)(%)

Private Consumption of China
1
2

1995

of Paper and Printing

67.4

1

Textile, Clothing and Leather

78.7

43.9

2

Mining57.3

3

Agriculture, Forestry and Fishery

42.7

3

Measuring Instruments

36.9

4

Chemical Products

32.4

4

Agriculture, Forestry and Fishery

33.1

5

Other Services and Others

32.4

5

Oil and Coal

28.8

6

Transport Equipment

25.0

6

Trade

19.9

7

Trade

24.2

7

Food and Tobacco

17.9

Oil and Coal

18.0

8

Electric Machinery

16.1

Food and Tobacco

75.2

1

Measuring Instruments

55.5

42.1

2

Textile, Clothing and Leather

46.0

1

2

2000

Food and Tobacco

Timber, Furniture, Manufacture

Private Consumption of Japan

Timber, Furniture, Manufactureof Paper and Printing

3

Chemical Products

38.2

3

Trade

19.5

4

Oil and Coal

30.6

4

18.2

5

Other Services and Others

25.1

5

Other Manufacturing Goods
Electric Machinery

16.9

6

Textile, Clothing and Leather

24.8

6

Other Services and Others

15.0

7

Other Manufacturing Goods

20.7

7

Machinery

11.7

Smelting of Metals

17.8

8

Food and Tobacco

11.6

Electric Machinery

17.8

down This means that Oil and Coal and Trade shifted from the "Chinese and Japanese^Z^^T dePendCnt ^ t0 ^ "ChineSC " JapanCSe PliVate ~Ption
Type IV (consistently high degree of dependence on either Chinese or Japanese
Pnvate Consumption): Timber, Furniture, Manufacture of Paper and Printing andChemical Products had ahigh degree of dependence on Chinese Private Consumption
from 1995 to 2000, and Measuring Instruments and Electric Machinery had ahigh degree of dependence on Japanese Private Consumption during the same period. Thismeans that Timber, Furniture, Manufacture of Paper and Printing and Chemical Prod
ucts are consistently the "Chinese private consumption dependent type", while Measur

ing Instruments and Electric Machinery are consistently the "Japanese private con
sumption dependent type".

Conclusion

In this paper, we explained the process of creating the LJEAI-O and reviewed activities
of Japanese enterprises in China by using the tables. We used the data of LCJI-O andWKKJK in order to create the LJEAI-O. In this paper, we also examined the activities
of Japanese enterprises in China by using the LJEAI-O and our findings in this study
can be briefly summarized as follows:
1. The gross output of Japanese enterprises kept growing from 1995 to 2000 at apace far exceeding those of non-Japanese enterprises in China and Japan (enterprises inJapan).
2. The amount of production for the intermediate demand to China of Japaneseenterprises shows a significant increase, and Japanese enterprises play the role of a
supplier who provides intermediate goods and capital goods that are essential to indus
trialization in China. Export to Japan have a tendency to shift from labor-intensive industries to more sophisticated capital/technology-intensive industries and service sec
tors. For the cost structure of production, the intermediate input ratio decreased.
3. Both the industry-wide average production repercussion effect and the repercus
sion effect on the trading partners (non-Japanese enterprises, Japan, the Rest of theWorld) of Japanese enterprises decreased. The production of Japanese enterprises isexport-dependent. The induced production of Japanese enterprises is largest in "Export
to the Rest of the World" and grew most in the "Final Demand of Japan".
4. The induced production of Japanese enterprises is prominent in machinery sec
tors such as Electric Machinery. However, the induced production by the "Final De
mand of Japan" plays a large role for Textile, Clothing and Leather Japanese enter
prises.

5. Production of non-Japanese enterprises in China shows characteristics of the"Chinese private consumption dependent type", while that of Japanese enterprises isthe "Chinese and Japanese private consumption dependent type". They play the role ofa supplier who provides goods for private consumption in China and Japan.
6. When we look at the production of "Chinese and Japanese private consumption
dependent type" Japanese enterprises by sectors from 1995 to 2000, it is classified into

60

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

the following four categories: Type I (typical "Chinese and Japanese private consump
tion dependent type" such as Food and Tobacco), Type II (industries which shiftedfrom the "Chinese or Japanese private consumption dependent type" to the "Chineseand Japanese private consumption demand dependent type" such as Textile, Clothingand Leather, Services and Others ), Type III (industries which shifted from the "Chinese and Japanese private consumption dependent type" to the "Chinese or Japanese
private consumption dependent type" such as Petroleum and Coal and Trade), and TypeIV (consistently the "Chinese private consumption dependent type" such as Timber,
Furniture, Manufacture of Paper and Printing and the Chemical Products, or consis
tently the "Japanese private consumption dependent type" such as Measuring Instru
ments and Electric Machinery).

Consequently, the results are preliminary and as the next steps of our study, we
have aimed to continue improving the LJEAI-O for exploring the theoretical/empiricalissues behind the quantitative results with regard to Japanese enterprises.
References

Ito, Motoshige. (2003) KEIZAI BUNSEKI NO NICCHU KANKEI (Analysis of Recent ChinaJapan Relationship), Toyo-Keizai Shinposha.

Kwan, Chihung. (2005) Japan-China Relations - AWin-Win Game, Toyo-Keizai Shimposha.
Ministry of Economy, Trade and Industry, Japan. (2003) WAGAKUNI KIGYOU NO KAIGAIJIGYOU KATSUDOU (Report on Research on Overseas Activities of Japanese Enterprises), 31.

Ministry of International Trade and Industry (MITI), Japan. (1998) WAGAKUNI KIGYOUNO KAIGAI JIGYOU KATSUDOU (Report on Overseas Activities of Japanese Enterprises), 26.

Munakata, Naoko, ed. (2001) Turning Point of Japan-China Relations, Toyo-Keizai Shimposha.

Narita, Makoto. (1994) "The Influence of Overseas Investment on Tohoku's Economy", Inno
vation & I-O Technique, Vol. 5, No. 3.

Teng, Jian and Wenhui Fang. (2006) "1990-1995-2000 Linked China-Japan International
Input-Output Tables", KEIZAI TOUKEI KENKYU (Economic Statistics Review) Vol
33, No. 4, 33-4.

Yamada, Mitsuo. (2002) "Overseas Production of Japanese Firms and Japan-US Interdepend
ence: An Input-Output Analysis", Journal ofApplied Input-Output Analysis Vol. 8.