COVER STORY • White Paper on International Economy & Trade 2018 • 1

White Paper on
International Economy &Trade 2018 — Summary

By Policy Planning & Research Office, Trade Policy Bureau, Ministry of Economy, Trade & Industry (METI)

Introduction
The global economy is now facing significant shifts — forexample, movements against the free trade system under the WTO;
advancement of digital transformation including expanding digitaltrade; and the rise of China and other emerging and developing
economies. The White Paper 2017 focused on the first shiftmentioned above to analyze the issues surrounding inequality indeveloped economies and relationships between trade and inequality.
The White Paper 2018 focuses on the remaining two shifts.
First, the White Paper presents the current state of the expanding
global digital trade and reveals the issues that come with digitaltrade. It also analyzes the characteristics of the economic growth inemerging and developing economies and the issues that accompany
them. It goes on to provide a multifaceted analysis of the Chinese
economy, whose rapid growth and changes are notable even among
emerging and developing economies. One of the matters that theanalysis covers is the business opportunities in the growing Chinese
consumer market.
The objective of the analysis is to demonstrate the necessity of
constructing liberal, fair, and high-level trade rules and making
further efforts to revitalize domestic industries.

1. Expanding Digital Trade
The amount of data being traded worldwide is growing at aphenomenal pace as a consequence of the progress of the Fourth
Industrial Revolution. The speed with which the data are being
processed is also rising dramatically. The Internet and mobile
telephony have spread to all corners of the world including emerging
economies, and the digital market is growing rapidly.
The scale of the global cross-border e-commerce (EC) market was$236.0 billion in 2014. It has continued to expand since then and is
expected to reach $994.0 billion in 2020. The number of crossborder EC users, which was around 300 million people in 2014, is
expected to approximately triple to 900 million people in 2020 (Chart
1). The causes of the expansion of the global EC market include thegrowing use of personal computers and cellphones to conducttransactions and the diversification of online means of settlement.
In line with the expansion of digital trade, the presence of global
companies that provide IT platforms for EC and cloud computing
services is increasing.
https://www.jef.or.jp/journal/

CHART 1

Scale of the global cross-border EC
market(billion $)(100 million people)

1,200

OthersNorth America
Western Europe
Asia-Pacific
Number of cross-border
EC users (right axis)

1,000
800

Estimate
600
400
200
0

3.1
236

3.6

4.5

8.5
7.5

9.4
994

826
5.8

10
9
8
7
6

675

5

530

4

401

3

308

2
1

2014

2015

2016

2017

2018

2019

2020

0

Remarks: Estimated figures

Source: Accenture and Alibaba Research (2015)

In 2008, telecommunications companies made the top 10 [market
capitalization] rankings alongside oil, gas and other resourcecompanies and banks.
Ten years later, as of January 2018, US and Chinese IT platform
companies led by Apple and including Alphabet (Google), Amazon,
Facebook, Tencent, and Alibaba made the list (Table 1).
In 2008, businesses providing telecommunication infrastructuretended to be highly valued in terms of market capitalization against
the backdrop of a marked rise in the diffusion rate of mobile phones.
In the 21st century, a wide variety of IT platform companies areplaying leading roles, contributing to social and economic
development through technological innovation and lower transaction
costs.
With the progress in digital trade comes an increased need for thedevelopment of international rules. The free flow of information isdeveloping a favorable cycle that is creating new technicalinnovations and business models and improving the quality ofpeople’s lives. On the other hand, cybersecurity concerns such as theleakage of personal information and confidential corporate data arealso growing with the rise in various activities in cyberspace. Digitalprotectionist moves are also emerging, including imposing
restrictions on the free flow of cross-border data and the installation
Japan SPOTLIGHT • September / October 20183

COVER STORY 1
TABLE 1TABLE 2Global rankings of companies interms of market capitalization

Number of regulations related tocross-border data flow (by region/country)(as of 2017)

2008
Company nameCountry

SectorMarketcapitalization(million $)1

China National Petroleum
Corporation

China

Oil/gas723,998

2

Exxon Mobil Corporation

US

Oil/gas511,887

3

General Electric Company

US

Industrial conglomerates

374,637

4

China Mobile

Hong Kong

Wireless communication
service354,245

5

Industrial and Commercial
Bank of China Limited

China

Banking

339,0046

Microsoft Corporation

US

Software333,054

7

Gazprom

RussiaOil/gas331,9648Royal Dutch Shell plc

Netherlands Oil/gas

264,764

9

AT&T Inc.

US

Wireless communication
service10China Petroleum andChemical Corporation

China

Oil/gas252,051
249,659

2018
Company nameCountry

SectorMarketcapitalization(million $)1

Apple Inc.

US

Computer hardware

825,5932

Alphabet Inc.

US

Online services

731,933

3

Microsoft Corporation

US

Software686,283

4

Amazon.com, Inc.

US

Department stores

671,084

5

Facebook, Inc.

US

Online services

512,471

6

Tencent

China

Online services

497,697

7

Berkshire Hathaway Inc.

US

Casualty insurance

491,154

8

Alibaba Group Holding Limited

China

Online services

454,451

9

JPMorgan Chase & Co.

USBanking

387,707

10

Industrial and Commercial
Bank of China Limited

China

Banking354,750

Remarks: The above figures are as of Feb. 12, 2008 and Jan. 1, 2018

Source: Thomson Reuters

locations of servers. National restrictions on cross-border data flow
have grown rapidly over the last 20 years (Table 2).
If a country introduces cross-sectoral data localization regulation,
its GDP is estimated to suffer a negative impact ranging from -0.7%
to -1.7% due to such factors as a domestic price increase and a
productivity decline caused by an increase in the usage cost of dataprocessing services.
Other challenges include securing the conditions for faircompetition between IT platform companies and existing industries
and ensuring the protection and safety of consumers.

2. Rise of Emerging and Developing Economies
Next, the White Paper looks at economic growth in emerging anddeveloping economies.
Concerning the contributions to the real growth rate of global GDP
by country and region, the contribution by advanced countries to thereal growth rate of global GDP has been declining since around
4 Japan SPOTLIGHT • September / October 2018

Number of regulations
EuropeGermany
Russia

37
5
5

Share
42.5%
5.7%
5.7%

Asia-Pacific

33

37.9%

Middle East/Africa

7

8.0%

North America

6

6.9%

1

1.1%

China

Canada
US

9

5

10.3%

5.7%

Central and South America

4

4.6%

Total

87

100.0%

Remarks: The number of regulations which were in force in 2017. The countries indicatedabove (except for the US) had more than five regulations.

Source: ECIPE and Digital Trade Estimates

2000, while the contribution by emerging and developing countries,
including China, has been increasing (Chart 2).
Nominal global GDP has been growing steadily despite temporary
drops due to the Great Recession, among other factos. The share of
emerging and developing countries in nominal global GDP has been
increasing since the middle of the 2000s and has recently surpassed
40% (Chart 3). In terms of the contribution to global economic
growth, the role of emerging and developing economies is growing
ever greater.
Characterizing the economic growth of emerging and developing
economies is the growth of domestic investment at a paceoutstripping that of consumption. Fixed capital formation accelerated
in emerging and developing economies around 2003 and reached$9.5 trillion in 2016, almost the same value as in developed
economies, but consumption remains at around 60% of developed
economies (Chart 4).
Emerging and developing economies’ capacity has continued to
grow in their raw materials industries to keep pace with the growthin their fixed capital formation. The 2000s were a period in whichinvestment played a major role in raising the economic growth ratein emerging and developing economies, since it was during thisperiod that much infrastructure development and corporate
investment in production equipment took place. For example, while
production capacity for crude steel has stayed at around 600 million
tons in developed economies over the last 17 years, capacity inemerging and developing economies as a whole has continued to
grow. In 2017, global production capacity increased to 2,300 million
tons, around 2.3 times as large as the capacity in 2000. Among
emerging and developing economies, China has increased its
production capacity markedly (Chart 5).
Taking the steel industry in China as an example of the excess
production capacity in emerging and developing economies, theprocess can be broadly divided into the following three stages. (i) As
banks increased low-interest loans and steel companies expandedCOVER STORY 1
CHART 2

Changes in the global GDP growth rate (in terms of contribution bycountry/region) (1990 -2017)(%)

Advanced countries
Emerging and developing countries (excluding China)

6

China
Real growth rate of global GDP

5
4
3
2
1
0

81 982 983 984 985 986 987 988 989 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016 017
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

19

-1
-2
-3

Remarks: The contribution by country/region is an estimate based on each country/region’s share in nominal GDP in the previous year.

Source: Prepared by METI based on the database of World Economic Outlook, April 2018 (IMF)
CHART 3

Changes in the share of emerging & developing countries innominal global GDP (between 1980 and 2017)(trillion $)
90

45%
China
Emerging and developing countries (excluding China)
Advanced countries
World
Share of emerging and developing countries (including China) (right axis)

80
70
60

40%
35%
30%

50

25%

40

20%

30

15%

20

10%

10

5%

0

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Remarks: Nominal GDP is on a US$ basis

0%

production capacity, thereturn on assets (ROA)
rose from 7% in 2001
to 14% in 2004. (ii)
Since 2006, China hasrecorded steel export
surpluses, but loans
and production capacity
expansion havecontinued. From 2008
onward, the ROA forsteel companies stayedb e l o w 5% . ( i i i ) I n
F e b r u a r y 2016, t h ecentral government set
a target for the
production of
production equipment
and strictly managed
the implementation of
the target. As a result,
the target was achievedin 2016 and 2017
(Chart 6).
Financing for steel
companies andinvestment in theirproduction equipment
as well as thegovernment subsidies
and other support in
the face of the poor
business results
beginning in 2012 were

Source: Prepared by METI based on the database of World Economic Outlook, April 2018 (IMF)
CHART 4

Changes in the value of fixed capitalformation (on a flow basis) in developed& developing economies(million $)12
10

Share of emerging and developing countries (including China)
Share of advanced countries
Share of China

Changes in global production capacity
for crude steel(million tons)
2,500

2,000

Advanced countries
Emerging and developing countries (excluding China)
China

1,500

8
6

1,000

4

500

2
0

CHART 502000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20161980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Remarks: The classification of advanced, emerging and developing countries is based on
the definition in the IMF World Economic Outlook.

Remarks: The definition of advanced countries is based on the IMF’s definition.

Source: OECD Stat

Source: UN national accounts main aggregates data (December 2017)

Japan SPOTLIGHT • September / October 2018

5

COVER STORY 1

focused on state-owned companies under the jurisdiction of local
governments. When the steel companies are categorized into threegroups — “state-owned companies owned/controlled by the central

government”, “state-owned companies owned/controlled by local
governments” and “private companies” — in looking at the amountsof long-term debt outstanding and government subsidies, it can beseen that much is
directed at state-owned
CHART 6companies owned/
Development of the Chinese steel industry (2001-2016)
controlled by the local
Long-term Subsidy Production capacity(%)
loan(billion $) and net exports
(iii)
(ii)
(i)
governments.
(billion $)(10 million tons)
However, this has not
Production capacity expanded through
20
15
2
5
The profit margin declined.
loans and the profit margin increased.
necessarily contributed
to enhancing
profitability and value10
added in thosecompanies. State10
12.5
owned companies
5
owned/controlled by
local governments inparticular continue to00
trail the other00companies in the rateof return on total
assets. Management-5
has yet to be improved
Long-term loans (change from the previous year)
Around 20% to 70% of Production capacity-10
Production capacity for crude steal (change from the previous year)-1-2.5
companies recorded
for crude steel
in these companies
losses, and subsidies
decreased.
Governmental subsidies (fiscal year)
increased.
(Chart 7).
Net exports of crude steel from China-10
ROA (right axis)
Sharp increases in
Monetary tightening
capital investment
through governmental
-20
-15
-2
-5
support in China are
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
also seen in the
Source: Production capacity: National Bureau of Statistics of China and CEIC Database; net exports of crude steel: World Steel Association; long-term loan
and government subsidy: annual reports of 33 listed Chinese steel companies.
integrated circuit
industry. There is a riskthat an excess
CHART 7production capacity
Return on assets (ROA) for Chinese steel companies(by corporate ownership type)problem in the industry(%)
may occur in the future.
20
In 2014, the ChineseGrand total
government formulatedState-owned (owned/controlled by the central government)
15
the “National Integrated
State-owned (owned/controlled by local governments)
C i r c u i t ( I C )Private companies
D e v e l o p m e n t
10
Guidelines”. Under the
Guidelines, a national
5
investment fund(National Integrated
0
Circuit Industry
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Investment Fund) was-5
established that madeapproximately $4 billion
worth of investments-10
per year in integrated
Remarks 1: As of the end of 2016, there were five companies owned/controlled by the central government, 21 companies owned/controlled by local
circuit-related
governments, and seven private companies.
Source: Annual reports of 33 listed Chinese steel companies
companies. As a result,
6 Japan SPOTLIGHT • September / October 2018

COVER STORY 1

Industrial investment funds such as
the National Integrated Circuit Industry
Investment Fund have been playing aparticularly prominent role in recent
years as policy resources. The number
and total value of these funds have been
growing rapidly since 2014 and are
currently increasing their presence as themain source of China’s policy resources
today (Chart 9).

CHART 8

Increase in the value of fixed assets, value of governmental
subsidies, & profit margin of IC-related companies
The value of investments by the National IC Industry Development Fund (fiscal year)
Value of governmental subsidies (fiscal year)(million $)(%)

Value of fixed assets (change from the previous year)

6,000

4

Long-term loan (change from the previous year)
ROA (return on assets) (right axis)

3.5

5,000

3
4,000

2.5

3,000

2

2,000

1.5

3. Rapid Changes in the
Chinese Economy(1) Advance of New Industries

1

Looking at China’s GDP from thedemandside, export and gross capital
0.5
formation reduced their shares after the002008 financial crisis and the 4 trillionyuan stimulus package respectively,-1,000-0.5
while private consumption has been
2009
2010
2011
2012
2013
2014
2015
2016
2017
gradually increasing its share. A
Remarks 1: The ROA is obtained by dividing the total value of operating profits of the 19 IC-related listed companies in Chinaby the total value of assets. The ROA in 2009 was -12.4%.
decomposition analysis of GDP in real
Source: Annual reports of the 19 IC-related listed companies in China.
terms shows that the contribution frominvestment from the investment fund and other policy resources ininvestment is declining and consumption has become the pillar ofaddition to government subsidies and corporate debt increased
economic growth. In that sense, China is gradually shifting fromrapidly from 2014, resulting in a dramatic rise in fixed assets
investment-led growth to consumption-led growth.
between 2015 and 2017. Meanwhile, the rate of ROA has been
A look at the real GDP growth rate by industry in China in 2017
declining for these businesses during this same period. This trend inshows that the information transmission, software and information
the Chinese IC industry is similar to the situation of the Chinese steel
technology services industry recorded an outstandingly high growthindustry in the period of net import, so there are concerns that anrate of 26.0% (Chart 10).
excess production capacity problem may occur in the IC industry in
Chinese Internet users, on whom these services are based, arethe future (Chart 8).
increasing in number year by year. They increased almost fourfold
1,000

CHART 9Changes in the number of industry
investment funds & the total fundvalue
(Number of funds)
1,800
1,600
1,400

(%)

8,000

25

7,000

20

Number of funds (cumulative total) (right axis)
Total fund value (100 million yuan)

6,000

1,000

5,000

0

Others2017 Aug.

Business services

Source: Database of Zero21PO Group “Si Mu Tong”

2016

Information transmission,
software and information
technology services

2015

Real estate

2014

Finance

1,000

Accommodation andrestaurants

200

0Wholesale and retail
trade

2,000

6.9%

5

Transportation and post

400

10

Construction

3,000

15

Industrial manufacturing

600

26.0%

Agriculture, forestry andfisheries

4,000

30

Overall

800

2013

Real GDP growth rate by industry in
China (2017)(100 million yuan)
9,000

1,200

0

CHART10Source: The National Bureau of Statistics of China and CEIC database

Japan SPOTLIGHT • September / October 20187

COVER STORY 1

services is growing at ahigh rate, indicating(as of the end of 2017)that the market is(100 million people)(%)
expanding rapidly
880(Chart 11).
With respect to video, music, shopping, and financial
7.2
The rate of increase is high with respect tosettlement, there are already more than 500 million
770
The sharing economy
travelreservation
andmeal
deliveries.
users.
has also emerged as a
660
The number of users
Rate of increase (right axis)
new economic activity
550
conducted via theRate of increase in
440
the number of internet
Internet. The sharing
users (5.6%)
330
economy is defined as
an economic activity
220that utilizes resources
8.1
1
10
efficiently by sharing
00vehicles, dwellings,
funds, etc. by using theInternet and othertechnology. The market
size in 2017 stood at
Remarks: The rate of increase is on a year-on-year basis. With respect to bicycle sharing, the rate of increase is not available because this item wasa p p r o x i m a t e l y 4.9
not covered in the previous year’s survey.
Source: The 41st Statistical Report on Internet Development in China (January 2018) (China Internet Network Information Center)trillion yuan, a 47%
increase over the
TABLE 3previous year. By transaction value by sector, the transaction value of
The scale of the sharing economy
financial services, including online financial services, amounts to(2017)
around 2.8 trillion yuan, accounting for more than half of the total.
(Unit: 100 million yuan, %)The total value of funds provided for new market entry and business
Scale of the market
Value ofexpansion in all sectors grew 25.7% from the previous year to 216.0
funds
Value ofRate ofShare
providedbillion yuan (Table 3). Platform companies related to the sharing
transaction
increase
economy are contributing to employment growth by hiring more
Medical care
19
0.1
48.0
70
people. It has been pointed out that this is functioning not only as a
Housing and lodging
37
0.3
70.6
145
gateway for new graduates but also as a safety valve for employment
Knowledge and skills
266
2.8
126.6
1,382
adjustments due to changes in the industrial structure such as theTransportation
1,072
4.1
56.8
2,010
liquidation of companies that represent excess capacity.
Production capacity
34
8.4
25.0
4,120
Let’s take a look at business startups. Startup activity is even more
Everyday life services
512
26.9
82.7
13,214
lively in China than in the United States. Startups have been
Financial services
220
57.4
35.5
28,264increasing at a rapid pace since around 2014 when “The Mass
2,160
47.2
49,205100.0
Total
Entrepreneurship and Innovation” — the entrepreneurship support
Source: “Report on Development of Sharing Economy 2018” (Sharing Economy ResearchCenter, State Information Center and Working Committee on Sharing Economy,
initiative promoted by the Chinese government — was announced.
Internet Society of China)
New companies registered in 2017 reached 6.07 million (19.25
million including unincorporated businesses). The ratio of newfrom 210 million to 770 million in 10 years with the penetration ratebusiness openings in China is very high in comparison to the US andreaching 55.8% by the end of 2017. Users on mobile devices
Japan, as the massive number of new registrations indicates (Chart
increased more than 10-fold from 50 million to 750 million. More12). It has been noted that startups have been easy to do in China
than half the Chinese population are now able to access services
because taking on second jobs is widely accepted there. While thefreely on the Internet wherever they are.
Chinese government is successively issuing policy measures to
As Internet use expands in China, the EC market is also growing
promote innovation, it is considered that one of the factors giving
significantly. China boasts the world’s largest scale of EC sales atstartups impetus is that it tends to initially give free rein to new
approximately 23 trillion yuan (3.4 trillion yen) in 2016. Internet
industries and markets emerging from innovation and consider
services for consumers cover a wide range of areas. Among Internet
regulating them only after problems emerge in the marketplace. Car
applications, instant messaging, search engines, videos, music,
dispatch services are given as a prime example of this.
shopping, and online payments are popular, with more than 500
As for investment by venture funds in venture businesses, anmillion estimated users each. The number of users for travel
important source of innovation, China, at 2.2 trillion yen, ranks
reservations, meal deliveries, car dispatching services, and financial
second only to the US, at 7.5 trillion yen. China provides a very
CHART 11

Utilization of internet applications by sector in China

Securities transaction

Asset investment

e-learning

Bicycle sharing

Dispatching services(hired car)email

Dispatching services(taxi)

Social media

Meal deliveries

Travel reservations

Literature

BankingLive streaming

Gaming

Map research

Settlement

Shopping

Music

Video

Search engine

News

Instant messaging

8 Japan SPOTLIGHT • September / October 2018

COVER STORY 1
CHART12

Changes in the business startup &closure rates in Japan, the US & China(%)
30
Business startup rate in China
Business startup rate in US
Business startup rate in Japan

25

Business closure rate in China
Business closure rate in US
Business closure ratein Japan

20
15
10
5
0

2010

2011

2012

2013

2014

2015

Source: CEIC with respect to China; US: Business Dynamics Statistics; Japan: Annual Reporton Employment Insurance

favorable environment for entrepreneurs. Moreover, in 2012, theNational Equities Exchange and Quotations, nicknamed “The New
Third Board”, was established as a “new third market” in addition to
the Shanghai Security Exchange and the Shenzhen Stock Exchange
to promote the development of venture businesses and the like.
Since then, the number of companies listed on The New Third Board
has increased dramatically, growing 37-fold between 2013 and 2017
to more than 11,000 companies as of the end of 2017 with a market
cap of 4.9 trillion yuan (81 trillion yen).
Next, the White Paper takes a look at Chinese innovation capacity/
capability through international patents. The number of China’s
applications for international patents has grown virtually every year
since its accession to the Patent Cooperation Treaty (PCT) in 1994.
In 2000, China was 16th in the number of international patentapplications at 782. However, China surpassed South Korea in 2010,
Germany in 2013, and Japan in 2017, placing it in second place after
the US. A look at the proportion of international patent applications
shows that the US alone accounted for 40% in 2000, but had

CHART13Comparison of number of international patent publications among China,
Japan & US
(Number of publications)
3500

Number of international patent publications (2000)

3000
2500
2000

China

1500

Japan

US

1000
500
0
8000

Number of international patent publications (2017)

7000
6000

China has become amajor player.

5000

China lags behind.

4000

China lags behind Japan.

3000
2000

(i) Next-generation IT technology(ii) High-level NC
machine tools
and robotics(iii) to (vi) and (viii) Aerospace,(vii)
maritime, rail transport,Powerautomobiles, and agricultural equipment
equipment(ix) New materials

Organic fine chemistry

Analysis of biotechnological materials

Medical technology

Pharmaceuticals

Biotechnology

Chemical engineering

Food chemistry

Materials, metallurgy

Basic materials chemistrySurface technology, coating

Macromolecular chemistry, polymers

Micro-structural and nanotechnology

Electrical machinery, apparatus, energy

Other special machines

Control

Transport

Mechanical elements

Engines, pumps, turbines

Handling

Measurement

Machine tools

Semiconductors

Audio-visual technology

OpticsBasic communication processes

IT methods for management

Telecommunications

Digital communication

0Computer technology

1000(x) Biopharmaceuticals andhigh-performance medical
equipment

Remarks: The red square indicates the corresponding relationship with the priority fields of Made in China 2025. In some cases, applicants choose the option of treating core technology asa “black box” and refrain from filing a patent application concerning it. Therefore, it should be kept in mind that the number of patent publications does not directly indicate thelevel of countries’ or companies’ technological capability.

Source: WIPO (2017) data

Japan SPOTLIGHT • September / October 20189

COVER STORY 1(10,000 graduates)
25
The number of fresh university graduates
who started a new business

5

0

2.3%

2.5％

8

2010

2.0％

1.6%
22

1.2%

23

17
10

2011

11

1.5％
1.0％

14

0.5％

2012

2013

0

2014

2015

2016

Japan

1.5%

3.5％
3.0％

2.0%

15

10

3.0%

Number of students studying in the
US by nationality & major

South Korea

The fresh university graduate businessstartup rate (right axis)

20

2.9%

CHART 15

China

Number of recent university graduates
who started new businesses & thebusiness startup rate

India

CHART 1450,000100,000

150,000

200,000

250,000

300,000(Persons)
350,000

2009/10
2015/16
2009/10
2015/16
2009/10
2015/16
2009/10
2015/16

Engineering
Natural and life sciences STEM
Mathematics and CS
Medicine
Business administration
Social sciences
Education
Humanities
EnglishArts and applied arts
Unspecified
Others (including agriculture
and communication)

0.0％

Source: Institute of International Education (2017)

Source: Reference materials complied by the State Administration for Industry & Commerce of
the People’s Republic of China and the website of Dream Incubator

dropped to 23.3% in 2013, with China soaring to 20.1%. This
indicates that China has become one of the most active places ofinnovation in the world.
Next, a look at the number of international patent publications in
the 10 key sectors in “Made in China 2025” reveals areas related to
IT technology where China not only stands shoulder to shoulder withmajor economies worldwide but actually takes the lead, such as indigital communication. Meanwhile, China lags behind the US in
biotechnology and healthcare and Japan in robotics and othermachinery in the number of patent publications, indicating that China
has been focused on specific fields in enhancing its technologicalprowess. However, China strives to enhance its competitiveness in
key fields where it is currently at a disadvantage as a national
priority. It is possible that other technologies will emerge rapidly in amanner similar to information-related technology (Chart 13). In
some cases, applicants choose the option of treating coretechnology as a “black box” and refrain from filing a patentapplication concerning it. Therefore, it should be kept in mind thatthe number of patent publications does not directly indicate the levelof countries’ or companies’ technological capability.
China stands out not only because of the large number of newly
registered companies but also because of the numerous startups by
new university graduates. Of the more than 7 million students who
graduate annually from universities in China, around 200,000 start
new businesses (Chart 14).
One factor behind the large number of patent applications, research
papers, and unicorn companies being produced in China appears to be
the supply of a large amount of sophisticated science and engineering
talent. Nearly half of Chinese students studying in the US major in the
STEM (science, technology, engineering and mathematics) fields. Of
Chinese students studying in the US, 45.6% and 42.7% in 2009/10
and 2015/16 respectively majored in the STEM fields (Chart 15).
10 Japan SPOTLIGHT • September / October 2018

While the number of Chinese students studying abroad has kept
rising since 2000, the return rate of students studying abroad to
China remained low at less than 30% until 2008. However, theChinese government put forth a series of measures to encourage
students to return to China in order to secure high-level humanresources from among the overseas students. As a result, the return
rate rose rapidly, reaching 85% in 2013. The measures taken by the
Chinese government to encourage return have made returnees animportant source of human resources for innovation andentrepreneurship in China (Chart 16).
It is necessary to renew our understanding of the rapid changes in
the Chinese economy — the rapid emergence of new industries,
growing capacity for innovation, and fertile startup activities — andmove forward with even greater initiatives to revitalize Japan’s own
domestic industries.

(2) E xpanding External Trade and Investment
In just 15 years after joining the WTO in 2001, China became oneof the largest trading powers in the world on a par with the US.
When we turn our eyes to the largest import source countries forcountries around the world, countries for which China is the largest
import source country have rapidly increased. In 2017, China was
the largest source country for imports for around 30% of all
countries worldwide excluding Canada, some Latin Americancountries, and European countries (Chart 17).
While the largest import source countries for Canada, Mexico, andEuropean countries are the US and Germany, i.e. the mainindustrialized economies in their respective regions, China has
become the largest import source country for the US and thesecond-largest import source country for Germany after the
Netherlands.
A look at the largest export destination countries around the world

COVER STORY 1
CHART 16shows that China
overtook Japan as thelargest export
destination country for
90%
ASEAN and Australia in
2017, while it
80%
surpassed the US in70%
many countries inAfrica and South
60%
America. Although50%
China is the largest
export destination
40%
country for fewer
30%
countries than it is thelargest import source
20%
c o u n t r y , a t
10%
approximately 16% (30countries) it is second0%2013 2014 2015 2016
only to the US (Chart
18).
A look at the
breakdown of Chinese exports by the nature of theexporters shows that the share of state-owned
companies had been declining while foreigncompanies played a major role, increasing theirshare until the mid-2000s. However, privatecompanies have been growing as exporters andrecently surpassed foreign companies (Chart 19).
A look at the change in the industries that are themain drivers of Chinese exports shows thatelectrical machinery and optical equipment have
replaced textiles as the main drivers of Chinese
exports. The growth in the shares of China’s
electrical and optical equipment industry exports ishigher on a value-added basis (VA) than on acustoms-clearance basis (CC) (Chart 20).
A breakdown by industrial category shows that
one characteristic in 2000 was the low proportion ofvalue-added in China’s electrical machinery andoptical instruments industry, at approximately 30%.
This was apparently the result of the active
production taking place in this industry that utilized
the global value chain by importing large amounts ofsemiconductors and liquid crystal display panels.
Meanwhile, the proportion of value-added rosefrom 2000 to 2011 and then to 2014, when it
reached approximately 50%. From this, it can beseen that there has been progress in the local
procurement of parts and components and in valueadded in the final products (Chart 21).
Next, we look at trends in each country regarding
trade with China.
Following the establishment of the WTO, China

Numbers of Chinese students who left China to study abroad &Chinese students who returned to China after studying abroad(Number of students)
600,000
The number of students who left China to study abroad
The number of students who returned to China

500,000

Return rate (right axis)

400,000

300,000

200,000

100,000

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Meng (2018) “China’s Reform, Opening-Up and Policy for Foreign Study” (RIETI DP 18-J-016)
CHART 17

Map of countries color-coded by the largest
import source country (2017)

Imports 2017

Other economies
Italy
India
Germany
FranceRussiaChina
US
UK
South Korea

Source: Prepared by METI based on IMF DOTS
CHART 18

Map of countries color-coded by the largest
export destination country (2017)

Exports 2017
Source: Prepared by METI based on IMF DOTS

Other economies
US
China
Germany
Italy
India
FranceJapan
RussiaUK
CanadaSouth Korea

Japan SPOTLIGHT • September / October 201811

COVER STORY 1
CHART 19

Share in China’s exports by company type(%)
100
Foreign companies
State-owned companies

80

Private companies

Foreign companies

State-owned companies

60

Private companies

40

20

0

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

Remarks: Foreign companies include not only companies fully owned by foreign interests but also joint ventures between local and foreign companies.

Source: The Chinese General Administration of Customs, CEI database, and Global Trade Atlas

CHART 20

Share of value in China’s exports compared with VA & CC byindustry
100%
90%
80%

5.8%

50%
40%

26.6%

35.5%

7.8%

8.0%

4.8%

6.1%

29.7%

35.9%

35.4%

8.1%

6.1%
8.0%

9.5%

11.8%

12.6%

2000
customs clearance

11.3%

10.7%

11.0%

7.9%

9.8%

12.4%

12.9%

12.3%

16.9%

16.5%

16.7%

2011
customs clearance

2011
value-added

2014
customs clearance

8.0%

9.8%
8.4%
12.6%

28.7%

31.7%

10%
0%

5.4%

7.4%

16.9%

30%
20%

6.1%

5.1%

70%
60%

6.4%

10.9%

4.4%

2000
value-added

Foods, beverages, and tobacco
Chemicals, and nonferrous metals
Electrical machinery and optional equipment

Textiles, leather, and footwear
Metal products
Transportation machinery

17.2%

2014
value-added

Lumber, paper pulp, and printing
Machinery and equipment
Other manufacturing industries

Remarks: Data from OECD TiVA was used with respect to value added in 2000 and 2011. Value-added in 2014 was estimated based on WIOD.

Source: GTA, OECD TiVA, and WIOD

was the most frequent target of anti-dumping (AD) measures (866cases) from 1995 to 2016, followed far behind by South Korea (239cases), Taiwan (191 cases), the US (177 cases), and Japan (146cases) in that order. In recent years, the number of cases of
implementation of AD measures against China has increased acrossthe world: the number was 61 cases in 2015 and 44 cases in 2016,
increasing steeply from 27 in 1995 (Chart 22).
A look at the number of anti-dumping measures against China
12 Japan SPOTLIGHT • September / October 2018shows that emerging and developing economies implemented antidumping measures against China in more cases than advanced
economies. Among developed economies, the US and EU come infirst and second (Chart 23).
In addition to implementing anti-dumping measures against China,
the US has been studying and implementing other trade measuresagainst China under Section 301 of the Trade Act of 1974 and otherlaws.

COVER STORY 1
CHART 21

Changes in domestic value-added
ratio in exports by industry
2000

China
2011

Total for manufacturing industries

Foods and tobacco

70
65

866

800
700

60

600

55
50

500

45
40

Electricalmachinery andoptical equipment(cumulative total between 1995 and 2016)

900

80

Transportation machinery

Number of cases in which AD measures
were implemented by exporting country(Cases)
1000

2014

75

CHART 22

Textiles andfootwear

35
30

400
300

239

200

191

177

146

100
General machinery

Lumber andpaper products

Base metals and metal products

Chemical and ceramics

0

China
1

South Taiwan
Korea
2
3

US

140

Japan Thailand

4

5

6

124

124

115

93

India Indonesia Russian Brazil
Federation
7
8
9
10

Source: Prepared by METI based on WTO

Remarks: The figures for 2014 are provisional.

Source: OECD TiVA

CHART 23

CHART 24(by region) (cumulative total between 1995 and 2016)(industrial and technology sectors)

Number of cases of implementationof AD measures against China

Changes in the number of Chinesecompanies’ cross-border M&As
(Number of transactions)
160

13%

140

10%
67%

10%

120

US

100

EU

80

Other Advanced Economies

60

Emerging and Developing
Economies

Source: Prepared by METI based on WTO

Emerging and developing countries
Others40
20
0

The US has increasingly taken anti-dumping measures against
China based on the understanding that imports from China areharming domestic industries. In addition to anti-dumping measures,on March 23, 2018, the US began imposing additional tariffs on steel
and aluminum exports worldwide, except for some countries but
including China, under Section 232 of the Trade Act, citing national
security as the reason. On March 22, 2018, President Donald Trump
signed a memorandum ordering sanctions on China including a 25%
additional tariff on specific goods under Section 301 of the Trade Act
on the grounds that China was inappropriately intervening to transfer
intellectual property and technology from US companies.
Europe has also taken many anti-dumping measures against
China. It revised its anti-dumping regulations in 2017.

Advanced countries

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Remarks: 1. Acquired companies were classified by nationality into advanced countries,
emerging and developing countries, and others. The “advanced countries” arethose in the IMF’s advanced country category excluding Hong Kong and
Macau. “Others” are Hong Kong, Macau, the British Virgin Islands, theCayman Islands, and Bermuda.
Remarks: 2. T he industrial and high-tech sectors include software, semiconductors,
electrical equipment, machinery, and automobiles and auto parts.

Source: Prepared by METI based on Thomson One (as of March 2018)

EU regulations determining the EU framework for anti-dumping
measures were revised so that an alternative price in a third country
can be used to calculate the “normal price” to be used in determining
whether or not dumping exists when the market price or costs in theexporting country are distorted due to intervention by thegovernment of the exporting country. In March 2018, anti-dumping
measures were imposed on China under the new system.
Japan SPOTLIGHT • September / October 201813

COVER STORY 1
CHART 25

Major product items for which Japanese exports to China recorded high growth(2017)[Consumer goods]
HS(Unit: million $, %)Items

Beauty care products, and3304
preparations for cosmetics
Preparations for shampoos andother haircare products

3305

3401 Soaps
3005 Sanitary cotton, gauze, and bandages
9619 Baby diapers

Value ofexports

Growth rate

2017

2017 alone 2014-2017[Industrial machinery]HS(Unit: million $, %)Items

Value ofexports

Growth rate

2017

2017 alone 2014-2017

Civil engineering machinery8429(bulldozers)

214

63.4

71.0

8456 Machine tools (for laser processing)

245

60.9

45.6

903

48.4

52.4

Semiconductor-manufacturing
equipment

6,552

43.5

118.1

8457 Machine tools (machining centers)

1,359

39.0

2.4

723.3

98

328

128.4

94

367

199.2

77

296

Rubber and plastics processing
8477
machinery

45.4

57

160

1,220.8

26

121

8486

Remarks: 1. Product items whose growth rate was high or whose value was large in 2017 on an HS4 digit basis were selected.
Remarks: 2. Product item names were simplified for the sake of ease of understanding.
Remarks: 3. Figures for 2014-2017 represent the total of the growth rate in the three-year period.

Source: Global Trade Atlas
CHART 26

Value of cross-border EC purchases by Chinese
consumers from Japanese companies(billion yen)

Investment in measures to manage
environmental pollution in China(billion yuan)
1,200

1,600

1,297.8

1,400

1,000

1,200

1,036.6

1,000

600

606.4

400

390.2

400

Investment related
to control ofindustrial pollution
Investment related tourban environmental
infrastructure
Investment in measures
to control environmental
pollution

200

200
0

Investment in measures to control environmental pollution
Investment related to urban environmental infrastructure
Investment related to control of industrial pollution

800

795.6

800
600

CHART 27

2013

2014

2015

2016

2017

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: E-Commerce Market Survey (METI)

Source: Ministry of Environmental Protection and CEIC database

Next, we look at China’s expanding outbound direct foreign
investment. Since the beginning of the 2010s, Chinese companies
have become active in acquiring industrial and technology
companies in advanced economies. The number of cross-border
M&A by Chinese companies increased 14-fold from 44 in 2000 to
598 in 2016 although it declined to 463 in 2017 due to efforts by the
Chinese government to reduce capital outflow. The Chinese
government is actively promoting M&A as a national policy as ameans to enhance innovation capabilities in technologies andindustries whose development it wants to prioritize. A comparison
between developed economies and emerging economies as the mains o u rc e s f o r M & A t a r g e t c o m p a n i e s s h o w s t h a t M & A i nmanufacturing and high-tech fields is directed towards companies indeveloped economies, mainly in the US and Europe (Chart 24).
In response, the US is denying approval of purchases of US
companies by Chinese companies and otherwise strengthening its

regulations regarding inbound foreign direct investment. In the EU,
the European Commission is proposing to establish a newframework for examining inbound foreign direct investment while
there is also movement in Germany and other EU member countries
to strengthen regulations.

14 Japan SPOTLIGHT • September / October 2018(3) Opportunities for Japanese Businesses
Japanese exports to China reached approximately 14.9 trillion yen
in 2017, a historical high. Accounting for approximately 20% ofJapanese exports, China is now Japan’s second-largest export
destination after the US, at approximately 15.1 trillion yen. Among
consumer goods, exports of cosmetics, pharmaceuticals, travel
goods and other entertainment-related items, and baby goods are
growing rapidly. Among industrial machinery, exports of machine
tools are growing rapidly, apparently reflecting labor-saving andrationalization investment in China. The rapid rising demand forCOVER STORY 1
CHART 28

Changes in sales of Japanese companies
operating in China by major industry(billion yen)(trillion yen)

1,000

Manufacturing industry (right axis)

800

Information and communication industry

30

Private consumption-related services

25

Sales of Japanese, US & EU companies
operating in China by major industry (2015)(trillion yen)
34.3

Manufacturing industry (right axis)

Japan

30.4

Business service industry

600

US

Industries in the red circle arethose related to markets ofproducts for the middle class,babies and infants, andelderly people in particular.

EU

24.5

20
Private consumptionrelated services

400

Business service industry

15
10

4.0

Information andcommunication industry
2007

2008

2009

2010

2011

2012

2013

2014

2015
(FY)

5
0

Remarks: B usiness services as referred to here include consulting, advertising, andprofessional and technical services, while private consumption-related services
include retail trade, accommodations, eateries, education, medical care, welfare
service, and leisure.

Source: Basic Survey on Overseas Business Activities (METI)

4.2

4
3
2

200

0

35

CHART 291
0

0.2
Manufacturingindustry

0.7

1.3

0.9
0.4

0.7

Information andBusiness service
communication industry
industry

0.6
Private consumptionrelated services

Remarks: 1. Sales of US and EU companies were converted on the basis of the annual
average exchange rates in 2015. ($1 = 121 yen; 1 euro = 134 yen).
Remarks: 2. T he tabulation was made with respect to business categories which arepresumed to cover similar businesses in Japan, the US and the EU. For
example, the “private consumption-related services” category covers retailtrade, accommodations, eateries, education, medical care, welfare andleisure, while the “business services” category covers consulting, advertising,and professional and technical services. Automobile sales and repair in the EU
were included in wholesale trade.

Source: Basic Survey on Overseas Business Activities (METI), the website of the US Bureau of
Economic Analysis under the Department of Commerce, and the website of Eurostat.

semiconductors reflecting the growing Internet user population
among other things has been noted. The value of semiconductormanufacturing equipment exports is large and also growing (Chart25).
It has been noted that cross-border EC from Japan to China has
also been expanding rapidly. It is estimated that it crossed the 1
trillion-yen threshold in 2016 at 1,036.6 billion yen and 1,297.8
billion yen in 2017 (Chart 26).
China’s consumption per capita grew by around 40% from 13,000
yuan to 18,000 yuan in the four years from 2013 to 2017. While theshare of obligatory expenditures, which correspond to clothing,food, and housing, are more or less stable or declining, the share of
education/culture/leisure and health/medical care is rising.
As environmental challenges are met in earnest, related markets
are expected grow. In China, addressing environmental problems has
become a major challenge. The value of investments made inmeasures to manage environmental pollution as announced by the
Chinese government has been trending upward despite some yearto-year fluctuations (Chart 27). While Japanese companies also needto comply with environmental regulations, this may create business
opportunities for companies in possession of superior environmental
technologies.
Next, we take a look at the growing presence of Japanese
corporate affiliates in China and the challenges that they face.
What is notable about sales by the local companies of Japanesecompanies operating in China is the large share of manufacturing
companies, which are increasing both sales and profits by capturing
robust domestic and external demand related to China. Althoughsales of private consumption-related services are also growing, theyremain relatively low at approximately 600 billion yen in comparison
to the approximately 30 trillion yen for manufacturing (Chart 28).
The Japanese service industry is lagging behind its EU and US
competitors in China. The sales of private consumption-related
services by local companies of the Japanese service industry are
lagging behind those of its US and European competitors. In China,
markets of products for the middle class, babies and infants, andelderly people are expanding. In this situation, Japanese companies
may be lagging behind European and US companies, which have
expanded into China and are already generating sales in thosemarkets (Chart 29).
It is crucial to take advantage of the vitality of China, which
continues to grow, to vitalize Japan through further businessexpansion of Japanese companies in China and cooperation between
Japanese and Chinese companies in other countries.

Japan SPOTLIGHT • September / October 201815