COVER STORY • White Paper on International Economy & Trade 2019 • 1

White Paper on
International Economy &Trade 2019 – Summary

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

Introduction

1. Global economic situation and challenges to thefree trade system

As global trade value expands and global value chains (GVC)
develop, the global economy continues to become ever more
integrated. Simultaneously, in last several years, the world has been
facing a surge in protectionism, raising concerns over the potential
malfunctioning of the multilateral trading system.
The White Paper 2019 examines the current state of affairs
regarding globalization and GVCs, and analyzes the history ofprotectionism, the background to trade restrictive measures, and thenegative impacts caused by such measures. Through these steps,
the White Paper presents the case for establishing a new rule-based
international trade system.
Moreover, the White Paper analyzes the current situation including
Japan’s economic relationships with other countries and related
challenges, and examines the position of Japanese companies inoverseas markets, in particular in Asia, and shows future directions
toward which they should aim.
Through the analysis mentioned above, the White Paper presents
perspectives that Japan should adopt in advancing its trade andindustrial policies.

Since the establishment of the World Trade Organization (WTO) in
1995, the global trade value in both goods and services have
expanded remarkably. From 1995 to 2017, the value of exports ingoods and services has increased by 3.5 times and by 3.8 times,
respectively. The value of exports of goods has increased most in
emerging/developing economies, rising by a factor of 6.5 during the
1995-2017 period. Although goods exports have increased most in
absolute terms, the value of exports in services has also increased
steadily in emerging/developing economies. In BRICS economies inparticular, it has increased by a remarkable 14.7 times during 19952017 period (Chart 1).
In most economies, the ratio of value added exports in domestic
production have increased between 2005 and 2015, especially in the
manufacturing industry. This implies that accessibility to the global
market has become increasingly important (Chart 2).

CHART 1

CHART 2

Export value in goods and services
25
20
15

(trillions of dollars)
Export of services by Emerging andDeveloping economies
Export of goods by Emerging andDeveloping economies
Export of services by Advanced
economies
Export of goods by Advanced
economies

10
5

19
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
1
20 4
1
20 5
1
20 6
17

0

Note: For value of service exports since 2013, BOP based figures are substituted for China,
India, Brazil, Indonesia etc., because EBOPS 2010 figures are not avilable. In
addition, the figures for emerging and developing countries’ service exports during
the same period are for reference purposes only due to missing figures.

(1) Trade expansion and increasing value added exports

Ratio of value added exports indomestic production
35%
30%
25%
20%
15%
10%
5%
0%

2005 2015 2005 2015 2005 2015 2005 2015 2005 2015 2005 2015 2005 2015 2005 2015 2005 2015 2005 2015
World

U.S.A

EU28

Germany

Japan

Korea

China

U.K

ASEAN

India

Source: OECD TiVA

Source: IMF DOTS, OECD-WTO Balanced Trade in Services (BaTIS), OECD ITSS EBOPS
2010

https://www.jef.or.jp/journal/

Japan SPOTLIGHT • September / October 20193

COVER STORY 1(2) Development of global value chains (GVCs)
The value of trade in intermediate goods has expanded along withthe expansion of global trade. Within the East Asian region,
development of global value chains can be clearly observed in themachinery industry (Chart 3).
The ratio of East Asian exports to the US, being exported through
China, has increased. The largest share (not including direct export
from home country) of East Asian exports in value added to the US
is transported via China, both in 2005 and 2015. The share has
increased from 11.0% in 2005 to 14.4% in 2015 (Chart 4).
Of the total value being exported directly from China to the US,
China accounts for 82% while the rest is shared by the EU, South
Korea, the US, ASEAN, Taiwan, and Japan, each contributing almost
the same proportion. Imposition of additional tariffs by the US andChina could negatively affect the economies mentioned above,
CHART 3including Japan (Chart 5).
US-China trade disputes may distort companies’ decisions on
investment or location strategies. Some Japanese manufactures
have already started replacing their production in China withproduction in other countries, including Japan. It is becoming
increasingly important for governments to provide favorable
business environments.

(3) Interdependence of each country/region with the US andChina
In general, the share of exports to China is increasing compared to
the US, according to data on export-value shares of many national

CHART 5

Share of foreign value added in China’s
export of goods and services to the U.S

East Asia intra-regional exports(machinery industry)(billions of dollars)

EU28
14%

(%)

1,000

75

intermediate goods

intermediate goods

800

share of intermediate goods

600

share of intermediate goods

Republicof Korea
12%

Others
33%

70
65

U.S.
11%

60
400

55

200

50

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

0

Japan
10%

45

Taiwan
9%

ASEAN
11%

Note: Machinery industry includes general machinery, electrical machinery, household
electric appliances, transportation equipment and precision machinery.

Note: China covers 82% of total value added. The graph shows each foreign country/
region’s share (18%) in foreign value added, which amounted to 86 billion dollars(1 trillion yen).

Source: RIETI-TID

Source: OECD-TiVA

CHART 4

Share of direct exporter of value added in East Asia (excluding China) to the
US (Machinery industry)
ASEAN
3.5%
Japan
1.0%

2005

Mexico Others
5.4%
4.1%

Taiwan
1.6%

Republic of
Korea
1.9%

2015

Taiwan
0.7%

ASEAN
1.9%

Mexico7.1%

Others
3.9%

Japan
1.1%

Republic of
Korea
1.6%

China
11.0%
Direct export
from homecountry
71.5%

Note: East Asia includes Japan, China, Republic of Korea, Taiwan and ASEAN.

Source: OECD TiVA

4 Japan SPOTLIGHT • September / October 2019

China
14.4%

Direct export
from homecountry
69.4%

COVER STORY 1

2. The rise of protectionism and the need toreestablish the international trading system

CHART 6

Share of U.S. and China total exports
from major economies (2000 → 2017)
40(%)
U.S.’s share in export value

economies. With the economic development of China, each country/
region has become increasingly dependent on China (Chart 6).
In terms of each process of production, the share of exports inintermediate goods and materials by Asian economies (e.g. Japan,
South Korea and ASEAN) to China has dramatically increased. It is
likely that Asian economies are deeply integrated into the global
value chain connected to China (Chart 7).
As for exports in final goods, Europe, Asia and Pacific countries
rely on both the US and China, while they were solely dependent on
the US before (Chart 8).

Increasing dependency on China

30
Japan

20
TaiwanASEAN

10FranceRepublic of Korea

Germany

Australia

00(1) Rising protectionism and the development of multilateral
trading system

10

20

30

40

(%)

China’s share in export value

CHART 7

Intermediate and primary goods

U.S.’s share in export value

(%)

40

30

Integrated to the Global Value
Chain, connecting with China.

20
Republic of
Korea

France

10

0

Japan

India

UK

ASEAN

Germany

010Taiwan20

Australia

30

China’s share in export value

40(%)

CHART 8

Final goods(%)

40

U.S.’s share in export value

In order to capture the historical trends of protectionism from
1920s to the present, we derived “the indicator for protectionism”,
by calculating the proportion of articles that relates to protectionism
among the major newspapers, in accordance with the method of“Economic Policy Uncertainty Index” (Chart 9).
Our chronological analysis shows that the recent rise ofprotectionism can be said to be one of the three biggest peaks since
1900, accompanied by 1) the period after the global depression in
the 1930s and 2) the trade disputes between the US and Japan in the
1980s.
The General Agreement on Tariffs and Trade (GATT) wasestablished after the end of the block economy, and the WTO wasestablished after the US-Japan trade disputes. The multilateral
trading system has developed in such a way; a series ofdevelopments whereby turmoil caused by protectionism leads toinstitutional development towards securing stability.
The multilateral trading system played an important role inregulating protectionism during global financial crises, but recently,
there is a growing concern of system malfunction.

India

UK

30

(2) Increase in protectionism in the last several years
According to the “Twentieth Report on G20 Trade Measures”
published by the WTO, the monthly-average number of trade
restrictive measures has increased since 2016.
The value of trade that is subject to import restrictive measures isabout US$481 billion. That is 6 times higher than that of the previous
period (about US$74 billion) (Chart 10).

Japan
Taiwan
India

20

ASEAN
UK
Germany

100

Republic of Korea
Australia

France

0

10

30

40

China’s share in export value

20

(%)

Note: The circle size reflects each country/region’s total export value to the world.

Source: IMF “Direction of Trade” (Chart 6), RIETI-TID (Chart 7, 8)

Japan SPOTLIGHT • September / October 20195

COVER STORY 1

CHART 9The ratio of newspaper articles related to “protectionism”
500
450

protectionism indicator ①

400protectionism indicator ②

350
300

Establishmentof GATTWorld
Depression

250
200

Establishment
of WTO
Financial Crisis

150
100
50

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

1983

1980

1977

1974

1971

1968

1965

1962

1959

1956

1953

1950

1947

1944

1941

1938

1935

1932

1929

1926

1923

1920

0

protectionism indicator ①: We calculated the proportion of articles that directly icludes the word “protectionism” from The Washington Post (US), The New York Times(US), Nikke (Japan), Yomiuri (Japan), Le Monde (France) and The Guardian (UK), and integrated them so that the average is 100 in the goven period.
protectionism indicator ②: Walculated the proportion of articles that includes specific trade restrictive measures from the Nikkei and Yomiuri, and integrated the two
so that the average 100 in the given period.

Source: Ministry of Economy, Trade and Industry (METI)CHART 10

G20 trade-restrictive measures (monthly average) and estimated trade
coverage of the import-restrictive measures
9(average per month)8

Trade-restrictive measures(averave per month)

7(billions of dollars)
Estimated Trade Coverage (US billion dollars)(right axis)

6

500
400

5

300

4
3

200

2

100

1
0

600

2012

2013

2014

2015

2016

(Note*)

2017

mid-Oct 17 mid-May 18
to mid-Oct
to18
mid-May 18

0

Note*: The trade coverage of 2017 is cumulative value from May 2017 to Oct 2017.
Note 1: Trade restrictive measures exclude trade remedy actions (AD,CVD,SG).
Note 2: The number of measures is the monthly average for each year until 2017, and the monthly average for the monitoring report period from October 2017
onwards.
Note 3: Estimated trade coverage shows cumulative total value during monitoring report period.

Source: Report on G20 Trade measures, WTO

6 Japan SPOTLIGHT • September / October 2019

COVER STORY 1

CHART 11

【References】Active anti-dumping

measures(3) Expansion of free trade skepticism(the number of measures)

2,000
1,800
1,600
1,400
1,200
1,000
800
600
400

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

200

0

The number of anti-dumping measures in force has increased
again during the last few years (Chart 11).

Note: Each figure indicates the number of measures in force at the end of each year.

Source: WTO I-Tip database

CHART 12Percentage point change in share of
total employment (1995 to 2015)
15%
10%
5%
0%

Economic disparity is expanding in advanced economies. Recent
technical innovation led to replacement of the middle-skilled workers(who mainly engage in routine jobs), contributing to the expansion of
disparities (Chart 12).
The decrease in the number of employed people in tradable sector(Manufacturing, Agriculture and Mining) is remarkable in advanced
economies. This decrease in employment in trade industries is
considered an important factor in the expansion of disparities thatlead to skepticism of free trade (Chart 13).

(4) Financial support for the China’s key sectors① Government subsidies

The amount of subsidies provided by the Chinese government has
increased steadily over the past 10 years. Among them, subsidies
related to “Made in China 2025” account for about 40%, andespecially the rate of support for next-generation information
technology is high.
The compound average growth rates (CAGR) of government
subsidies for listed companies related to 10 key sectors in “Made in
China 2025” are about 13.5 to 43.25% (Data between FY2009 andFY2017), a high level in all the fields (Table 1).
② Low-interest loans

-5%
-10%
-15%

FranceUK

High skill

Germany

Middle skill

US

CanadaLow Skill

Source: OECD “Employment Outlook 2017” Figure 3.A1

By calculating the lending rates (financial statements analysis) ofmajor Chinese companies in 6 industries among China’s key sectors,
it has been revealed that many major companies have received loans
at lower interest rates than market interest rates in China (Chart 14).
Additionally, those companies further expanded their borrowing in
the past several years (Table 2).

CHART 13

Changes in the number of employees(thousands of workers)

Tradable sector(thousands of workers)

4000

12000

3500

10000

3000

8000

2500
2000

6000

1500

4000

1000

2000

500
0

0
1999

2015
FranceServices

Non-tradable sector

2008

1990
U.S.

Agriculture, Forestry, Fishery, Mining and Quarying

Manufacturing

1999

FranceGovernment
Wholesale and retail trade
Education, learning support

2015

1990

U.S.

2008

Medical, health care and welfare
Construction
OthersNote: The calculation for France is based on Philippe and Giraud (2017) , and Spence and Hlatshwayo (2011) as for U.S..

Source: Ministry of Economy, Trade and Industry (METI)

Japan SPOTLIGHT • September / October 20197

COVER STORY 1

TABLE 1

Compound average annual growth rate from 2009 to 2017 of key indexes infinancial statements (Made in China 2025 sectors)
Compound Average Growth Rate (CAGR: FY2009→FY2017)

OperatingincomeOperating profit

Government
subsidies

Short-term andLong-term
Liabilities

R&D cost

Depreciation andamortization

Next-generation information technology(493 Companies)

23.5%

24.0%

24.5%

25.1%

40.4%

28.7%

High-end numerical control machineryand robotics(242 Companies)

7.4%

6.2%

13.5%

10.3%

68.6%

18.0%

Aerospace and aviation equipment(48 Companies)

20.2%

19.5%

16.5%

18.5%

84.4%

24.7%

Maritime engineering equipment andhigh-tech maritime vessel manufacturing(8 Companies)

6.3%

-

20.2%

15.8%

36.4%

16.7%

Advanced rail equipment(11 Companies)

18.5%

15.4%

18.1%

26.6%

27.1%

14.8%

Energy-saving and new energy vehicles(150 Companies)

18.9%

20.6%

33.2%

22.2%

117.5%

20.0%

Electrical equipment(152 Companies)

16.0%

17.1%

17.4%

11.8%

85.6%

20.3%

Agricultural machinery and equipment(3 Companies)-1.7%-16.2%

43.2%

41.7%

5.8%

17.3%

New materials(276 Companies)

10.3%

28.9%

15.3%

8.4%

60.8%

10.6%

Biomedicine and high-performance
medical devices(255 Companies)

17.2%

19.2%

25.0%

14.7%

82.8%

21.8%

Total
(3,612 Companies)

15.3%

19.7%

21.4%

13.1%

48.7%

17.4%

Note: When operating profit is negative, it is excluded from calculation as outlier value.

Source: Wind database, BvD “ORBIS”③ Case study: Financial support for priority companies in

the integrated circuit industry in China

The leading Chinese semiconductor companies have managed toachieve rapid growth in a short period of time through repeated
investments and acquisitions while receiving large-scale government
financial support.
【Example 1: Tsinghua Unigroup】Tsinghua Unigroup is a stateowned corporate group related to Tsinghua University.
Since entering the integrated circuit industry by M&A in 2013, thegroup has developed to cover a wide range of processes fromdesigning to manufacturing (front-end / post-process) under
government financial support in a short period of time. Only 5 years
after entering the integrated circuit industry, it has become acorporate group that makes large-scale (around 10 trillion yen)investments in plant and equipment (Chart 15).
8 Japan SPOTLIGHT • September / October 2019

【Example 2: Semiconductor Manufacturing International
Corporation (SMIC)】
SMIC is the largest IC fabrication company, famous for its mostadvanced technologies in China
The group has expanded its scale rapidly through repeated
investments to affiliated companies and investments in plant andequipment up to 1 trillion yen. Currently, the group is the 5th largest
IC fabrication company in the world (Chart 16).
④ Japan-China comparison of government financial support

during promotion period for semiconductor industry

The current government support to the semiconductor industry in
China is significantly more compared to that in Japan during the past
semiconductor industry promotion period (Chart 17).

COVER STORY 1

CHART 14

Estimated interest rate based on financial statements of selected companies
0%

1%

2%

3%
4%
5%
6%
7%
8%
9%
10%
Comparative criteria (PBC central bank base lending interest rate + 1% fixed margin)

5.4%

Rechargeable battery

7.6%

Semiconductor

Organic EL

Railroad vehicle

Auto partsAuto【c.f. JAPAN】
Auto

Comparative criteria: Japan and US CIRR (base rate + 1％)

0.83%

3.57%

Note 1: Calculated average between the beginning and the end of the period for “A: FY2017 interest expense” and “B: interest-bearing liabilities consist of loans, bonds, noncurrent liabilities due within one year”. Estimated interest rates are A/B. Interest expense (“A”) includes costs results from all the liabilities such as loans, bonds, CPs andlease bonds. Interest bearing liabilities (“B”) includes liabilities with repayment obligations, and therefore might include liabilities without repayment obligations.
Note 2: We chose top 5 companies in terms of sales in each sector among the listed companies in China mainland for our analysis. However, we excluded a finished vehicle
company and an organic EL company because of their abnormal values (for e.g, no change in figures during the period).
Note 3: “base interest rate + 1% fixed margin” is calculated by adding i) and ii). i) The range between the 5-year highest rate of PBC central bank base lending interest rate
(amortization period: more than 5 years) from Feb 2014 to Feb 2019 and the 5-year lowest rate of the PBC rate (amortization period: 1 year) . ii) fixed margin of 1%. Thismethodology is based on Arrangement on OECD Officially Supported Export Credits. A typical lending rate of a commercial bank is determined by adding the PBC baserate, risk premium, and also an additional cost taking the bank’s profit into account.
Note 4:【 c.f. JAPAN】Estimated interest rates are calculated from consolidated supplementary schedules of FY2017(Mar 2017-Mar 2018) annual reports of 3 major Japanese
automakers. We adopted a range between “Japanese CIRR of 0.83%+1% fixed margin” and “US CIRR of 3.57% (amortization period: more than 8.5 years)”. Base rate refers
to earnings yield of government bonds of each country. (CIRR as at Mar 15 2019)

Source: Annual reports of object companies, People’s Bank of China, CEIC data base
TABLE 2Compound average annual growthrate from 2013 to 2017 of short-termand long-term loanNote: Object companies are same as Chart 14.

Source: Annual reports of the object companies(5) Trends in obtaining patent technologies in 10 key sectors
related to “Made in China 2025”
By comparing the number of patent applications by Japan, the US
and China to the World Intellectual Property Organization (WIPO) in
10 key sectors related to “Made in China 2025”, the following trends
can be observed.

Regarding the number of patent applications to WIPO, China isalmost at the same level as the US, especially in next-generation
information technology, and comparable with Japan in many sectors(Chart 18). China falls behind Japan and the US in patent valuations.
Chinese patent valuations per case even in next-generation
information technology is about 1/4 of that of Japan and the US(2016) (Chart 19).
In terms of growth rate (comparison of period between 2007-11
and 2012-16), China has overwhelmed Japan and the US in both thenumber of patent applications and patent valuations. China is rapidly
expanding its ability even in high-tech sectors.
The US claims that its sensitive information has been leaked toChina by various methods such as foreign direct investment, foreign
ownership restrictions, and talent acquisitions and aims tostrengthen its investment review by Committee on Foreign
Investment in the United States (CFIUS) and its export control by the
Export Control Reform Act (ECRA).

Japan SPOTLIGHT • September / October 20199

COVER STORY 1

CHART 15

Tsinghua Unigroup
Government Financial Support

2015

2016

2017

170 billion yen equity investment from
China Integrated Circuit Industry
Investment Fund

China Integrated Circuit Industry Investment
Fund decided to invest in XMC (Wuhan
Xinxin Semiconductor Manufacturing) and350 billion yen investment was provided to
XMC later.

2.6 trillion yen financial support (e.g. creditline) from China Development Bank was set.

340 billion yen Credit line from China
Development Bank

Tsinghua Unigroup

M&A / Factory Investment, etc

Huge M&As and investment proposals
72 billion yen investment in sealing/inspection operation of Powertech (Taiwan)
Acquisition of Tongfang Guoxin Electronics(Semiconductor producer) for 150 billion yen.
【Cancelled deals】※Proposal of acquisition of Micron
Technologies (US) for 600 billion yen※Proposal of investment in Western Digital(US) for 420 billion yen

Phase1 Large Factory Establishment

Phase 2 Large Factory Establishment

Tsinghua acquired majority stake of XMC andintegrated memory operation, followed byestablishment of Yangtze River Storage fortotal 2.7 trillion yen.

Start of construction of factories in Nanjing,
Jiangsu, Chengdu for total 7 trillion yen.

Source: METI (2017) “H29 Research on basic technology for manufacturing (research on competitiveness of Japanese manufacturing industry considering current condition ofChinese manufacturing)”, BvD “Zepher”, Various press reports

CHART 16

Semiconductor Manufacturing International Corporation
Government Financial Support

2013

2014

Several government fundsupported theestablishment of SMNC
(Semiconductor
Manufacturing of North
China) for 54 billion yen.

2015

China Integrated Circuit
Industry Investment Fund
acquired equity stakes of
SMIC (Semiconductor
Manufacturing of China)
for 37 billion yen.

2016
Capital increase of SMNC
to China Integrated
Circuit Investment
Industry Fund and othergovernment investments
funds (127 billion yen)

2017
Bond with stock acquisition rightfor China Integrated Circuit
Industry Fund and China Datang(Max 56 billion yen)
Capital increase of SMNC toChina Integrated Circuit Industry
Fund (133 billion yen)

2018
China Integrated Circuit
Industry Investment Fund andShanghai Integrated Circuit
Industrial Investment Fundsupported capital increase of
SMSC (Max 360 billion yen*1)

M&A / Factory Investment, etc

Semiconductor Manufacturing International Corporation (SMIC)

Establishment of
SMNC

Investment in Beijing
new factory of SMNC
for 60 billion yen.

Acquisition of
Lfoundry SRL (Italy) for
5 billion yen.
Establishment of SMSC
(Semiconductor
Manufacturing South
China), which is wholly
owned subsidiary of SMIC,
for 226 billion yen.

Expansion of
Beijing factory of
SMNC for134 billion yen.

Expansion of Beijing factoryof SMNC for
106 billion yen.
Expansion of Tianjing
factory of SMIC for
57 billion yen.

Expansion of Beijing factoryof SMNC for 47 billion yen.
Expansion of Shanghai factoryof SMSC for 30 billion yen.
Expansion of Tianjing factoryof SMIC for 42 billion yen.

Note 1: The 360 billion yen capital increase of SMSC includes investment from SMIC group companies.

Source: METI (2017) “H29 Research on basic technology for manufacturing (research on competitiveness of Japanese manufacturing industry considering current condition of Chinese
manufacturing)”, BvD “Zepher”, Various press reports

10 Japan SPOTLIGHT • September / October 2019

COVER STORY 1

CHART 17

Scale of financial support
Amount of financial support from the government/Fund size
Japan

Amount of financial support from the government for Super-LSI
technology development association (Association period: 1976-79)

29 billion yen

China

China Integrated Circuit Industry Investment Fund
(Established September 2014)

139 billion RMB (2.3 trillion yen)First phase2011～: Development period of integrated circuit industry in China

5%*2011: Notification on the policy concerning the decree of development of integrated circuit industry*2014: National Integrated Circuit Industry Development Promotion Policy

4%

China

3%
2%
1%

1976～1979: Development period of IC industry in Japan(MITI: Super-LSI technology research project)

Japan

0%

2010

2011

2012

2013

2014

2015

2016

2017

1975

1976

1977

1978

1979

1980

1981

1982

Note 1: China figures are the total government subsidy divided by the total sales for each year for the top 19 market capitalization IC companies among listed companies in China.
Note 2: The value of the blue solid line for Japan represents the total miscellaneous income (others) divided by total sales in five companies (Toshiba, NEC, Hitachi, Fujitsu, Mitsubishi
Electric) participating in the Super-LSI Technology Research Association (excluding joint ventures) . Under Japanese accounting standards at that time, subsidies wereconventionally counted as miscellaneous income (others) in non-operating income. Regarding the value of the blue dotted-line, in addition to the total amount of miscellaneous
income (others), a value obtained by equally dividing the total government investment (29.0 billion yen) of the VLSI technology research union by 4 years of the Association project
period, is added as a numerator, and divided by total sales (as a denominator).

Source: Annual reports of the 19 Chinese companies, Zhongtai Securities Co., Ltd. "Securities Research Report", Annual reports of 5 Japanese companies

CHART 18

CHART 19

Comparison of the number of WIPO
patent applications(total number from 2012-2016)(thousand applications)Comparison of estimated value of
WIPO patents(total value from 2012-2016)
4.5

450

(billion dollars)

Bar graph: Value of Patent applications to WIPO
(Accumulated value from 2012 to 2016)

4400◇ : Ratio to accumulated value from 2007 to 2011 (RHS)

3.5

350

1.4

60

3

300

1.2

50

2.5

250

1

40

2

200

0.8

30

1.5

150

0.6

20

1

100

0.4

10

0.5

50

0.2

0

0

90
80

◇ : Ratio to accumulated number from 2007 to 2011 (RHS)

70

0column: Number of patents applied to WIPO
(Accumulated number from 2012-2016)

China Japan U.S.

China Japan U.S.

China Japan U.S.

China Japan U.S.

China Japan U.S.

China Japan U.S.

(i)
Next-generation
IT technology(ii)High-level
NC machine
tools androbotics(iii)-(vi) and (viii)
Aerospace,maritime,
rail transport,
automobiles
andagriculturalequipment

(vii)
Power
equipment(ix)
Newmaterials(x)
Biopharmaceuticals
andhigh-performance
medical equipment

China Japan U.S.

(i)
Next-generation
IT technology

China Japan U.S.

(ii)
High-level
NC machine
tools androbotics

China Japan U.S.

(iii)-(vi) and (viii)
Aerospace,maritime,
rail transport,
automobiles
andagriculturalequipment

China Japan U.S.

(vii)
Power
equipment

China Japan U.S.

(ix)
New
materials

1.8
1.6

China Japan U.S.

(x)
Biopharmaceuticals
andhigh-performance
medical equipment

Note: The country presents a country to which the patent owner (Ultimate Parent Company) belongs. The accumulated value is calculated from the estimation for each patent, provided by the BvD
database (data last updated on Feb 2nd, 2019) and includes pending patents.
Estimated values of patent valuation are provided by IP Business Information Enterprise in the Netherlands whose calculation is based on the transaction values of each patent, calculated
valuations of patents on the occasion of M&As, and track records of auctions in the IP market.

Source: BUREAU VAN DIJK “Orbis-IP database”

Japan SPOTLIGHT • September / October 2019

11

0

COVER STORY 1(6) Trends in obtaining patent technologies (by country)① 5G related fields② Accumulated patent applications

Regarding 5G related patents, the number of applications by
Chinese companies is rapidly increasing in recent years, far
exceeding that by US companies who are in the 2nd place (Chart 20).
On the other hand, US companies far exceed other countries inpatent valuations, and Chinese patent valuations are in the 3rd place,after Japan (Chart 21).
The presence of Chinese companies stands out in the number ofpatent applications (Table 3). By country, China’s patent valuation issignificantly smaller compared to that of Japan and the US. However,by company, Huawei is ranked in 5th place (Table 4).

Regarding the number of accumulated patent applications,
Chinese companies overtook Japan in 2015 to become the top
country, and have been expanding their lead in the recent years(Chart 22).
On the other hand, although the accumulated patent valuations ofChinese companies have doubled in the past 5 years, they are still far
below that of Japanese companies. The US, which ranked at the 3rdplace in accumulated number of patent applications ranked at the
2nd place in accumulated patent valuations. China ranked as the 4thplace in the accumulated patent valuations, followed by South Korea,
which ranked at 5th place in number of accumulated patentapplication (Chart 23).

CHART 20

CHART 21

Change in number of accumulated
patent applications by country(TOP 5 countries)(thousands of applications)
7

China
Korea
Finland6

Changes in accumulated patentvaluations by country(TOP 5 countries)(thousands of applications)

United States
Sweden

5

1,800
1,600
1,400

Japan
Finland

1,200

4

1,000

3

800
600

2

400

1
0

United States
China
Korea

200
2008 2009 2010 2011 2012 2013 2014 2015 2016 201702008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Note: Country measures are determined according to the country to which the patent owner (Ultimate Parent Company) belongs.The patent groups that make up a family of patents arecounted as one patent category. The evaluation value is an estimate provided by BUREAU VAN DIJK for each patent family (as of February 4, 2019) and includes patents pending. It is
possible that not all application data is reflected in 2016 or later due to delays in database collection and devlation of PCT application transition to other countries.

Source: BUREAU VAN DIJK “Orbis-IP database”

TABLE 3TOP companies worldwide by numberof patent applications

TABLE 4TOP companies worldwide by patentvaluation

Note: Country measures are determined according to the country to which the patent owner (Ultimate Parent Company) belongs.The patent groups that make up a family of patents arecounted as one patent category. The patent values are an estimate provided by BUREAU VAN DIJK for each patent or patent family (as of February 4, 2019) and includes patents
pending.

Source: BUREAU VAN DIJK “Orbis-IP database”

12 Japan SPOTLIGHT • September / October 2019

COVER STORY 1

CHART 22

Change in number of accumulated patentapplications by country (TOP 5 countries)(thousands of applications)
30

China
United States
Korea

25

Japan
Germany

20

Changes in accumulated patentvaluations by country (TOP 5 countries)(billions of dollars)
Japan
14
Korea
12
Germany

United States
China

10
8

15

6

10

4

5
0

CHART 23

2
2008 2009 2010 2011 2012 2013 2014 2015 2016 201702008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Note: Country measures are determined according to the country to which the patent
owner (Ultimate Parent Company) belongs.The patent groups that make up a familyof patents are counted as one patent category. The patent values are an estimate
provided by BUREAU VAN DIJK for each patent or patent family (as of January 30,2019) and includes patents pending. It is possible that not all application data isreflected in 2016 or later due to delays in database collection and devlation of PCT
application transition to other countries.

Note: Country measures are determined according to the country to which the patent
owner (Ultimate Parent Company) belongs.The patent groups that make up a familyof patents are counted as one patent category. The patent values are an estimate
provided by BUREAU VAN DIJK for each patent or patent family (as of January 30,2019) and includes patents pending. It is possible that not all application data isreflected in 2016 or later due to delays in database collection and devlation of PCT
application transition to other countries.

Source: BUREAU VAN DIJK “Orbis-IP database”

Source: BUREAU VAN DIJK “Orbis-IP database”

TABLE 5TABLE 6

TOP companies worldwide by numberof patent applications

TOP companies worldwide by patentvaluation

Note: Company Contry Origin is determined by the country to which the patent owner (Ultimate Parent Company) belongs.The patent groups that make up a family of patents are counted as
one patent category. The evaluation value is an estimate provided by BUREAU VAN DIJK for each patent or patent family (as of January 30, 2019) and includes patents pending.

Source: BUREAU VAN DIJK “Orbis-IP database”
CHART 24

Although many Chinese companies ranked among the top 10 inpatent applications by companies, none of them ranked in patentvaluations (Table 5, 6). Japanese companies occupied the top places
while no Chinese companies ranked among the top 10.
BOSCH, which ranked at the 2nd place in patent applications did
not rank in patent valuations. LG CHEM, which did not rank in patentapplications ranked at the 2nd place in patent valuations (Table 5, 6).
Although Chinese companies only have about 8% share in patentvaluations in Lithium-ion battery industry, their share in supply
consists of half of the market, especially for onboard Lithium-ion
batteries, that are growing rapidly (Chart 24).

Share of global supply of Lithium-ion
battery for automobiles (2018)
Company L
4%
Company K
5%CompanyⅠ
3%

Others
5% Company A
10%Company J
7%Company B
21%

Company H
3%Company G
4%Company F
11%Company C
10%Company E Company D
4%
13%Green: Japanese companies, Blue: Korean companies, Red: Chinese companies

Source: METI (2018) cited from The Strategic committee for the new era of automobiles (thefirst meeting)Japan SPOTLIGHT • September / October 201913

COVER STORY 1

CHART 25

Price Hike Case1: Pork in China(%, YoY)

130
125

CHART 26

Price Hike Case2: Hot-Rolled Coil Steelin US
Average price in 2015 = 100

7/6 §301CM Activated

120
115

160

120

110

100

105

80

100
95
90

3/23 §232 Activated

140

60
40

80

0

20
1
20 7/11
20 7/21720 /3
120 7/41
20 7/51
20 7/61
20 7/71
20 7/820 17/
1 9
20 7/1
1 0
20 7/1
17 1
20 /12
1
20 8/11
20 8/21820 /3
120 8/41
20 8/51
20 8/61
20 8/71
20 8/820 18/
18 9
20 /1
1 0
20 8/1
18 1
20 /12
1
20 9/1
19
/2

20

20
1
20 7/11
20 7/21720 /3
120 7/41
20 7/51
20 7/61720 /7
1
20 7/820 17/
1 9
20 7/1
17 0
20 /1
17 1
20 /12
1
20 8/11
20 8/2
1
20 8/31
20 8/41820 /5
120 8/61
20 8/71
20 8/820 18/
1 9
20 8/1
1 0
20 8/1
18 1
20 /1219/185

Source: Refinitiv

Source: Refinitiv(7) Negative effects of trade restrictive measures

CHART 27

① Negative effects to the countries imposing the measures

Imposition of additional import tariffs has a negative impact on
domestic consumers and downstream companies in the countries
imposing the tariffs by causing a rise in domestic commodity prices.
China imposed 25% additional tariffs on import of swine from the
US as the first counter measures against the US Section 301 in July
2018.
After imposition of tariffs, the prices of swine in the Chinese
domestic market have increased. Consumer goods (including foodsuch as swine) have direct effects on consumers. This example
clearly shows that imposition of tariffs has negative impacts on
consumers directly. (The increase in prices of swine since November
2018 was also affected by hog in China.) (Chart 25)
The US imposed 25% additional tariffs on imports of steel under
Section 232 in March 2018.
After imposition of the tariffs, steel prices in domestic markets in
the US have increased. The increase in steel prices led to increase incosts in downstream industries that use steel (Chart 26).
Steel is essential for manufacturing industries. The increase insteel prices have negative effects on wide range of industries
including manufacturing.
② Spillover effects to third countries by the imposition of

trade restrictive measures (Section 232 measures on steel)

The imposition of trade restrictive measures can negatively affectthird countries and distort market mechanisms as a consequence.
The additional 25% tariffs on US steel imports under US Section
232 of the Trade Expansion Act of 1962 has led to the decrease of
US imports of flat roll products (Chart 27).
Some exports of those products to US that have lost theirdestinations, especially the products from Turkey and Russia, whichhave flowed to the EU. The EU has imposed definitive measures in
February 2019.
14 Japan SPOTLIGHT • September / October 2019

Monthly Steel Imports of US, EU and
Global Trend (2018)(YoY, %)

40

3/23 US Activated §232

30

EU

7/19 EU Activated prov. SGs

Possibility of Inflow
into EU

20
10
0

US

-10
-20
-30

2018

Global Trend (exc. US and EU)"

EU

US

Remarks: “Global Trend (exc. US and EU)” shows the rest of world’s flat-rolled steel importtrend, which is adjusted to the same level of US and EU imports during Feb. toMay.

Source: Global Trade Atlas. The products are the flat-rolled steel; HS7208-7212.

③ Spillover effects to third countries (Counter measuresagainst Section 301 on soybean)

China has imported soybeans from Brazil regardless of its
harvesting season after US imposition of additional tariffs on
soybeans.
The value of the US exports in Soybean to China and to the world
have decreased by 97% and by 35% respectively compared with thesame month of the previous year.
On the other hand, exports of soybean by Brazil to China and to
the world has increased by 75.9% and 63.1% respectively comparedwith the same month of the last year (Chart 28).
Brazil has responded to this unexpected demand through some
expansion of farm land as well as opening reserve stocks for thisseason.

COVER STORY 1

CHART 28

CHART 29

China’s Soybean Imports from US and
BrazilSoybean Stocks of US and Brazil(thousand of tons)

14,000(millions of dollars)

4,500

US

4,000

Brazil3,500

12,000

7/6 §301ActivatedHarvestSeasonin US

HarvestSeasonin US

HarvestSeasonin US

10,000
8,000

3,000

6,000

2,500

4,000

2,000
1,500

2,000

1,000

0

500
0

2013

2014

2015
US at Sep.

2016
2017
Brazil at March

2018

Remarks 1: Regarding inventory month, September in US and March in Brazil is the monthjust before the harvest time in both countries.
Remarks 2: 1 bushel = 0.0272155 ton.

16/1 16/3 16/5 16/7 16/9 16/11 17/1 17/3 17/5 17/7 17/9 17/11 18/1 18/3 18/5 18/7 18/9 18/11 19/1

Source: Global Trade Atlas

Source: USDA; US Department of Agriculture and Conab; Brazil’s National Food Supply
Agencytrade. Moreover, this is vital for the growth of the global economy aswell as a vital factor to provide and maintain favorable and stablebusiness environments. Amidst the recent and increasing concerns
about the malfunctioning of the multilateral trading system, including
the WTO, it is an urgent agenda to restructure the international
trading regime under international cooperation.

Brazil has responded to this increased demand through expansionof cultivated land as well as release of the stock, so that its stock has
decreased dramatically (the amount of stock in December 2018 was
0.75 million tons, less than 1/10 of the previous year) (Chart 29).
There are limitations to increase exports when they are out of
season.
The total amount of China’s soybean imports has decreased
recently. The current situation surrounding China’s soybean imports
may not be sustainable for China.

① Digital Field

National regulations on data flow have increased rapidly
throughout the world since 2010 (Chart 30).
As cross border economic activities have rapidly expanded by thedevelopment of digital technologies, the need for international rulemaking in cyber space to facilitate free flow of data has becomemuch more important, as have properly protecting personal(8) Towards establishment of the new rule-based international
trade system
The establishment of the rule-based multilateral trading regime isessential for the further promotion and expansion of free and fair
CHART 30

The total number of world’s domestic data regulations
250

200

150

100

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1990

1988

1995

1983

1981

1979

1978

1974

0

1972

50

Source: Casalini and Lopez-Gonzalez (2019)Japan SPOTLIGHT • September / October 201915

COVER STORY 1

CHART 31

Japan’s current Economic Partnership Agreements

Note: As of the end of March 2019
“Under negotiation” includes the number of signed agreements

Source: Trade statistics, Ministry of Finance of Japan, IMF Direction of Trade Statistics
TABLE 7

information and intellectual property rights.

EPA coverage ratio of EPA of Japan(trade value basis)② Economic Partnership Agreements (EPAs)

Comprehensive Economic Partnership Agreements (EPAs), such
as TPP11 and Japan-EU EPA, enable companies to form efficient
production networks through optimal production distributions andlocation strategies, and are expected to lead to the strengthening of
the global competitiveness of industries. Moreover, it is important forJapan to improve its business environment and attract reinvestment
in its market by strategic use of EPAs and regulatory reforms.
As of March 2019, 18 EPAs were signed or in force with 21
economies/regions including TPP11, EU-Japan EPA. Furthermore,
RCEP and Japan-China-ROK FTA are currently under negotiation(Chart 31, Table 7).
The expansion of free trade and promotion of EPAs are keys forJapan’s trade policy. It is important for growth of the Japanese
economy to incorporate interests of the APEC regional development
and markets by building networks of EPAs all over the world.
Promoting utilization of in-force EPAs and their reviews areimportant.

16 Japan SPOTLIGHT • September / October 2019

Note: As of the end of March 2019
“Under negotiation” includes the number of signed agreements

Source: Trade statistics, Ministry of Finance of Japan, IMF Direction of Trade Statistics

3. Japan’s external economic relations and futurechallenges
Potential for overseas expansion by Japanese companies① Expansion in retail and service industries

Around 70% of Japanese affiliates overseas are located in Asia.
Recently, as the number of affiliates established in Asia is increasing
further, the importance of Asia is rising for Japan (Chart 32, 33).
By industry, more than a half of the Japanese affiliates are in
manufacturing and wholesale sectors, and the share of the affiliates
in the retail and service industry is still small (Table 8). Especially,
these trends are remarkable in Asia, and there is room for Japanesecompanies to expand their businesses in these sectors. For example,
under the developing digital economy, with the rise of the EC

COVER STORY 1

CHART 32

CHART 33

Regional distribution of Japanese
overseas affiliates (2016 fy)
Middle East
1%

Europe12%(1,000 corporations)6(non-manufacturing)5(manufacturing)
World

4

China
ASEAN4

8

3

6

U.S.
12%

2

4

Asia
66%

U.S.

2
0

1

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

Middle andsouth
America
5%(1,000 corporations)
16
World
14
China (right axis)
ASEAN4 (right axis)
12
U.S. (right axis)
Europe (right axis)
10

Others
1%

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

Africa1%
Oceania2%

Number of Japanese overseas affiliates byregion0(fiscal year)

Source: METI “Basic Survey on Overseas Business Activities”

Source: METI “Basic Survey on Overseas Business Activities”

TABLE 8

Sales of overseas affiliates by industry and region (2016 fy)(unit: billions of yens)
Asia
Sales

U.S.
Share

Sales

World
Share

Sales

Share

Total

111,885

100.0

80,759100.0

257,647

100.0

Manufacturing

67,20360.1

30,316

37.5

123,63648.0

Non-manufacturing

44,68339.9

50,44362.5

134,01152.0
1.1

Information and communications

943

0.8

530

0.7

2,844

Transport

1,381

1.2

359

0.4

2,788

1.1

Wholesale trade35,25431.5

33,283

41.2

95,198

36.9

Retail trade

1,826

1.6

5,455

6.8

8,066

3.1

Services

3,181

2.8

7,117

8.8

11,830

4.6

Source: METI “Basic Survey on Overseas Business Activities”
TABLE 9

Regional share of GDP, number of Japanese overseas
affiliates and their sales value
Asia

Central and south
America

Africa

World

GDP

33%

6%

3%

100%

Number of overseas afﬁliates

66%

5%

1%

100%

Sales value

43%

5%

1%

100%

Remarks: 2018 calendar year for GDP. 2016 fiscal year for number of overseas affiliates and sales value.

Source: IMF "World Economic Outlook database" (April 2019), METI “Basic Survey on Overseas Business Activities”

platformers, some movement to start new businesses and services
is observed.
② Expansion in the growing markets

The presence of Japanese companies is still small in the emerging

economies expecting rapid growth outside of Asia, such as Central
and South America and Africa (Table 9).
Japanese companies should expand their exports and investments
to growing markets in order to better compete in the global
marketplace alongside other countries.
Japan SPOTLIGHT • September / October 201917