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Slowdown in China, Island Dispute Push Japan Toward Recession

Japan’s exports to China are significantly down this month, the Financial Times reports:

According to Monday’s preliminary data from the Ministry of Finance, shipments to China from Japan dropped 14.1 per cent in September from a year earlier, accelerating from a 9.9 per cent fall in August. . . .

While Japan’s imports from China were up 3.8 per cent, boosted by shipments of Apple’s iPhone 5, exports of branded consumer goods such as cars and motorcycles collapsed, dropping by 45 per cent and 31 per cent respectively. Exports of electrical apparatus and photographic supplies also recorded double-digit percentage falls.

The biggest contribution to the overall 14.1 per cent fall in exports, however, was made by the industrial machinery sector. Weakness in that area, which is less sensitive to consumer-led boycotts, suggests that the Chinese economy has yet to pull out of a slowdown, which has extended to seven consecutive quarters.

Via Meadia noted a few months ago how China wields its economy as a weapon in political disputes with its neighbors, especially during territorial spats with Japan and the Philippines. When the Senkaku Islands sparked a diplomatic uproar between Tokyo and Beijing, Chinese leaders responded by encouraging anti-Japan protests and vandalism of Japanese owned businesses, while customs processes for Japanese companies suddenly became quite onerous. Add to that the lingering effects of economic slowdown in China as well as Europe, and things don’t look good for Japanese exporters.

The predictable result in Japan has been a growing public distaste for the current government. Polls show the main opposition party, the Liberal Democrats, will win big in elections scheduled for next year. The head of the Liberal Democrats, Shinzo Abe, is more nationalist and tougher on China than Prime Minister Noda.

It is not yet clear if the Japan-China economic troubles will continue or if the trade relationship will bounce back. Despite Abe’s tough stance on China, if he becomes PM it’s likely that Japan’s business elite, knowing how important China is to the Japanese economy, will whisper in his ear, encouraging him to repair the relationship with Beijing instead of making it worse.

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