On Japanese Sea coast, small firms feel the pain of China’s economic slowdown


Posted March 18, 2019 by japantodaytimes

Japan’s Northern coast and in snow country, a small manufacturer of precision moulds is feeling the pain of China’s economic slowdown.

 
Japan’s Northern coast and in snow country, a small manufacturer of precision moulds is feeling the pain of China’s economic slowdown.

Orders have slowed to a trickle at Nagumo Seisakusho Co, which supplies big auto-parts makers such as Denso Corp and Aisin Seiki Co, and the company may keep salaries flat or even reduce them in the coming fiscal year.

Manufacturers across Japan depend heavily on customers in China, the world’s second-biggest economy, to buy their products, especially the parts and equipment that reach China’s factory floor and fuel its domestic and export growth.

In recent months, other big companies such as factory-robot makers Yaskawa Electric Corp and Fanuc Corp; Mitsubishi Electric Corp, trading house Mitsui & Co and toilet giant Toto Ltd have blamed China as they cut profit forecasts.

But the impact of China’s wobble is worse for manufacturers nearer the start of the supply chain, like tiny Nagumo in Joetsu, Niigata Prefecture. It employs 100 people to create precision press moulds other Japanese manufacturers use to make car parts and other products for the China market.

“Orders have stalled suddenly since January. Many of our clients are car-parts makers, and they have slammed on the brakes for orders recently,” at least through March, said compant president Hiroshi Komemasu.

“It is said that when China sneezes, Japan catches a cold,” Komemasu told Reuters recently on the factory floor. “I strongly feel that the trade war is affecting even small firms like us.”

Such constriction could ripple through to other Japanese manufacturers – now in annual wage negotiations – reinforcing concerns that trade friction will hurt salaries and consumer spending nationwide.

Japanese giants such as Toyota Motor Corp and Panasonic Corp offered smaller pay increases at annual wage talks on Wednesday, tempering hopes that domestic consumption will offset external risks to growth.

Despite signs that U.S. President Donald Trump and Chinese President Xi Jinping may be nearing a truce in the U.S.-China trade war, the collateral damage for Japan may persist.

“The U.S.-China trade war won’t be resolved entirely. Both sides may reach a vague compromise, but that doesn’t mean everything will be rosy for China’s external demand,” said Toru Nishihama, emerging-market economist at Dai-ichi Life Research Institute.

“Downward pressure will mount on Japanese exporters and manufacturers as the global economy slows further,” Nishihama said, adding that as Beijing focuses on supporting the domestic economy, the authorities will tolerate slower demand.

Atsushi Takeda, chief economist at Itochu Research Institute, sees the China slowdown’s impact on Japanese companies lasting for months, countering an expected rebound in car demand late in the year from Beijing’s stimulus measures.

“But we need to bear in mind that the effects of trade friction will play out fully in Japanese exports and output in January-March and the following quarter, after the rush in shipments of Chinese goods to the United States seen late last year,” Takeda said.

“Semiconductors and cars will take a hit in the first half of this year, and other goods related to trade friction will follow suit in the second and third quarters, so the worst will come around April-June for Japanese exporters and manufacturers.”

Last year, about 38 percent of Japan’s exports were electronic parts, semiconductor-manufacturing equipment and heavy machinery used to make other goods, while the auto industry accounted for 23 percent, Finance Ministry data show.

Japan’s manufacturing supply chain, linking small firms like Nagumo to Japan’s industrial giants and consumers worldwide, is the China-reliant core of Prime Minister Shinzo Abe’s plan to lift Japan out of decades of deflation and fitful growth.

A much cheaper yen, driven by unprecedented money-printing from the Bank of Japan, has made the country’s exports more competitive globally. This has spurred a long export boom and record corporate profits, promoting hiring, creating the tightest labour market since the 1970s and delivering modest pay raises.

But domestic consumption has remained tepid and export demand – especially from China – has slumped, threatening to derail what could be Japan’s longest postwar expansion.

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Last Updated March 18, 2019