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Friday, 4 January, 2002, 11:07 GMT
Japan faces up to China trade threat
Japanese farmers process the square watermelon - designed to allow for easier storage
Japanese farmers may be creative but possibly not as competitive as Chinese growers
China's membership of the World Trade Organisation (WTO) has sent ripples of fear through Japan.

Many businesses fear an influx of cheap products from the fastest growing Asian economy.

Last year, China and Japan were engaged in an eight-month long trade war, sparked by Japanese farmers' fear that cheap competition could lose them their jobs.

But analysts say that other Japanese businesses - particularly electronic goods and car makers - could benefit from access to a huge new market.

China's boomtime

China has the fastest growing economy in Asia in sharp contrast to Japan, which has recently sunk back into recession.

The two countries did more than $80bn of business together last year.

Already relations have been scarred by an eight-month long trade row over mushrooms, onions and rushes.

Japanese goods could soon be on sale in this Beijing shopping centre
Japanese goods could soon be on sale in this Beijing shopping centre

In December, China agreed to end 100% tariffs on Japanese cars, air conditioners and mobile phones, avoiding retaliatory sanctions against its agricultural exports.

This kind of trade-off - between agriculture and industrial goods - may be a sign of what is to come.

"The Japanese agricultural producers are not competitive. At least not as competitive as their industrial products. For that sector obviously, Japan needs to give up in order to exchange the growth of other sectors, like the electronic goods sector, the cars sector," Professor Guy Lui, a Chinese expert based at the UK's Brunel University, told the BBC's World Business Report.

"If Japan can think in this way to deal with China, they will regard China entering the WTO as a good thing for them."

Made cheaply in China

Average wages in China are just 3% of those in Japan and efficiency on farms and in factories is improving rapidly.

For reasons of cost, "it is very difficult for Japanese farms, manufacturing companies to compete with the Chinese companies," Tetsuya Jitsu of Japan's main business newspaper of the Nikkei, told the BBC's World Business Report.

This does create opportunities for Japanese manufacturers.

Some companies, such as the motorbike maker Honda, have already built factories in China.

As well as being attracted by the low wages, they see China's population of 1.3 billion people as a hugely lucrative potential market.

"China is expected to gradually lower the import restrictions in that respect Japanese car makers would be one of those of course who can benefit from this kind of arrangement," Yukari Sato, an economist at Nikko Salomon Smith Barney told the BBC's World Business Report.

She warns manufacturers not to expect too much too soon, because as far as the "Chinese government is concerned all those deregulations related to WTO entry are going to take place only slowly."

The BBC's Duncan Bartlett
"Japan just cannot match China's prices in some areas"
See also:

27 Dec 01 | Business
Japan Inc slows as yen hits new lows
07 Dec 01 | Business
Q&A: Japan's economic problems
21 Dec 01 | Business
Japan and China settle trade row
10 Nov 01 | Business
China admitted to WTO
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