1 CASA ASIA Economic Congress 2004 ‘The Recovery of the Japanese Economy and Its Influence in Asia’ November, 2004 Takashi FUKAYA

2 1. The Economic Relationship between Cataluña and Japan Economic relationship between Spain and Japan is good. Japanese enterprises energetic investment in Cataluña state. (centering around manufacturing industry,142 Japanese enterprises have entered into the Cataluña market).

3 2. Issues for Discussion Japanese and Asian economic trends. Focus on India and China. － Big markets holding opportunity and risk. Differences between Asia and Western society. － Closer relationship overcomes differences. Vision of Asia and Japan. － The recovery of the Japanese economy and its influence in Asia.

4 3. Recovery of the Japanese Economy Japanese economy escapes from long term recession, future strong recovery. － FY03, GDP 3.2% Forecast by IMF, etc, 3 ～ 4% Government progress on regulatory reform, and structural reform. － Push restructuring of enterprise and market renewal. Support for R/D and promote corporate innovation. － Tax reduction for R/D, － Concentrate investment on specific projects.

5 4 ‐ (1). East Asia and Japan East Asian economic rapid growth. － Strengthening export drive to practically use good and cheep labor force. － Formation of regional supply chain network. (Regional Trade Dependence 1985: 36.2%. 2002: 51.8%) － Appearance of middle class with purchasing power. China is growth especially remarkable. － Market-oriented economic reform, liberalization spring from WTO participation. Therefore, created global triangular trade system. － Japan ： advanced parts. ASEAN ： interim goods. China ： assembly.

6 4- （ 2 ） Influence on Japanese recovery and way to expand cooperation Japanese economy is affected by East Asian supply chain network. － For rapid spread of the trade relationship with East Asian economies. (1992: $180bil, → 2002: $304bil,) － For FDI into East Asia. Japanese recovery is also important to East Asia. Therefore, East Asian countries and Japan promote FTA/EPA possibility. － 2002: Conclusion with Singapore. 2003: Start negotiation with South Korea. 2004: Start with Thailand, Philippines and Malaysia. 2005: Will start with ASEAN.

7 4- （ 3 ）. Risk and Potential of East Asia The growth of East Asia is an inherent systematic risk. － Increase energy consumption due to careless consumption. － Exchange rate risk due to dollar devaluation pressure. Japan is need to overcome systemic risk and play a role in Asia. － Supply capital, advanced technology and key industrial parts. － Policy and regulatory cooperation based on the Japanese experience.

8 5. India – The Great Elephant Increased Indian presence. － Interest due the base of IT business outsourcing. － Big territory and large educated population. Structural change an Indian economy/industry.(1980→2000) － Share of agriculture in GDP: 38.6% → 24.9% Share of service sector in GDP: 37.2% → 48.2% － Formation of IT cluster. (Bangalore region so called “Indian Silicon Valley”)

9 6. Other Regions of Asia History of Asian economic development. － Flying Geese Pattern Model. (Japan ＞ NIEs ＞ ASEAN ＞ China ＞ Where?) － Open and reformable policy of China. → Market-oriented economic reform. Reasons for Asian success. － Division of production process leading manufacturing industry, and leveling welfare distribution. － Increase FDI → export oriented industry creation. But… environment of other areas of Asia (ex. Middle East) is different. － Continuation of political opposition. － Dependence on natural resources. － Concentration of wealth.

10 7. Toward Development of Asia Handling Asia’s potential and risks. － Maintain and spread the good growth cycle. (Agree to the economic growth policy. → Provide an environment for FDI. → Accumulation of industry. → Improvement of labor productivity through the welfare distribution. → Creation consumer market.) － Provision of the institutions for industrial structure reform and evasion of systemic risk. Japan will contribute with Asian countries toward prosperity and stable growth of Asia.

11 Muchas Gracias!