The Influence of Chinese Imports upon the Decline of the Consumer Price Index and Consequent Recommendations to the Japanese Manufacturing Industry

ABSTRACT

It has been widely recognized that Japan is going through a phase of prolonged deflation, and found it difficult to get out of the economic standstill of the 1990s. The government's definition of deflation is "a process of a sustained fall in the general price level." As a yardstick, it is common to use the GDP deflator or the consumer price index (CPI). The CPI consists of a weighted statistical assessment and calculation of 596 items approximating the average price of goods and services bought by the consumers nationwide (general price level). The CPI marked a peak in 1998 on a calendar year basis and continued to slide thereafter. Even excluding fresh vegetables the fall reached 1.3% in 2001 as compared with 1998. Five electric items alone, namely personal computers (notebook type), personal computers (desktop type), electric refrigerators, TV sets, and home air-conditioning units contributed 28.4% in the fall of the CPI.

The price decline for these five electric items is largely due to the influence of the massive inflow of low-price products from China. Imports of these five electric items from China in 2001 increased between 2.1 and 88.2 fold as compared to 1998. On an itemized base, their shares in total imports are also increasing substantially. The unit import prices of these products from China for the 1998 - 2001 period (on CIF basis) is only 6.5% - 68.8% of the unit selling price of domestic manufacturers. The impact of this differential is enough to push down prices of the items directly or indirectly in the CPI survey. Statistically, the inflow of large volumes of these five electric items from China is closely linked to the CPI for these items.

The large-scale inflow of low-price electric products from China is to a large extent due to reverse-imports from Japanese companies producing in China or from OEM suppliers on the basis of product subcontract orders. Since it will be difficult to narrow the production cost gap between China and Japan over a short term, the situation will continue. Moreover, in the wake of the digital revolution, we will see further progress in modularization of parts that will make it easier to catch up technically. As a result, the scope of production transfer will expand further and may also extend to the automobile sector. For maintaining domestic manufacture in the light of cost differentials, it is essential: (1) to reduce labor costs by improving productivity, (2) to attach importance to the brand awareness, and (3) to aim for greater efficiency in the non-manufacturing sectors through consistent and bold regulatory reform.