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The Japanese Informal Empire in China, 1895â"1937
By Peter Duus, Ramon H. Myers, Mark R. Peattie PRINCETON UNIVERSITY PRESS
Copyright © 1989 Princeton University Press
All rights reserved.
ISBN: 978-0-691-05561-9
CHAPTER 1
The Changing Pattern of Sino-Japanese Trade, 1884–1937
Mizoguchi Toshiyuki
Japan underwent a remarkable economic development between the Meiji Restoration and World War II. The rapid growth of foreign trade was a key factor in this development. Because Japan had few raw materials to sustain rapid industrial growth, foreign sources of supply like China had to be found and developed. Modern technology, too, was acquired by importing machinery and equipment from the West. To earn the foreign exchange to buy these goods, Japan had to produce what foreigners wanted badly enough to buy. Trade, therefore, was an important two-way traffic.
Changes in Japan's Foreign Trade over Time
Yet the role of foreign trade in Japan's economic development should not be exaggerated, as some scholars have done. Minami Ryoshin has pointed out that the share of Japan's foreign trade of gross domestic product (GDP) was fairly low — in fact, lower than the ratios for Western countries. Japan's foreign trade amounted to 14.4 percent of GDP in 1885–1890, 20.2 percent in 1891–1900, 24.4 percent in 1901–1911, 35.9 percent in 1911–1920, 34.5 percent in 1921–1930, and 39.1 percent in 1931–1940. These values are lower than the highest prewar figures for the United Kingdom (43.5 percent) and France (53.7 percent). These comparisons suggest that while trade played an important role in Japan's prewar economic development, one should not overemphasize Japan's dependence on trade.
But what role did the China trade play in Japan's overall trade in the pre-World War n period? Changes over time in Japan's foreign trade with seven different regions may be identified: (1) Taiwan and Korea, (2) China, including the Kwantung Leased Territory and "Manchuria," (3) Hong Kong, (4) the rest of Asia, (5) North America, (6) Europe, and (7) other areas. Although governed by Japan, the Kwantung Leased Territory served as an important conduit for Japan's trade with China. Hong Kong served as an entrepot in the trade between China and other countries and deserves to be treated separately.
From the outset, China's markets were important to Japan. They accounted for about 20 percent of Japan's exports and 12 percent or more of its imports for over sixty years (table 1.1). Although Japan's share of trade with China remained quite constant over time, Japan's trade with its colonies and with the rest of Asia increased as a proportion of the country's total trade.
Before Japan began its march toward industrialization, its major exports were primary goods like raw copper and raw silk (table 1.2). After Japan's textile industry began to develop in the mid-1880s, the country began importing raw textile materials, and textile products began to occupy a large share of Japan's exports. These exports were essential to Japan's industrialization, because they paid for the imports of machinery and equipment from the developed countries. Exports of such light industry products as processed foods and sundry goods also became significant in the 1880s and 1890s.
Since the beginning of the twentieth century, Japan's heavy manufacturing industry had been promoted through policies of the government. As it had done for light industry, the government used public monies to establish factories, then transferred them to the private sector. Although Japan was still poor, with little capital and surplus labor, the leaders were dedicated to making Japan wealthy and militarily strong. Economic development at this time owed far more to political and military decisions and events than to any other factors. Japan's first heavy manufacturing industries still could not compete in world markets because their unit costs were too high. These new enterprises had to market their products at home and in Japan's colonies. Consequently, of all industries that could compete abroad, those producing textile products came to play a crucial role in obtaining the foreign exchange needed for economic development.
These imperatives of early industrialization, therefore, greatly determined the composition of Japan's imports (see table 1.2). Before the mid-1880s, Japan's major imports had been manufactured consumer goods. As light industry developed, however, import substitution expanded dramatically. On the other hand, imports of raw materials for the manufacturing industries (such as textile raw materials) and capital goods also increased significantly. Such capital goods included machinery and equipment for Japan's industry, which in turn meant that the advanced technologies of the developed world were being transferred to Japan. In addition, imports of food items like rice eventually accounted for an increasing share of Japan's trade. These imports satisfied the rising demand of the cities for food, which was not being met by the slow expansion of food supply from the farming sector. This large importation of food prevented a rise in real wages in the manufacturing sector, and as wages lagged behind price increases, enterprises were able to reinvest more capital accumulation for earnings.
Shionoya Yuichi's estimates of Japan's imports, classified into consumer goods, capital goods, and unfinished goods, provide further evidence to validate this line of reasoning. According to Shionoya, Japan's capital goods share went from 10 to 20 percent during the early stages of industrialization, remaining nearly constant afterward, while the share of consumer goods declined from 50 to 10 percent between 1870 and 1930.
The Trend of Sino-Japanese Trade
Although China took a relatively stable share of Japan's total trade, one should not conclude that Sino-Japanese trade grew at a slow rate, because Japanese foreign trade as a whole rapidly increased during this period. For example, Japanese exports in real terms increased thirtyfold between the 1890s and 1930s, and imports increased tenfold, leaving a large trade surplus on Japan's side after 1900 (table 1.3). This surplus became one of the major sources of Japan's direct investment in China. The Kwantung Leased Territory and the puppet state of Manchukuo increasingly played an important role in Sino-Japanese trade after 1931. From figure 1.1 one can observe the share of trade from the Kwantung Leased Territory, Manchuria, and all other Chinese provinces (denoted by "Mainland China," excluding Taiwan after 1897, the Kwantung Leased Territory after 1907, and Manchukuo after 1932). Mainland China maintained a 75 to 80 percent share of Japan's exports before 1930, but that share greatly declined during the 1930s. If one assumes that the figures for the Kwantung Leased Territory for 1930 should have covered Japan's trade with Northeast China before 1932, it can then be concluded that Central and South China's shares of the Japan trade sharply declined.
As for the changing composition of Sino-Japanese trade, except in 1887–1896, when marine products took the lead, textiles were Japan's most important export to China, and their share rose continuously until the mid-1920s (table 1.4). As textile production and exports constituted a major engine of Japan's economic development, China became an important market for Japan's textiles. Fluctuations in textile sales to the China market greatly influenced the Japanese textile industries and the domestic economy as well, but these linkages are still little understood. By the 1930s, products of heavy manufacturing industries began to take an increasing share of overall Japanese exports to China. This new trade development was closely related to Japan's direct investments in Northeast China, which are described in greater detail in chapter 5.
Japan's major imports from China were agricultural products and chemicals, including medicines and natural fertilizers like bean cake. When agricultural products are reclassified into two subcategories, cereals and textile raw materials, it is clear that cereal imports from Northeast China greatly increased in the 1930s, contributing to that region's larger share of trade, as shown in figure 1.1.
Trade within the Formal and Informal Empires
Japan maintained trade relations throughout the world, and its partners can be classified by type of trade relationship. The first category comprised the two main colonies of the formal Japanese empire, Taiwan and Korea. These preferential partners made it possible for Japan to raise import taxes and create various barriers to discourage trade with other countries as well as to develop those goods it wanted to import, such as rice. Japanese merchants also received many privileges to trade in these colonies.
The next category of markets consisted of the Western developed countries and areas of Asia occupied by European powers, like India. Japan had to compete for a share of these markets, so its exports were limited to a few commodities like textiles and sundry goods. Japan was reluctant to import from these areas and preferred to develop its import-competing industries.
Japan's informal empire made up the final group of markets. Before 1932, Japan had acquired economic privileges in Northeast China, including the Kwantung Leased Territory and the area ceded to the South Manchuria Railway Company. Mainland China may be considered as belonging to the third category, the informal empire.
To compare Japan's trade with these markets, a simple ratio, called the Regional Concentration Ratio (RCR), is used for both exports and imports. The RCR of country A trading (exporting or importing) with country B is defined as:
RCR = Share of particular group of commodities in A's trade with B / Corresponding share in A's total trade
The RCR will equal 1 when country A's markets are homogenous. An RCR value significantly higher than 1 indicates that country A depends heavily on country B for a particular commodity group. Although the ratio is simple to calculate, it tends to fluctuate irregularly when the denominator is small. Thus, it is necessary to adopt a broader classification system than used in table 1.4. By considering only the imports and exports of major groups of commodities, table 1.5 is constructed to show how Japan's trade differed between its formal and informal empire partners.
Japan's Exports
Did Japanese textile exports to China grow over time? According to table 1.5, the RCRs for Japanese textile exports to China, Taiwan, and Korea were very low. Japanese textile products flowed into other markets, indicating that Japan competed very successfully in the world textile market. Therefore, the regional textile shares for these three world trading areas were low, as table 1.6 shows. Textiles here include crude silk, which, as one of Japan's major exports before World War II, was a small component of Japan's exports to China, Taiwan, and Korea. If crude silk is excluded from the calculations, the textiles' RCRs for China rise to some extent, as indicated in table 1.7.
These findings indicate that, while textiles were an important commodity group in Japanese exports to China, their share of exports to China was generally no higher than their share of total Japanese exports. It should be noted, however, that the RCR for the non-raw-silk textile trade with China was high from 1907 to 1926, the period when the Japanese textile industry began to compete heavily in world markets. In contrast, the RCRs for trade with Taiwan and Korea were very low.
Since Japan's textile industry effectively competed with developed countries in the world market, that industry maintained large shares in markets other than China, Taiwan, and Korea. One reason for that success was that the Chinese market had greatly facilitated the development of Japan's textile industry. Rapidly expanding exports of textiles to China had increased earnings, enabling textile enterprises to reduce unit costs and expand their scale of production. Between 1887 and 1906, textile ex- ports to China substantially increased. Cotton yarn exports, in particular, rapidly rose to exceed Britain's China market share by 1915, and again in 1925. According to estimates of the East Asia Economic Research Bureau (EAERB) of the South Manchuria Railway Company, the shares of China's imports of cotton yarn changed as indicated in table 1.8.
Between 1917 and 1926, textiles still constituted Japan's most important exports to China, with the textiles' RCR increasing to 1 (see table 1.4). Cotton fabrics had begun to replace cotton yarn, and Japan began to out-strip Great Britain in the China textile market, particularly for specialties like Shirting Grey (table 1.9).
Because Britain's competitive position depended on special commodities, one should not conclude from the case of Shirting Grey that Japan dominated the entire Chinese textile market. Britain accounted for a relatively large share of China's high-quality textile imports even into the early 1930s. The figures in table 1.9 merely suggest a general trend of Japanese dominance in China's textile markets.
China's share in Japanese exports dropped sharply in the 1930s, especially for textiles. Not only did the Sino-Japanese War interrupt normal foreign trade, but the development of China's textile industry, promoted by Japanese textile technology, had finally enabled Chinese manufacturers to replace textile imports. Although textiles still remained one of Japan's major export commodities to the world, the China market became less attractive to Japanese textile producers after the mid-1920s.
Japan's capital-intensive manufacturing industries only emerged in the early twentieth century. Their impact upon foreign trade is readily seen in the trade figures for the CMM (chemicals, metals and products, and machinery) industries. According to table 1.5, China's RCR for CMM was high in 1887–1896. This cannot be related to Japan's establishment of heavy industry, however, because in that decade Japan's exports to China were still mainly traditional products like materials for Chinese medicines and copperware. The decline in their RCRs for China in the early twentieth century indicates a drop in China's share of these traditional products.
Only after 1910 did Japan export manufacturing products, and the CMM'S RCR began to exceed 1, indicating that China had become a significant importer of these products. The Kwantung Leased Territory and the territory ceded to the South Manchuria Railway, in particular, accounted for a large part of China's imports of CMM products. Japan's CMM exports to Taiwan and Korea also had significantly increased. The changes in the regional shares of Japan's CMM exports given in table 1.10 support these observations.
Because Japan's new large-scale industries still had high unit costs of production, those enterprises found it difficult to break into world markets. Therefore, they had to turn to the privileged markets in the formal Japanese empire to sell their products. China was a relatively unattractive market for such trade, because some Western countries like the United States still controlled a large share of the Chinese market. Japan's CMM exports to Northeast China only rose rapidly after the establishment of Manchukuo, a market that soon consumed one-fourth of Japan's total CMM exports. The exports of these products to Northeast China greatly facilitated the development of Japan's heavy industry in the 1930s.
Meanwhile, the RCRs of China, Taiwan, and Korea for "other manufactured goods" (mainly the products of various light industries) also remained high. Although these exports did not appear to have any great effect on Japan's economy, small and medium-sized Japanese industries still considered China and the two Japanese colonies their major customers.
What of Japan's foreign investment in China? Japanese textile factories had been established in Central China since the mid-1920s, and more of these firms began investing in Northeast China during the 1930s. Because Japan was a capital-poor economy before World War II, the capital outflows from Japan for these investments were limited. Although investing in the textile industry can generally be explained as a strategy for Japanese firms to keep their China market shares, private investments in Manchuria were encouraged by state policies based solely upon political and military considerations, as chapter 5 makes clear.
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Excerpted from The Japanese Informal Empire in China, 1895â"1937 by Peter Duus, Ramon H. Myers, Mark R. Peattie. Copyright © 1989 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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