Australia and Japan – a remarkable commercial relationship
Overview
[ A Japanese translation of this Overview is also available ]
Australia and Japan enjoy a partnership of tremendous closeness that has both economic and strategic importance in the wider Asia–Pacific region. That partnership has been underpinned by Japan’s position as Australia’s largest single trading partner for all but a few years during the last three and a half decades—a position that was taken over by China in 2007, the same year in which China overtook the United States as Japan’s largest merchandise trading partner. That change of ranking, along with the relatively low levels of economic growth in Japan itself over more than a decade, and the relatively stable nature of much of the huge commercial relationship between Australia and Japan, has resulted in a shift of the media spotlight towards China and the prospects for commercial relations with other emerging economies. The global financial crisis, which saw Japan slip into recession in late 2008, might seem to cast a further question mark over the state of the bilateral commercial relationship.
This report contains five central messages:
- Any perceptions that Japan’s absolute economic importance to Australia—and Australia’s to Japan—are diminishing are misplaced.
- Japan is still Australia’s largest export market by a significant margin—and, as international competition for food, energy and resources grows, Australia’s importance as a reliable and stable supplier of Japan’s long-term needs will increase.
- Japan remains the world’s second-largest economy (at market exchange rates), with very high levels of per capita GDP. This means that the absolute magnitude of growth in the economy is very large even when growth rates are low, as has been the case in the recent past.
- While direct imports of Japanese goods into Australia (‘made in Japan’) have been growing slowly, Japanese companies are also responsible for many of Australia’s manufactured imports from other countries in the region (‘made elsewhere by Japanese firms’), as the relationship transcends the purely bilateral and becomes regional in nature.
- Similarly, Japanese firms operating offshore are contributing to the growth of Australia’s exports to other countries in the region.
- Japanese firms continue to be key investors in the development of Australia’s energy, resources and agrifood industries.
Despite widespread perceptions to the contrary, Japan’s low overall aggregate growth rates do not signify a lack of new opportunity for Australian companies to do business there.
- The Japanese economy will continue to undergo significant change as a result of trends such as the ageing of Japan’s population, changing savings and consumption patterns, the continuing integration of Japanese firms in the regional economy, and pressures to reduce energy consumption and greenhouse gas emissions.
- Japanese policy-makers are also becoming increasingly conscious of the need to open their economy to greater international involvement.
- Even relatively small growth in the world’s second-largest economy combined with these structural changes will generate considerable business opportunities for firms in Australia.
Trade in traditional industry sectors will continue to represent the vast bulk of the Australia–Japan relationship; but there is potential for high growth in areas of emerging economic significance resulting from change in both countries.
- Modelling carried out by the Australia–Japan Research Centre at the Australian National University for this report suggests that there is some scope for additional bilateral trade and investment in business and other services to become an area for future growth, although a number of impediments will need to be addressed.
- An increasingly cooperative approach to bilateral trade and investment in agriculture and processed food could also yield rich dividends for both countries.
- Firms in Australia should be aware of increasing investment by Japanese companies in China and other regional countries, which is linked to the rise of regional production networks, and alert to the consequent opportunities that arise in Japan and in the region.
- Australian firms need to be open to taking another look at the Japanese market as traditional stereotypes about the difficulties of doing business there may no longer be accurate.
Capitalising on these new areas of opportunity will require active efforts by both business and government to maintain focus on Japan and to reduce ‘distance’ in the business relationship, including through:
- institutional measures, such as the free trade agreement currently under negotiation, intended to address ongoing barriers to bilateral trade and investment
- ongoing promotion of people-to-people links, which are currently flagging in the face of fierce competition from other countries for the attention of both Australia and Japan, including through education, high-level business missions, and tourism.
It is in the interests of both Australian business and Australian governments to persevere in their efforts to maintain focus on Japan and to reduce distance in the business relationship.
- Governments, which are rarely traders or investors themselves, benefit from the flow-on effects of mutually beneficial commercial ties into the broader political and strategic relationship.
- Companies, which trade and invest when there are commercial gains from doing so (and for which broader political or strategic concerns are less relevant), may discover additional opportunities.
The report:
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