White Paper on International Economy and Trade 2012

White Paper on International Economy and Trade 212 - Extending the Frontiers of Growth through Global Linkages - July 212 Policy Planning and Research Office, Trade Policy Bureau, Ministry of Economy, Trade and Industry

1-1 State of world economy recent developments and prospects - The pace of economic growth decelerated in the latter half of 211, both in advanced and emerging economies. - The euro area growth rate is anticipated to be negative; while high growth is expected in emerging economies despite deceleration. Ratio to the previous quarter, % 4. 3. 2. 1.. -1. -2. -3. -4. -5. 5. 4. 3. 2. 1.. -1. -2. -3. -4. -5. GDP growth rate in the advanced economies USA UK Japan Euro area Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 28 29 21 211 212 Sources: OECD stat GDP growth rate in the emerging economies Ratio to the previous quarter 6. Russia India China Brazil Japan 1. USA.5 Euro area. UK -.2 (Quater, year) Russia 1.9 China 1.8 India 1.3 Brazil.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 (Qurter, year) 28 29 21 211 212 Notes:China started to publicly announce the data of ratio to the previous period from 211. Therefore, it is not available before 21. Sources:OECD stat (%) 1% 5% % -5% Real GDP growth outlook for 212(vertical axis) and the share of global GDP in 211 (horizontal axis) by country/region 2% 4% 6% 8% Vertical axis:real GDP growth outlookfor 212(in black) Horizontal axis:share of global GDP in 211 by country(in red) 3% 8% Other advanced economies 2.1% 22.7% USA 2% 8.4% Japan 3.5% Korea 1.6%.6% 5.2%.8%.5% 4% 3.2% 8.1% 1.4% France UK 3.5% Italy -1.9% EU 25.4% EU % Notes:Data for "other advancedeconomies" and "other emerging/developing economies" was estimated by METI 64.7% based on IMF data. Deflated by 21 basis. Advanced economies Source:Compiledusing data from IMF, "World Economic Outlook" April, 212 Other advanced EU economies -.7% 1.9% Other emerging EU economies 3% 3.4% 6.9% 2.6% India Brazil 8.2% 4% 1% 2.4% China 35.3% Emerging economies Russia Emerging economies 5.7% 5% World average 3.5% Advanced economies 1.4% 15.6% Other emerging economies 1

1-2 Signs of recovery in world trade and net capital flows to emerging economies - Recovery of world trade stalled in the latter half of 211. - Capital flows to emerging economies turned negative in the latter half of 211. (2=1, seasonally adjusted) 17 165 16 155 15 145 14 135 13 125 12 World trade volume April, 28 159.9 World trade volume (left axis) Month on month changes Failureof Lehman Brothers November, 21 16.3 February, 212 -.3-8 May, 29 128.3-1 1 4 7 1 1 4 7 1 1 4 7 1 1 4 7 1 1 4 7 1 1 4 7 1 1 4 7 1 1 (Month, 25 26 27 28 29 21 211 212 year) Source:Compiled using data from Netherlands Bureau for Economic Policy Analysis(CPB) (%) 1 8 6 4 2-2 -4-6 Flow of funds into emerging economies (Unit:Billion $) 3 25 2 15 1 5-5 -1 Outflow -15-2 1 2 3 4 5 6 7 8 9 111121 2 3 4 5 6 7 8 9 111121 2 3 21 211 212 Source:IMF WEO, April212 (Month, year) 2

1-3 Diverging economic trends in euro area economies - Despite the euro area crisis, maintains solid growth. - Unit labor costs were kept low in, in contrast with other euro area economies. (Index Q1, 28=1) 12 1 98 96 94 92 9 88 GDP in the major euro area economies and the UK Recovery of and France is superior to euro area. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 28 29 21 211 212 Growth rate in 211 Euro area:+1.5% France:+1.7% :+3.% Greece:-6.9% Ireland:+.7% Italy:+.4% portugal:-1.6% Spain:+.7% UK:+.7% (Ratioto the previousyear. The numbers forgreece and Portugalare estimates.) ( 年期 ) 14 Unit labor cost in the major Euro area economies (Index 2=1) 15 13 12 11 1 France Italy Spain Greece Ireland Portugal Euro area France Greece Ireland Italy Portugal Spain UK Notes:The numbers for Ireland and Portugal are latest data. For Greece, the seasonally-adjusted data has not been announced officially after Q2, 211. Source:Eurostat 9 2 21 22 23 24 25 26 27 28 29 21 211 (Year) Notes:The data is re-calculated and converted from the index of 25=1into 2=1. The values for 211 are expected value. Source:Eurostat 3

1-4 s rising current account and trade surpluses - Throughout the 2s, current account imbalances between and other euro area economies widened. - s trade surplus mainly comprises machinery and transport equipment and chemicals. (Billion euro) 2 15 1 5 Transition of current account in 4 major Euro area countries (Hundred million euro) 3, 2,5 2, 1,5 Transition of trade balance ドイツ in Others Other manufacturing products Machinery, transportation equipment Chemical -5-1 -15-2 -25 Italy France Spain 1, 5-5 -1, -1,5 Mineral-related fuel Non-food raw materials Food Total Source:Eurostat (Year) (Year) Note:The classification of the items is based on Standard International Trade Classification (SITC). Source:Eurostat 4

1-5 U.S. economy: continued growth but prospects uncertain - The U.S. economy decelerated in early 211 due to negative factors including higher oil prices; stronger signs emerged in the first several months of 212. - Exports have exceeded the pre-crisis peak; housing investment has declined from its peak level and we have yet to see a clear recovery. 6. Real GDP growth and demand-side composition in the U.S. ((Ratio 前期比年率 to the same % % ポイント period ) of previous year, %, % point) 8. 4. 2.. -2. -4. -6. -8. -1. -1.8 1.3-3.7-8.9-6.7 -.7 1.7 3.8 3.9 3.8 2.5 2.3.4 1.3 1.8 3. 2.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 28 29 21 211 212 Personal consumption 個人消費 Equipment 設備投資 investment 住宅投資 Residential investment 在庫投資 Inventory investment Net export Government expenditure 純輸出政府支出実質 GDP Real GDP 備考 Notes: : 季節調整値 Seasonally-adjusted 212 年第 1 四半期は速報値 data. The figures for Q1 211 are preliminary. 資料 Source: : 米国商務省 US department IMF World of Economic commerce, Outlook, IMF April WEO, 212 April から作成 212. (year, ( 年 四半期 quarter) ) Real GDP and each demand component (27Q4=1) (27Q4=1) 15 Real GDP Personal consumption 14 Equipment investment Residential investment 13 Export Import 12 Government expenditure 11 1 9 8 7 6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 25 26 27 28 29 21 211 212 Note:The figures for Q1, 211 are preliminary. Source:US department of commerce, CEIC Database (Year, quarter) 5

1-6 Chinese economy: high growth but with slower pace - The Chinese economy maintained a solid 9.2% growth in 211, but growth slowed compared to 21. - Rising wages in large coastal cities have caught up with those of other major Asian cities such as Kuala Lumpur and Bangkok. (%) 18 16 14 12 1 Real GDP growth rate (ratio to the same month in the previous year) in China (Annually basis) (Quarterly basis) GDP growth rate Q1 Q2 Q3 Q4 Q1 The failure of Lehman 9.7% 9.5% 9.1% 8.9% 8.1% 9 9 9% 8 Gross capital Brothers(28.9) formation(green) 1.4 9.2 6 Salary level comparison of Japanese-manufacturing industry in China and major Asian countries (annual sum) (Thousand $) 7 5 8 6 4 2-2 -4-6 Final consumption(red) Net export(purple) Economic stimulating measure determination of 4 trillion yuan(28.11) Contribution 21 211 GDP 1.4% 9.2% Consumption 3.8% 4.8% Investment 5.6% 5.% Foreign demand 1.%.5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 21222324252627282921211212 28 29 21 211 212 Note:Thefiguredisplaysonlygrowthratebecausethe quarterly-basedbreakdownaccordingtothedemandforitemhas not beenreported. Source:NationalBureauof StatisticsofChina, CEIC database 4 3 2 1 Beijing Shanghai Guangzhou Dhaka (Bangladesh) Hanoi (Vietnam) Jakarta (Indonesia) Manila (the Philippines) New Delhi (India) Bangkok (Thailand) Kuala Lumpur (Malaysia) Notes:The annual burden on Japanese affiliated companies (manufacturing industry workers including base salary, medical treatment, social work insurance, overtime, bonus. 21 survey Source:JETRO Web site(investment cost data) 6

2-1 Trade deficit in 211 - In 211, exports declined due to the yen appreciation and deceleration of the world economy, Great East Japan Earthquake, the flood in Thailand, while imports kept increasing. Developments in exports and imports (Ratio to the same month of the previous year:%) 5 4 3 2 1 1 (Trillion yen) 2.5 2. 1.5 1..5..5 2 3 4 5 Trade balance(right axis) Export(Ratio to the same month of the previous year)(left axis) Import(Ratio to the same month of the previous year)(left axis) 1. 1.5 2. 2.5 27 28 29 21 211 212 Notes:All values are a decision level before 211. As for the numerical values of 212, all the export is confirmed report levels. As for the import, confirmed report (Month, year) level up to February. March are preliminary figures based on nine columns. Source:Ministry of Finance "Trade statistics" 7

2-2 Higher import prices contributed to trade balance deterioration - The major contributing factor to the deterioration in the trade balance in 211 was higher import prices, especially in resources; additional factors being higher import volume (such as LNG) and lower export volume. 3 Factor decomposition of changes in trade balance (after 1995) (Difference from previous year:trillionyen) Unit factor (Import) Quantumfactor (Import) 1 5 Factor decomposition of the amount of import of mineral-related fuel (Differencefrom thesamemonth oftheprevious year: Hundred million yen) Crude oil and rough oil 2 1 1 Unit factor (Export) Quantumfactor (Export) Approximate error Change(Difference fromprevious year) 5 1 15 2, 1, Quantumfactor Unit factor Approximate error 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 Notes:Theclassificationoftheitemsis ageneralcondition productbase of "tradestatistics". All valuesarea decisionlevelbefore211. (Month, As forthenumericalvaluesof 212 is confirmedreportlevelup tp February. Marchare preliminary figuresbasedonnine year) columns. Calculated fromeach quantumandunitindices of exportandimport. Source:Ministry of Finance "Trade statistics" (Differencefrom thesamemonth oftheprevious year: Hundred million yen) 3, Liquid natural gas (LNG) 2 1, Quantumfactor 3 1995 2 25 21 Note:Calculated from each quantumand unit indices of export and import. Source:Ministry offinance "Tradestatistics" (Year) 2, 3, Unit factor Approximate error 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 Notes:Theclassificationoftheitemsis ageneralcondition productbase of "tradestatistics". All valuesarea decisionlevelbefore211. As forthenumericalvaluesof 212 is confirmedreportlevelup tp February. Marchare preliminary figuresbasedonnine columns. Calculated fromeach quantumandunit indices of exportandimport. Source:Ministry of Finance "Trade statistics" (Month, year) 8

2-3 Japan s export prices are declining despite acceleration in import prices - Japan s export prices have declined amid the appreciation of the yen; import prices have risen rapidly along with rising resource prices. - s export prices have risen along with higher import prices. (Index:April, 1995=1) 25 Recent change of export and import prices and terms of trade (Japan) (Index:April, 1995=1) 25 Recent change of export and import prices and terms of trade () Sharp rise in import prices 2 High prices/improvement of terms of trade Low prices/deterioration of terms of trade 163.6 2 High prices/improvement of terms of trade Low prices/deterioration of terms of trade Export price rise together with the rise of import price 15 Export price moderately rise and fall. 15 135.8 119.2 1 84.3 1 87.8 5 Terms of trade (Index: Export price/import price) Export price (Index) 51.5 5 Terms of trade (Index: Export price/import price) Export price (Index) Relatively stable trajectory of terms of trade Import price (Index) Chronic deterioration of terms of trade Import price (Index) 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 Note:Forcomparison with past yen appreciation period, the value on April, 1995, is set to 1. The latest value is of March, 211. Source:Bank of Japan "Corporate Goods Price Index (Badse year, 25)" (Month, year) 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 Note:For comparison with past yen appreciation period, the value on April, 1995, is set to 1. The latest value is of March, 211. Source:Bank of Japan "Corporate Goods Price Index (Badse year, 25)" (Month, year) 9

2-4 s stable export prices. - s export price movements are very similar inside and outside of the EU, despite exchange rate changes. ドイツの輸出先別の輸出物価 ( 工業製品全体 ) の比較 Comparison of export prices (whole industrial products) in ( 倍率 (Ratio) ) (Index, ( 指数 January 22=1) 年 1 月 =1) 1.2 12 Appreciation ユーロ高 of the euro 1.15 115 1.1 11 1.5 15 1. 1.95.9 Depreciation ユーロ安 of the euro 輸出物価 Export( price(to 全世界向け whole )/ world)/ 輸出物価 Export ( 非 price EU 向け ) (to non-eu) Reference: Nominal effective exchange rate 参考 : 名目実効為替レート ( 右軸 ) (right axis) 95 9 2 21 22 23 24 25 26 27 28 29 21 211 212 (Year, Notes: 備考 Export : 輸出物価は 自国通貨ベース 名目実効為替レートは prices are measured by local currency. Nominal effective exchange rate2 is indexed 年 1 月を January 12=1. としている ( 年月 ) month) Source: Statistisches Bundesamt Export price index (25 standard), BIS Effective exchange rate (nominal), Eurostat 資料 : ドイツ統計局 輸出物価指数 (25 年基準 ) BIS 実効為替レート ( 名目 ) から作成 1

2-5 Export strategies of German firms (exports in high-end products and global marketing and specialized product segments) - The strong brand value of large German firms is often seen to be maintained through exports of high-end products from. - Global marketing in specialized product and technology segments is conducted by midsized enterprises to ensure adequate global market share. Strategy of large German firms ~ Exports of high-end products by branding~ Unit price of automotive (more than 3,cc) which China imports (211) Origin of import Unit price The share among the value of import 83,5 37% Japan 39, 22% U.S. 47,8 17% Source: Global Trade Atlas The two-pillar strategy of German excellent medium and small-sized firms( The Hidden Champions ) 1Specialization in application, product, expertise 2Global marketing strategy (Expanding sale subsidiaries into each overseas country and region) Source: Hermann Simon Hidden Championsof the 21 st Century (29) 11

2-6 Export prices of manufacturing products (total average) in Japan - "Index of export revenue" in Japan has been sharply declining since 27, with yen appreciation. - Even before 27, "index of export revenue" had been gradually falling with falling "index of overseas pricing". Export profitability of manufacturing products in Japan Ratio:(April, 1995=1) 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1. Manufacturing products Export price (yen-based)/ Export price (contract currency-based) Export price (contract currency-based)/ Corporate goodsprice Export price (yen-based)/ Corporate goods price (Calculating formula) Index of exchange rate = Export price (yen-based) / Export price (contract currencybased) Index of overseas pricing = Export price (contract currency-based) / Corporate goods price index of export revenue = Export price (yen-based) / Corporate goods price.9.8.7 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 Note: For each ratios of indices, the value on April, 1995, past yen appreciation period, isset to 1. Source:Bank of Japan "Corporate Goods Price Index (25 base)" (Year/ Month) Index of export profitability is the product of Index of exchange rate and Index of pricing power overseas In other words, export profitability can be decomposed into the exchange rate and price overseas components. 12

3-1 Impact on production by Thai floods - Japan s domestic automotive production was significantly affected by the Great East Japan Earthquake. The flood in Thailand also suppressed the recovery of domestic production. - Domestic production in Thailand and other ASEAN countries was also negatively affected; recovery ensued thereafter. 15 Change of automotive production before and after the flood in Thailand, China and Japan (%:Ratio to thesamemonth of thepreviousyear) Japan Guangdong(China) g( ) Thailand Change of the automotive production before and after the flood in Thailand and major ASEAN countries (%:Ratio to thesamemonth ofthe previousyear) 8 6 1 5 Effects of the Earthquake disaster Effects of the flood in Thailands 4 2 5 39. 25.2 9.9 4.5 57.3 6.1 67.6 85. 1 1 2 3 4 5 6 7 8 9 1 11 12 1 2 3 211 212 (Month, year) Note:It isconsidered that the trend of Guangdong on January-February in 212 is largely influenced by a seasonal factor(the Vernal Equinox Day was on February in 211, but it was on January in 212). Sources:Japan Automobile Manufacturers Association, Inc., Statistics Bureau of Guangdong province, Automotive Industry Club, The Federation of Thai Industries (FTI), CEIC Database 2 4 6 8 1 Thailand Indonesia The Philippines Vietnam Malaysia 1 2 3 4 5 6 7 8 9 1 11 12 1 2 3 211 212 (Month, Note:The data is calculated from output data forthailand, Indonesia and Malaysia, and from production index (volume of production index) for Vietnam (for the Philippines). The value of March, 211 in the Philippines has not been announced. year) Sources:Automotive Industry Club, The Federation of Thai Industries (Thailand) Association of Indonesian Automotive Industries (Indonesia) Malaysian Automotive Association(Malaysia), National Statistical Office(the Philippines), General Statistical Office(Vietnam), CEIC Database 13

3-2 Business response to Thai floods - Survey results suggest signs of re-organization of global supply chains with a view to risk diversification. - Thailand maintains its appeal as an investment destination for Japanese firms, especially as an export base to third markets, due to industrial agglomeration and FTA networks; but the need for improvement in business environment, including flood control measures, remains compelling. Question:Will the supply be resourced to the original supply source from the alternative source after the original source has been restored? (responses from manufacturing businesses) Thailand (17 bases) Japan (26 bases) Third countries (26 bases) 8% 8% 24% 27% 35% 18% 6% 23% 12% 19% 8% 8% 41% 31% 31% 4% Return to original suppliers Morethan half Partial return No return Undecided Others (%) Countries/Region that Japanese manufacturing businesses choose as promising & their attractiveness as third-country export platforms (%) 8 35 7 6 5 4 3 2 1 33.33 Leftscale: Promising country/region formid-term (approx. next3 years) business expansion (proportionof votes (%), multiplechoice) Rightscale: Attractiveness as third countryexportplatform as reason to considerpromising (proportion of votes (%) from businesses thatchoosethe country/region as promising andgave reasons forconsidering the country/regionpromising; multiplechoice 3 25 2 15 1 5 % 2% 4% 6% 8% 1% Note:Totaldo not add up to 1 each because of rounding off to the nearest whole number. Source:Ministry of Economy, Trade and Industry "Emergency Survey concerning the State of Supply Chain Recovery from the Thai Flooding Damage"(survey conducted late November-early December. China India Thailand Vietnam Brazil Indonesia Russia USA Malaysia Taiwan Source:Compiled from Japan Bank forinternational Cooperation "Survey Report concerning the Overseas Expansion of Japanese Manufacturing Businesses"(Decmber, 211) 14

4-1 Overseas business activities picking up among mid-sized enterprises - An increasing number of Japanese firms owned overseas subsidiaries in the 2s, especially among mid-sized enterprises. - Survey results show that 48.7% of SMEs intend to expand exports, while another 11.% intend to explore export opportunities. The number of overseas subsidiary possession companies (Manufacturing, classified by worker size) Export business plan (for the coming three years or so) (all industries) The number of overseas subsidiary possession companies 1,4 企業数 Number of21 1,2 企業数 Number of 26 1, 8 6 4 2 The share which accounts for the number classified by scale of companies Increase of number 9% 8% Expansion of exports companies, 21 48.7% companies, 26 企業数 Number of29 companies, 29 % 21 % 26 % 29 Expand of share 7% 6% 5% 4% 3% 2% 1% Consideringstarting exportbusiness Maintain the currentscale No future plan to start exportbusiness 9.7% 3.8% 11.% 15.1% 11.1% 15.9% 14.2% 18.2% 13.4% 5.3% Total(n=2769) 57.9% Large-scale firms(n=478) % Considering downscaling or closure of export business 1.6% 1.9% 1.5% Small- and medium-sized enterprises(n=2291) Source:Ministry of Internal Affairs and Communications Establishment and Enterprise Census (21, 26) Ministry of Internal Affairs and Communications/Ministry of Economy, Trade and Industry The Economic Census (29). % 1% 2% 3% 4% 5% 6% 7% Source:JETRO FY 211 Survey on the International Operations of Japanese Firms 15

4-2 Overseas business activities picking up among non-manufacturing sectors (such as wholesale, services) - The number of overseas subsidiaries in non-manufacturing sectors has overtaken that of manufacturing sectors. - Service firms expanding overseas are differentiating their businesses by unique Japanese models; their domestic businesses and overseas business operations by other Japanese firms could also benefit. 2, Other non-manufacturing 18, 16, 14, 12, 1, 8, 6, 4, 2, Expansion of overseas subsidiary in non-manufacturing Non-manufacturing Manufacturing 24 25 26 27 28 29 21 Information and communication Retail Services Transport Wholesale Agriculture and forestry fishery, mining, construction Other manufacturing Note: "Other manufacturing industry" includes precision machinery up to 26. Source:Ministry of Economy, Trade and Industry Basic Survey on Overseas Business Activities Transportation machine Example of the overseas business development of the service industry Delivery services The number of parcels handled by Yamato Group in Asia has grown by 4.4 times in FY21-211. Differentiation of services is being undertaken by deploying ubiquitous it Japanese services, including chilled/cooled l d parcels and designation of delivery times Restaurant Yoshino-ya (over 5 restaurants overseas) is seeking differentiation by promoting safe and secure images of Japanese food and its unique sauce and recipes Moss Burger (about 3 restaurants overseas) incorporates Japanese tastes in its products, while pursuing localization of flavors, some of which are being introduced to Japanese menus Tourism Wakura Kagaya Ryokan in Ishikawa Prefecture established its subsidiary in Taiwan in December 21. It pursues to provide its characteristic Japanese omotenashi services. A quarter of local customers stayed in Japanese Wakura Kagaya, providing benefits to its domestic businesses Convenience store chains Convenience store chains are accelerating their overseas business development; the number of overseas stores of the industry as a whole is projected to overtake that of domestic stores in 212. The sector has established a unique Japanese business model with convenience as an essential ingredient 16

4-3 Barriers for overseas businesses - Human resources are typically seen as a major barrier for overseas businesses Reasons for giving up going overseas (medium- and small-sized enterprises) Unable to secure sufficient domestic human resources Decision couldn't be made due to lack of prediction Due to domestic issues, could not deal with overseas business Lack of appropriate location on partner Lack of necessary information or knowledge Necessary funds could not be raised Results of market research or F/S were not favorable Couldn't secure local managerial resources Problems with setting up and administration of overseas base Securing グローバル化を推進する国内人材の確 and training of talented domestic personnel promoting 保 育成 globalization 進出先国での法制度 マーケット等につい Information about market and legal system in target ての情報 country Commonization of the global system and グローバルでの制度や仕組みの共通化 structure グローバルに通用する製品 サービスの Development of products and services to work開発 globally Thorough global management philosophy and グローバルでの経営理念 ビジョンの徹底 vision Securing グローバル化に必要な資金の確保 necessary funds for globalization No particular 特に課題はない problem Others Change in overseas business partner's policies Exchange rates/economic situation unstable 系列 Manufacturers 2 系列 Wholesales 1 その他 Others No無回答 answer % 1% 2% 3% 4% 5% % 1% 2% 3% 4% 5% 6% 7% 8% Note: The effective answers, 82 companies (manufacturers), 14 companies (Wholesales) Source: Organization for Small & Medium Enterprises and Regional Innovation, JAPAN Survey of medium- and small-sized enterprises overseas business activities (21) Note: The effective answers, 263 companies (all types of industry) Source:Ministry of Economy, Trade and Industry (21) Questionnaire about the global talent training 17

4-4 International comparisons of FDI stocks and FDI incomes - Japan s FDI stock and FDI income as shares of GDP remain low compared with other major countries, both outward and inward. Outward and inward foreign direct investment stocks (Ratio to GDP) Outward and inward foreign direct investment returns (Ratio to GDP) (%:Ration to GDP) 5% 4% China(Out: 298 billion $, In: 579 billion $) Korea(Out: 139 billion $, In: 127 billion $) Japan(Out: 831 billion $, In: 215 billion $) (Balance line of outward and inward FDI stocks) UK France (%:GDP 比 ) (%: Ratio to GDP) 4% 3% (Balance line of outward and inward FDI returns) (inward) 3% (Inward) 2% 1% China Korea Japan USA (Non-Euro area) UK(Out: 1,689 billion $, In: 1,86 billion $) France(Out: 1,523 billion $, In: 1,8 billion $) (Out: 1,285 billion $, In: 938 billion $) (Non-Euro area) (Out: 668 billion $, In: 334 billion $) USA(Out: 4,843 billion $, In: 3,27 billion $) % % 1% 2% 3% 4% 5% 6% 7% 8% (Outward) Japan Korea UK France (Non-Euro area) USA China 2% 1% % Korea China Japan France USA (Non-Euro area) % 1% 2% 3% 4% 5% 6% 7% Japan Korea UK France (Non-Euro area) USA China UK Notes: This figure plots the absolute value for each country in 199, 1995, 2, 25, 21 calendar years (for, 29 calendar year). Hong Kong is not included in figures for China. OECD Stat is used for. Source:Institute for International Trade and Investment International Comparative Statistics, OECD Stat Notes: This figure plots the absolute value for each country in 199, 1995, 2, 25, 21 calendar years (for, 29 calendar year). Hong Kong does not be included in China. Source:Institute for International Trade and Investment International Comparative Statistics 18

4-5 Further room for overseas development in services - Japanese overseas FDI stock per GDP remains low especially in services compared with other major countries - Overseas business activities in services, including trade in services, still have room for enhancement (%:Ratio to GDP) 5% OutwardFDI stock (Ratioto GDP) in manufacturingand service industries in major countries (%:Ratio to GDP) 12% Transition of Service trade/gdp (Balance line) ustry Outward FDI stock in service ind 45% 4% 35% 3% 25% 2% 15% 1% 5% USA France Japan % Korea % 5% 1% 15% 2% Outward FDI stock in manufacturing industry UK Manufacturing industry-service industry direct foreign investment balance balance line Japan Korea UK France USA Payments 1% Korea 8% UK 6% 4% France China 2% Japan USA % % 2% 4% 6% 8% 1% 12% Receives Japan Korea UK USA France China Note: This figure plots the absolute value for each country in 2, 25, 26, 27, 29 (or 28) calendar years. Here, the service industry implies the industry except for manufacturing, agriculture and mining. Source: Institute for International Trade and Investment International Comparative Statistics, International Direct Investment Matrix (211) Note: This figure plots the absolute value for each country in 2, 25, 26, 27, 29 (or 28) calendar years. Source: Institute for International Trade and Investment International Comparative Statistics, International Direct Investment Matrix (211) 19

4-6 Integration into global production networks has deepened to a certain extent - Japan s production structure deepened its reliance on imported goods and services in 1995-25 period, signifying integration into global production networks. - Such integration has been strong in and has even strengthened during the period. The warm color system shows that a spillover tends to stay within the country, while the cold color system shows that a spillover tends to leave abroad. Change of the "domestic survival rate" in Change of the "domestic survival rate" in our country Final Goods that induce production(column) Final Goods that induce production(column) 1% Final Goods that induce production(column) Final Goods that induce production(column) Services and others 19 Electricity, gas, heat supply, wa 18 Construction 17 Miscellaneous manufacturing p 16 Precision instruments 15 Transportation equipment 14 Information and communicatio 13 Electrical machinery 12 Genaral machinery 11 Metal products 1 Iron and steel 9 Ceramic, stone and clay produ 8 Petroleum and coal products 7 Chemical products 6 Pulp, paper and wooden produc 5 Textile products 4 Beverages and foods 3 Mining 2 Agriculture, forestry and fisher 1 ドイツ年 25 Services and others 19 Electricity, gas, heat supply, wa 18 Construction 17 Miscellaneous manufacturing p 16 Precision instruments 15 Transportation equipment 14 Information and communicatio 13 Electrical machinery 12 Genaral machinery 11 Metal products 1 Iron and steel 9 Ceramic, stone and clay produ 8 Petroleum and coal products 7 Chemical products 6 Pulp, paper and wooden produc 5 Textile products 4 Beverages and foods 3 Mining 2 Agriculture, forestry and fisher 1 ドイツ年 1995 9% 7% Services and others 19 Electricity, gas, heat supply, wa 18 Construction 17 Miscellaneous manufacturing p 16 Precision instruments 15 Transportation equipment 14 Information and communicatio 13 Electrical machinery 12 Genaral machinery 11 Metal products 1 Iron and steel 9 Ceramic, stone and clay produ 8 Petroleum and coal products 7 Chemical products 6 Pulp, paper and wooden produc 5 Textile products 4 Beverages and foods 3 Mining 2 Agriculture, forestry and fisher 1 Japan 25 25 Services and others 19 Electricity, gas, heat supply, wa 18 Construction 17 Miscellaneous manufacturing p 16 Precision instruments 15 Transportation equipment 14 Information and communicatio 13 Electrical machinery 12 Genaral machinery 11 Metal products 1 Iron and steel 9 Ceramic, stone and clay produ 8 Petroleum and coal products 7 Chemical products 6 Pulp, paper and wooden produc 5 Textile products 4 Beverages and foods 3 Mining 2 Agriculture, forestry and fisher 1 Japan 1995 1995 Consumption of final goods Consumption of final goods Consumption of final goods Consumption of final goods Agriculture, forestry and fisher 1 Mining 2 Beverages and foods 3 Textile products 4 Pulp, paper and wooden produc 5 Chemical products 6 Petroleum and coal products 7 Ceramic, stone and clay produ 8 Iron and steel 9 Metal products 1 Genaral machinery 11 Electrical machinery 12 Information and communicatio 13 Transportation equipment 14 Precision instruments 15 Miscellaneous manufacturing p 16 Construction 17 Electricity, gas, heat supply, wa 18 Services and others 19 Induced production sector (row) Agriculture, forestry and fisher 1 Mining 2 Beverages and foods 3 Textile products 4 Pulp, paper and wooden produc 5 Chemical products 6 Petroleum and coal products 7 Ceramic, stone and clay produ 8 Iron and steel 9 Metal products 1 Genaral machinery 11 Electrical machinery 12 Information and communicatio 13 Transportation equipment 14 Precision instruments 15 Miscellaneous manufacturing p 16 Construction 17 Electricity, gas, heat supply, wa 18 Services and others 19 5% 3% 1% % Agriculture, forestry and fisher 1 Mining 2 Beverages and foods 3 Textile products 4 Pulp, paper and wooden produc 5 Chemical products 6 Petroleum and coal products 7 Ceramic, stone and clay produ 8 Iron and steel 9 Metal products 1 Genaral machinery 11 Electrical machinery 12 Information and communicatio 13 Transportation equipment 14 Precision instruments 15 Miscellaneous manufacturing p 16 Construction 17 Electricity, gas, heat supply, wa 18 Services and others 19 Agriculture, forestry and fisher 1 Mining 2 Beverages and foods 3 Textile products 4 Pulp, paper and wooden produc 5 Chemical products 6 Petroleum and coal products 7 Ceramic, stone and clay produ 8 Iron and steel 9 Metal products 1 Genaral machinery 11 Electrical machinery 12 Information and communicatio 13 Transportation equipment 14 Precision instruments 15 Miscellaneous manufacturing p 16 Construction 17 Electricity, gas, heat supply, wa 18 Services and others 19 Source: OECD Input-Output Table 2 Induced production sector (row) Induced production sector (row) Induced production sector (row)

4-7 Impact of overseas businesses - Firms with overseas businesses in multiple modes are more likely to improve productivity than firms confined with domestic operations. - Firms with overseas businesses are more likely to increase domestic employment than firms confined with domestic operations, both in manufacturing and in nonmanufacturing sectors. (Classified by the form of advance into overseas) Direct investment and export and business tie-up (n=15) Fo orm of advance into overseas Form of advance into overse eas Direct investment and export (n=119) Only direct investment (n=158) Only domestic operation (n=122) 61.9% 38.1%.% 48.7% 44.9% 35.2% 46.2% 47.5% 6.7% 5.% 7.6% 4.1% % 5% 1% Increasing trend Sideways movement Decreasing trend businesses Firms with overseas Firms with only domestic businesses Productivity over next three years 海外内開企業非展開企業増加傾向横ばい減少傾向展Domestic employment over next three years (The number of workers) Domestic emplo oyment Domestic employment 国雇用製造業 (n=33) Manufacturing (n=33) 非製造業 (n=141) Non-manufacturing (n=141) 16.2% 63.% 2.8% 32.6% 61.% 6.4% Manufacturing 製造業 (n=33) 6.1% 57.6% 36.4% 国(n=33) 内雇用非製造業 (n=94) 28.7% 55.3% 16.% (n=94) % 2% 4% 6% 8% 1% Increasing trend Sideways movement Decreasing trend 21 Non-manufacturing Note: This figure shows the productivity tendency for next three years (classified by the form of advance into overseas of firms). Source:Mitsubishi UFJ Research and Consulting Co., Ltd. Questionnaire on overseas business strategy of firms Note:Domestic employment implies the tendency over next three years. Source:Mitsubishi UFJ Research and Consulting Co., Ltd. Questionnaire on overseas business strategy of firms