A slump in exports raises questions about how effective Prime Minister Shinzo Abe’s economic policies would have been without Chinese help.
Crowded crosswalks in Toyko. Japan seemed to have put years of stagnant growth behind it, but a new slowdown raises questions about the effectiveness of “Abenomics.”CreditKoji Sasahara/Associated Press
TOKYO — The Nidec Corporation likes to say it makes everything that “spins and moves,” from the intricate motors that whir in hard drives to the hulking ones used on oil rigs.
In recent years, things had been going well for the company. Global demand for precision engineering, especially from China, increasedsales for Nidec and other Japanese companies, helping to lift long-sluggish Japan out of its economic doldrums.
Then sales to China plunged in November and December as the country’s economy slowed. Nidec, which counts on China for about 40 percent of its revenue, slashed its profit projections by more than 25 percent.
“I’ve been in management for 46 years,” the company’s founder and chief executive, Shigenobu Nagamori, told reporters in January, “and seeing our monthly orders plummet like this is a first.”
Japan’s economic rebirth is in trouble, and China shares part of the blame. Exports have slumped, and companies that depend on Japan’s fast-growing neighbor are slashing profit forecasts and considering idling factories.
Combined with other problems — including lackluster spending at home and an aging society — China’s slowdown presents a major challenge to Prime Minister Shinzo Abe and his namesake economic program, Abenomics, as he prepares for an important national election this summer.
Specifically, it raises questions about how Mr. Abe, who took office in 2012, can fix problems at home without the boost from China’s powerful growth engine.
Japan’s economy continues to grow for now, and the fate of Abenomics is far from certain. Still, Mr. Abe’s political opponents are sharpening their knives.
“It’s the beginning of the end for Abenomics,” Yuichiro Tamaki of the opposition Democratic Party for the People told reporters in mid-March.
The Abe administration points to signs that Japan’s economy is still on track.
“We continue to see an increase in consumer spending and capital investment, which are pillars of demand,” Yoshihide Suga, chief cabinet secretary, said at a March news conference. “There has been no change in the moderate recovery of the economy."
But even the government is wondering how much longer the expansion can continue. Exports plummeted starting in December. Industrial output fell for three months straight before rising slightly in February. The annual salary negotiations between Japan Inc. and unions ended with only modest gains after the government softened a pressure campaign on companies to raise wages.
In mid-March, the government downgraded its economic assessment for the first time in three years, pointing to China’s economy as a major factor.
Mr. Abe’s economic proposals were supposed to lift Japan out of a slump that had begun in the early 1990s. They included what he called the “three arrows” of Abenomics: increasing Japan’s money supply, raising government spending and proposing fixes to longstanding problems that discouraged companies from hiring and investing.
Pumping money into Japan’s economy provided the quickest fix. Under Mr. Abe’s influence, the central bank began printing more yen in 2013. The value of the currency dropped, making Japanese exports more appealing to foreign buyers.
A construction site in Jurong, in eastern China, in November. China's economic slowdown has shown how much of Japan's growth in recent years came from Chinese purchases of its exports.CreditLam Yik Fei for The New York Times
The strategy added gas to Japan’s export machine. Except for a brief downshift in 2015 when a Chinese slowdown hit global growth, Japanese sales abroad picked up speed. Nidec and many other companies like Renesas, which makes semiconductors, and Fanuc, which makes high-end robots, enjoyed steadily rising sales.
The easy money policy did little to help other parts of the economy, however. Longstanding problems like deflation, bureaucracy and a shrinking population added friction to the country’s growth.
As deflation pushed down prices, companies struggled to increase profits. Deflation generally discourages consumers from making major purchases as they wait for lower prices and better deals.
An entrenched and backward-looking corporate culture made it difficult for Japan to keep up with the times. Many companies have resisted government efforts to improve corporate governance and introduce more women into the work force, leading to mixed results for Mr. Abe’s initiatives. As a result, corporate oversight remains weak. And although more women are working than ever, the quality of jobs available to them is still low.
Increasing government spending has also proved tricky.
Japan has the highest level of debt in the industrialized world, so finding money to spend can be difficult. Mr. Abe has long pushed for an increase in the country’s consumption tax to 10 percent to help finance public spending. But after a first increase in 2014, to 8 percent from 5 percent, shook the economy, the government has twice delayed the politically unpopular second round.
Should Japan’s economy continue to weaken, a tax increase could do even more damage. Nonetheless, Mr. Abe has committed to the move. Economists say he has few other options.
“There’s no space left for thinking up some additional policies,” said Shinichiro Kobayashi, a senior economist at the research arm of the Mitsubishi UFJ Financial Group.
Shinzo Abe, Japan's prime minister, delivering a speech to Parliament in January. Questions about the sustainability of Japan's growth streak could undermine one of his signature accomplishments.CreditFranck Robichon/EPA, via Shutterstock
That means Japan’s future growth may heavily depend on China.
As Japan’s population has aged and demand has weakened, Japanese companies have increasingly looked to China to expand revenue. Growth in the Chinese middle class and the increasing sophistication of its manufacturing base have whetted the country’s appetite for high-end consumer and industrial goods, all underwritten by a cheap yen.
But in the short term at least, that demand, too, is weakening. In January, Japan’s exports to China across a wide range of industries — from consumer electronics to the machines that make them — fell more than 17 percent from a year earlier, after a drop of over 6 percent in December. Although exports to the country rebounded in February, the gains did not make up for lost ground.
The sudden shift in the Chinese market has forced many Japanese companies to revise their earnings forecasts down. Consumer electronics companies and automakers in particular have expressed pessimism about market conditions, with flagship brands like Nissan, Nikon and Sony moving to temper investors' expectations for sales in the country.
It isn’t clear when Chinese demand may bounce back. Beijing has pledged to focus on job creation, made more money available for its state-controlled banks to lend out and promised to make business-friendly moves like cutting taxes and red tape. However, the government reduced its growth target for 2019, saying it is seeking an economic expansion that emphasizes quality over quantity.
The picture has been further complicated by trade frictions between the United States and China, as President Trump’s decision to slap tariffs on the country has squeezed Japanese companies with manufacturing there.
The trade war is “the biggest risk to Japan’s economy,” Mr. Kobayashi of Mitsubishi UFJ said.
Nidec is hanging its hopes for a turnaround on China’s government.
Beijing “understands the current critical situation well” Mr. Nagamori said, addressing questions about the future of his company’s business in China, “and we’re sure they’ll use every possible strategy to quickly work out a solution.”
In the meantime, he said, the company can’t dwell on its present difficulties. If it does, “we won’t be able to respond when demand comes rushing back,” Mr. Nagamori said.
He added, “We’ll lose a big opportunity.”
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