Diaoyu Island Affects Asian Supply Chain

        The chain reaction triggered by Japan's "nationalization" of the Diaoyu Islands not only brings the economic and trade between China and Japan into a cold winter period, harming the economies of both countries, but also has an impact on the Asian supply chain and even the global economy.

        China and Japan are the second and third largest economies in the world, and their economic aggregate is comparable to that of the United States. The combined foreign exchange reserves of the two countries exceed $4 trillion, accounting for more than 40% of the global foreign exchange reserve assets. The trade between the two countries is even more important to the world. According to data published by the Japan Trade Promotion Agency, the trade volume between China and Japan in 2011 was $342.7 billion, nearly twice the $19.9 billion in Japan-U.S. trade. Against the backdrop of the escalating situation on the Diaoyu Islands, the dispute has spread from the political sphere to the economic sphere, which is bound to further affect the entire Asian and even global economy.

        The US subprime mortgage crisis and the European debt crisis have made it difficult for Asia to sustain its export-oriented growth model, which relies excessively on European and American markets. Asia is expected to further strengthen regional cooperation. Many Asian countries hope to strengthen cooperation in non-tariff barriers, cross-border cooperation, and logistics to offset the adverse effects from Europe and America.

        However, since the escalation of tensions on the Diaoyu Islands in May this year, Japan's various actions on this issue have not only harmed itself, but also seriously hindered the process of Asian trade integration. Sales of Japanese electronic products and Japanese cars have plummeted, and export trade has been hit hard. The trade statistics just released by the Ministry of Finance of Japan show that Japan's trade deficit in August reached 754.1 billion yen (approximately 36.8 billion yuan), which is the second consecutive month of trade deficit since July. The trade deficit is mainly due to a significant decline in exports. In August, Japan's exports fell 5.8%. By trade target, exports to the United States increased 10.3% year-on-year, representing a consecutive 10 months of growth; Exports to the EU fell by 22.9%, the 11th consecutive month of decline; Exports to the Asian region decreased by 6.7%, marking the third consecutive month of decline, with exports to China experiencing a 9.9% decline.

        The Asian supply chain is one of the most critical chains in the global economic cycle. Most Asian economies do not specialize in producing certain types of finished products, but instead focus on a certain aspect of product production, and there is a vertical integration relationship between economies.

        Data shows that the proportion of Asian exports to Europe and the United States has significantly decreased over the past 10 years, while the proportion of intraregional trade has increased significantly. Asia's supply chain is increasingly centered on China, but Japan still plays an important role in the regional supply chain. Japan is the second largest supplier of intermediate products in the world after China, and maintains favorable trade balance with China, South Korea and Taiwan, China. Japan is the most important supplier of intermediate products to China, accounting for over one-third of the total amount of intermediate products imported from Asia. If Sino Japanese relations continue to tense, it will further lead to a decline in the supply of intermediate products in Japan, and China, as the core manufacturing link of the Asian supply chain, will also be affected, triggering a series of chain reactions.

        In fact, as the world weathered the severe impact of the financial tsunami and compared to the sluggish economic recovery of European and American countries, the high growth of emerging economies in Asia from 2010 to 2011 became the main driving force for global economic growth. However, since this year, due to the spillover effects of the European debt crisis, the overall trade situation in Asia has shown a gradual deterioration trend. According to the monthly survey of world trade trends conducted by the Netherlands Bureau of Economic Policy Analysis, from January to May this year, global trade volume increased by 2.6% year-on-year, significantly lower than the growth rate of 8.5% last year. However, Asian exports, which have always been regarded as the engine of global economic growth, increased by only 2.6%, significantly shrinking from 12.1% last year. Asian exports are deteriorating at the fastest pace since April 2009.

        Due to the significant importance of the Asian supply chain for global trade growth, over time, Japan's mistakes on the Diaoyu Islands issue will gradually reveal its negative impact on the global economy, exacerbating the already weak world economy. This is clearly something that no one wants to see. www.jiashengsz.com