Watch Economic Observatory / Will China's presence increase dramatically in the post-COVID era?

The global spread of the COVID-19 virus has dramatically changed the economic situation not only in Japan but around the world. The only country showing signs of recovery is China, the country believed to be the origin of the virus. China, a one-party state, was able to overcome the pandemic quickly, which sets it apart from other developed democracies. But how will the post-COVID world look like? Leading economic journalist Tomoyuki Isoyama explores the issue.

Will China's presence increase dramatically in the post-COVID era?

　The spread of COVID-19 is also bringing about major changes in the "geopolitics" of the global economy. Trade statistics released by the Ministry of Finance provide insight into the current state of imports and exports between Japan and countries around the world. According to these statistics, "total trade," the sum of Japan's exports to the world and its imports from the world to Japan, totaled just over 136 trillion yen in 2020, down 12.4% from the previous year. Exports fell 11.1% to 68 trillion yen, and imports fell 13.7% to 67 trillion yen.

China's growing importance

　Amid this, China's presence is growing significantly. Exports to China only grew 2.7% to 15 trillion yen, but this is because exports to other regions have fallen sharply. The United States, which was Japan's largest export destination in 2019, fell 17.3% to just over 12.6 trillion yen. As a result, exports to the United States fell below the amount of exports to China, making China the largest export destination.

　To begin with, imports from China have been far greater than imports from the United States, and the gap in total trade, including exports and imports, has been widening since China overtook the United States in 2007, but the gap has widened further.

　However, looking at the "trade balance" - exports minus imports - Japan has a surplus of approximately 5.18 trillion yen with the United States, while its deficit with China is over 2.41 trillion yen, meaning the United States remains an important trading partner for Japan. However, depending on how quickly the United States can recover from the effects of COVID-19, China's importance may increase even further.

Hong Kong's fall from the top spot and China's growing presence

　China's growing presence is also clearly evident in the world of luxury watches. According to statistics compiled by the Federation of the Swiss Watch Industry, a familiar name in this column, a historic shift occurred in the destinations of Swiss watch exports in 2020. For many years after the war, Hong Kong had been the top export destination for Swiss watches. Hong Kong was the world's largest demand center for luxury watches, but last year it finally lost that position. According to statistics, exports to Hong Kong in 2020 totaled 1.6967 billion Swiss francs (approximately 1986 billion yen), a staggering 36.9% decrease from 2019, dropping it to third place in the world. Replacing Hong Kong at the top spot is, of course, China (mainland China). Swiss exports in 2020 surged by a whopping 20% ​​to 2.394 billion Swiss francs (approximately 280 billion yen). Exports to the United States, where consumption fell due to the economic freeze caused by the new coronavirus, fell 17.5% to 1,986.7 million Swiss francs (approximately 2326 billion yen), leaving Japan far behind China and in second place.

　Ever since its days as a British colony, Hong Kong has flourished as one of the world's leading trading cities. Even after its return to China in 1999, it has maintained its status as a trading and financial hub in Asia under the "one country, two systems" policy. This began to change suddenly with the pro-democracy movement known as the "Umbrella Movement" in 2014. In 2019, even more violent protests against the Hong Kong government's increasingly authoritarian stance intensified, and in June 2020, the Chinese government finally passed the "Hong Kong National Security Law" and began to crack down on pro-democracy activists.

　Western countries have reacted strongly to the fact that the traditional "one country, two systems" principle is on the verge of collapse. They have taken countermeasures, such as revoking Hong Kong's most-favored-nation status in trade. As a result, Hong Kong's status as a trading city is crumbling. Trade statistics show that Japanese exports to Hong Kong exceeded 4 trillion yen in 2015, reaching 4.23 trillion yen, but fell to 3.41 trillion yen in 2020.

　Incidentally, the total value of Swiss watch exports in 2020 fell by 21.8% to 16,984.1 million Swiss francs (approximately 1.9884 trillion yen). This was an unprecedented drop, never before seen. Eventually, the COVID-19 pandemic will subside and economic activity will resume in earnest, but how will the global trade map change in the "post-COVID" era? Will China's "one-man rule" become even clearer?

Tomoyuki Isoyama
Economic journalist and professor at Chiba University of Commerce. Born in Tokyo in 1962. Graduated from the School of Political Science and Economics at Waseda University. Served at the Nikkei Inc. as a securities reporter, deputy chief of the same department, Zurich bureau chief, Frankfurt bureau chief, and deputy editor-in-chief and editorial committee member for Nikkei Business. Left the company in 2011 to go independent. Covers a wide range of political, government, and business figures. His books include "The International Accounting Standards War: Final Chapter" and "The Secrets of Switzerland, the Brand Kingdom" (both published by Nikkei BP).
http://www.isoyamatomoyuki.com/