Kazuta Ueki knew his family owned lens factory was in trouble last March, when orders fell 40 percent. Nine months later, after they slid 90 percent, he shut down and sold out.
The reason is that Minolta Co, Olympus Optical Co and other Japanese camera-makers are shifting production to China, where wages are lower and the market is bigger.
"Costs were too high," said Ueki, 62, whose 50-year-old factory, Ueki Glass Works, is being razed to make way for a high-rise condominium, costing 20 workers their jobs. "I knew I'd have to close."
As more manufacturers shift production to China, Japan may no longer be able to count on exports as a major source of growth -- putting the squeeze on small business owners like Ueki who rely on orders from bigger businesses to survive.
A report yesterday showed exports had their smallest gain in four months in April, rising just 0.3 percent from March, as the monthly trade surplus narrowed to a lower-than-expected Japanese yen 776.7 billion (US$6.2 billion).
Japan, the world's second-biggest economy, earned more from overseas investments than trade for the first time last year, as the trade surplus shrank to an 18-year low.
In the next decade, the surplus will probably shrink by a third to Japanese yen 4.7 trillion a year, said Peter Morgan, chief economist at HSBC Japan. As competition with China slows exports from Japan, the nation will also end up importing more goods from companies that have moved to the world's most populous nation.
Some economists say the exodus of exporters isn't all bad.
Falling exports may put pressure on the Japanese government to deregulate the domestic market and spur growth, Morgan said.
"Trade probably should shrink," Morgan said. "The risk is that it won't shrink fast enough."
Japan had a Japanese yen 3.3 trillion trade deficit with China last year, one of the few major economies with which it doesn't run a surplus. That was three times larger than its next-biggest deficit, with oil-rich United Arab Emirates. Japan imports almost all its energy needs.
By comparison, Japan's trade surplus with the US last year was Japanese yen 7.1 trillion.
The move abroad by Japan Inc. started more than four decades ago. It gained pace in 1979, when Honda Motor Co opened a motorcycle factory in the US. The nation's second-biggest automaker by sales now makes more cars overseas than it does at home.
China, once regarded by Japan as an economic backwater, is now increasingly seen as a destination of choice. In the six months ended Sept. 31, Japan's direct investment in China more than doubled from a year earlier to Japanese yen 91.9 billion.
While Japan's economy stalled in the 1990s, China was catching up in technology and infrastructure.
"Small and medium-sized companies in Japan survived because they could make things for less than large companies," said Masako Ayakawa, an economist at Mizuho Financial Group. "But now they are being forced to close as large companies shift to Chinese suppliers."
In China, workers earn a twentieth the going wage in Japan.
Land is cheaper and municipal governments are offering tax breaks, subsidized utility costs and easier approval procedures to attract foreign capital to save unprofitable state businesses.
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