JIN-318 -- The Kansai Comeback

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Commentary on the Week's Business, Technology and Cultural News
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Issue No. 318
Wednesday April 20, 2005 TOKYO

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+++ VIEWPOINT The Kansai Comeback
1. Riding the Digital Boom
2. A Rosy Outlook for Kansai's Economy
3. A fillip to Decentralization

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+++ VIEWPOINT The Kansai Comeback
1. Riding the Digital Boom

The Kansai region consists of two "fu" (municipal
governments) and seven (or eight) "ken" (prefectures)
centered on Osaka (one of the fu), in west Japan,
with a population of approximately 22 million people.

Kansai was once the political-commercial center of Japan,
with the commercial dynamo of Osaka and the Imperial
Palace in Kyoto (previously in Nara, another Kansai city).
But the politico-economic center shifted to Edo in the
east after the establishment there of the Tokugawa
Shogunate in 1603. With the transfer of the palace from
Kyoto to Edo (renamed Tokyo, the "Eastern Capital") in
1868, the dominance of the upstart city was complete and
has continued ever since.

There are signs of at least an economic revival in
Kansai.

"We can match any company in price competitiveness and
picture quality," boasts Kunio Nakamura, president of
Matsushita Electric Industrial Co., Ltd. Early this
year Nakamura set a target of growing Matsushita's
global market share from around 30 percent at present
to 40 percent. He has a reason to be upbeat. Matsushita
recorded a V-shaped recovery, posting a figure in the
black at the end of the March quarter for the first
time in three quarters. In addition to the rewards of
a restructuring including the implementation of early
retirement, a surge in sales of plasma televisions,
DVDs, recorders and other mainstay digital consumer
electronics has boosted profits.

Sharp Corporation, which leads in liquid crystal
display TVs; Nidec Corporation, precision motors; and
Nitto Denko Corporation, film for liquid crystals --
these are just a few of the Kansai companies reaping
benefits from the digital boom.

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2. A Rosy Outlook for Kansai's Economy

Positive earnings have accelerated large-scale investment in
plant and equipment within the Kansai region. Matsushita
will complete the world's largest plasma display plant in
Amagasaki City, Hyogo Prefecture, in autumn. In preparation
for the plant's start-up, Sharp is beefing up its liquid
crystal panel plant in Kameyama, Mie Prefecture, and its
solar battery plant in Nara.

Intra-region investment has also benefited from company
execs' rediscovering Kansai after a period of soulful
reflection following the hollowing out of manufacturing
there in the wake of the shift of production to Southeast
Asia and China.

Exports to China are another pillar of the Kansai economy.
According to Osaka customs figures, exports from Osaka,
Kyoto and four of the Kansai prefectures were up compared
with the same month in the previous year for 34 consecutive
months through January 2005. In many months growth outpaced
growth for Japan as a whole. In 2004 the value of exports
from Kansai to China was 2.2 trillion yen, accounting for
18 percent of the total, as compared with the US (16 percent)
and the EU (15 percent).

Exports from Kansai are broad based, including electronic
components, semi-conductors, iron and steel, construction
machinery, and audio and visual equipment. According to the
Shinyo Bank Research Institute, an Osaka think tank, medium-
small enterprises in a spectrum of industries are profiting
from business with China, and the Kansai economy will not
loose steam as long as the Chinese economy continues to grow
rapidly.

The Kansai economy has declined many times in the past,
notably during the Second World War, but has never before
experienced anything like the protracted post-bubble blues.
The relocation of head office functions to Tokyo, the
swelling of bad assets, the delay in shifting to an
industrial structure conducive to sunrise industries --
the conjunction of these phenomena exacerbated the
structural recession.

However, the elimination of this negative legacy has
reached fevered pitch these past several years to
where the outlook for the Kansai economy is rosy again.
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3. A Fillip to Decentralization

What are the conditions for ensuring the revival of the Kansai
economy? The "Osaka Vision and Action Plan for Economic
Revitalization," published last December by the Osaka Chamber
of Commerce, cites three industries as engines of growth:
manufacturing (information appliances, etc.), tourism, and
life sciences. Indirect support such as academic, business,
and governmental joint research and improvement of municipal
infrastructure could generate spin-off effects that could
double the scale of the Kansai economy from the 6.5 trillion
yen figure of 2002 to 13 trillion yen by 2010.

Inventory adjustment of digital consumer electronics and a
slowdown in growth in China could pose serious challenges
to continued growth of the Kansai economy. However, the
anti-Japanese movement in China, rather than a challenge,
may have positive effects for Kansai, by accelerating the
return of manufacturing from offshore and keeping tourists
in Kyoto, Kobe, et. al.

Depending for growth solely on manufacturing is risky.
The Osaka Chamber of Commerce's plan is sound in also
hitching the Kansai economy to non-manufacturing engines
of growth such as tourism and life sciences.

The people of Kansai can take heart in the reflection that
economic growth in their region will be a boost to structural
reform comprising the transfer of operations and authority
from government to the private sector, and from Tokyo to
local regions. A vibrant Kansai economy could give a fillip
to decentralization. That is about the best Kansai's people
can hope for. The emperor is not about to return to Kyoto.

-- Burritt Sabin

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EDITOR
Written and edited by Burritt Sabin (editors2@japaninc.com)

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