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Renew online by choosing the My Account option at: http://www.library.uiuc.edu/catalog/ Digitized by the Internet Archive in 2011 with funding from University of Illinois Urbana-Champaign http://www.archive.org/details/dynamicsofintraa1672schr 330 B385 STX No. 1672 COPY 2 BEBR FACULTY WORKING PAPER NO. 90-1672 The Dynamics of the Intra-Asian Market Economy and Japanese Industrialization Japan's East Asia Market, 1870-1940 ^''s Liti ^Ug 2 ; ^^^01 the m Peter Schran College of Commerce and Business Administration Bureau of Economic and Business Research Uni\/8rsity of Illinois Urbana-Champaign BEBR FACULTY WORKING PAPER NO. 90-1672 College of Commerce and Business Administration University of Illinois at Urbana-Champaign August 1990 The Dynamics of the intra Asian Mari^et Economy and Japanese industrialization Japan's East Asia Mariowers of the time reached the Far East in their quest to open up and carve up the less developed areas of the world, imposing "unequal treaties" on Japan as well as on China. Unlike China and virtually every other country at that time, Japan responded very effectively to this challenge. Within a generation, it had developed sufficiently through free trade, however manipulated, to emancipate itself from all restrictions on its sovereignty and to pursue instead openly protectionist and imperialist ambitions, which were focussed on East Asia. As a result. East Asia's share of Japan's external trade, which became more and more coterminous with the Yen-bloc share, grew dramatically, especially during periods of imperial expansion. The development of a protected "co-prosperity sphere" evidently benefitted Japan more than its dependencies but served to accelerate their development as well by all indications, relative to that experienced by the unoccupied parts of East Asia. Synopsis Japan was drawn into Che "mi list ream" of modern economic development relatively late, in the mid-nineteenth century. As latecomers to this experience, the Japanese became the most avid students not only of the Western technology and commerce to which they were being exposed (and of the civilization that had created them), but also of the imperial- istic politics which had made Tokugawa Japan submit to that exposure. Moreover, in their efforts to emancipate themselves from such imposi- tions and to achieve for Japan eventually a status comparable to that of the dominant powers of the time, the Japanese began to emulate those powers — notably Britain, France, Germany, Russia and the United States — by pursuing opportunities not only for "free trade" but also for empire building. In the circumstances, these two approaches appeared sequentially interdependent. In order to be able to assert themselves effectively at some future time, the Japanese first had to modernize and develop to some extent. This required Japan's participation in international trade on Western terms whose domestic consequences could be and were modified by government fiscal and regulatory interventions. The acquisition of the new technology, which involved substantial outlays for purchases of new producer goods in addition to the payments for purchases of new or cheaper consumer goods from abroad, depended on the earnings from the export of numerous traditional products. Although the most prominent among those items, raw silk and tea, were much in demand in both Europe and North America, other countries found more ready markets on the Asian mainland because cultural similarities -2- made them more attractive there. China in particular thus became right away a customer as well as a source of primary products. In that latter capacity more than in the former, it was soon joined by British India. As Japan's development progressed, both the composition and the direction of its trade began to change. In relative terms, exports of primary products diminished while their imports grew, and exports of finished goods rose while their imports fell. In this context, Japan also became less of a business partner and more of a competitor for the industrialized nations of the West, vying with them in third markets to sell more and more similar modern manufactures and to buy the raw materials for their production. The less developed areas of Asia — in addition to China and India especially the Southeast and Oceania — became the principal arenas for this competition. Whereas China thus appeared as merely one of several major markets, it held special promise not so much because of its proximity and cul- tural affinity but because of its potential for political dependency. By the raid-nineteenth century, China — like Japan — had been forced to accept "unequal treaties" which limited its sovereignty. But the impositions were more far reaching, and China coped with them much less effectively. As a consequence, it was forced time and again to cede territory and to give up claims to overlordship over adjacent states besides foregoing tariff autonomy and allowing ever more foreign "treaty port" enclaves on its territory as well as granting extraterritoriality rights to the citizens of the Western treaty powers. By the late nineteenth century, when Japan felt sufficiently -3- strong to realize imperial ambitions, the various treaty powers had begun to vie with each other for railroad concessions in related spheres of influence. The treaty powers shared the privileges which each had extracted from China through the institution of the most favored nation clause. Japan, which had failed earlier to obtain comparable concessions peaceably, remained disadvantaged until it waged war on China and defeated it in 1895. As the newest treaty power, it not only acceded to all previously imposed rights but added to them new Chinese con- cessions on inland navigation and treaty port industrialization. In addition, it forced China to cede Taiwan (Formosa) and to give up its claim to overlordship over Korea (Chosen). By its victory in the sub- sequent Russo-Japanese War, Japan in 1905 secured Russia's acquiescence in its colonization of Korea. Russia also had to transfer its rights to the Kwantung Leased Territory and to the southern section of the Chinese Eastern Railway Zone (renamed the South Manchuria Railway Zone), which it had prevented Japan from acquiring ten years earlier. During the course of one decade less than 50 years after its for- cible opening, Japan thus managed both to emancipate itself and to establish its empire. By adding to the impositions on China, it asserted itself sufficiently to regain its territoriality rights over foreigners and its tariff autonomy. At the same time that it acquired Taiwan and Korea as colonies, it therefore also possessed once again the power to practice protectionism overtly. The Japanese used this power soon not only to promote their further domestic industrialization per se but also to institutionalize -4- preferences, e.g., for Taiwanese sugar and Korean rice imports into Japan proper as well as for the export of Japanese manufactures to these colonies. As a consequence, the shares of Taiwan and Korea in Japan's total trade increased rapidly, and their development acce- lerated as well. Eventually in the 1920s, imperial preferences were extended even to the Kwantung Leased Territory, evidently also in order to protect the intermediate position of Japan. The subsidiza- tion and regulation of shipping and shipbuilding facilitated this integration, assuring that most of the trade to and from Japan as well as within the empire was carried in Japanese bottoms. While Japan thus followed the lead of most Western powers in form- ing and protecting strategic interests both at home and in its newly acquired possessions, China remained open per force to almost all foreign trade and investment with hardly any restrictions, and the Japanese at once did their part to keep it that way. Because of this institutionalized inequality between countries, China's trade and investment were distorted as well, in inverse relation. To the extent that Japan — like other treaty powers — promoted exports relative to imports and exports of manufactured consumer goods in exchange for imports of raw materials for industrial production, it induced China to conform by buying and selling accordingly without intervention. By implication, it also encouraged in China the (development of) produc- tion of exportable primary products relative to that of importable manufactures. The growth of import substituting manufacturing in China required in such circumstances unusual product differentiation or cost advantages in order to proceed. -5- Although Japan competed with all other countries everywhere in China, it evidently developed regional interests and advantages, in accordance with its empire building strategy. Hong Kong as the entrepot for South China and the South China region generally were important trading partners during the pre-emancipation period but lost favor thereafter, as that region's trade tended to stagnate. Shanghai as the entrepot of the Yangtze Valley and the Central China region retained its significance as the arena where Japan contended with the United States and secondarily Britain for this largest and most dyna- mic part of the China market. North China and even more so Manchuria with their principal ports of Tientsin (Tianjin) and Dairen (Dalian), respectively, were the regions where the Japanese began to predominate after their success in the Russo-Japanese War. Under the law and order assured by the Kwantung Array and through the agency of the South Manchuria Railway Corporation, Japan developed not only the trade but the entire economy of the Kwantung Leased Territory, the railroad corridor, and adjacent areas in forms that were not so different from its colonial practices, though tempered by the multilateralism of the treaty provisions. In terras of its overall share of the China market, Japan surpassed most of its competitors — notably the U.S. — in the late 19th century and began to rival Great Britain with its colony Kong Kong on the eve of World War I. Japan's China trade, along with its trade and develop- ment generally and China's trade and development as well, received a boost during the war, when the Western powers' preoccupation with it -6- and the extraordinary increase in shipping costs made import substitu- tion, export expansion and larger market shares easier to achieve. Setbacks followed with the competitors' return after the war, of course. Most lasting threats arose in addition because of China's advancing political reconstitution, which resulted in its successful negotiation of tariff autonomy in 1928, 30 years after Japan had regained as much or more for itself. Japan at first accepted the change reluctantly, because it stood to lose more than the other powers from China's new protectionism — which resembled that practiced by Japan, needless to add. The coincidence of China's new protectionism with the Great Depression and its effects on trade was too much for the Kwantung Army to take. Instead of accommodating itself to China's eventual emanci- pation, as the Western powers did, Japan embarked on the opposite course of expanding its empire in order to preserve its established advantage. Manchuria, long dominated "informally" within the treaty system, was redefined as a minority territory under Chinese rule since the overthrow of the Manchu Dynasty and reconstituted as a separate country, Manchoukuo, in 1931. As a Japanese satellite, it was inte- grated into the Yen bloc and experienced under Japanese hegemony a remarkable development, thanks to major Japanese resource commitments as well as policy revisions which had appeared contrary to Japanese domestic interests before. The pattern of Japan's trade with Manchuria changed notably for these reasons. To be sure, the established exchange of various manu- factured products (notably textiles, wheat flour, sugar) for various -7- primary products (notably soya beans, bean cake, coal) continued and became more exclusive in response to tariff revisions. In addition, however, Japan now supplied large quantities of industrial investment goods, which in many instances were not yet fully competitive with Western products and consequently could not be sold profitably else- where. Their supply on capital account increased Japan's export surplus dramatically and turned Manchuria's small trade surplus overall into a very large trade deficit. Manchuria's trade with most other parts of the world tended to diminish unless it came to be con- ducted under bilateral agreements, as with Germany. But it continued until the onset of World War II and remained essential for the imple- mentation of the development strategy, given Japan's technological and resource limitations. Japan's forcible creation of Manchoukuo did not provoke immediate war with China and did not keep Japan from continuing to exercise its remaining treaty power rights in the residual Chinese territory. That territory's trade declined in value during the early 1930s under the combined influence of the depression and the drastic raises in tariff rates. The quantity of imports decreased, and the share of producer goods among them increased. The quantity of exports increased, and other agricultural products (oil seeds, oil, eggs and egg products in particular) replaced soya beans and bean cake as the principal food- stuffs sold abroad. Japan's shares of the territory's exports and imports held fairly steady in relative terms and continued to yield a trade surplus, albeit of much smaller magnitude. But the relative constancy implied absolute declines in Japan's trade with North, -8- Central and South China, which offset the advances in the trade with Manchuria. The combined shares of Manchoukuo and the Republic of China in Japan's total trade contracted somewhat as a result. Sino-Japanese trade relations changed more significantly soon thereafter, when Japan's determination to extend its hegemony over China further and to obtain for itself as in Manchoukuo privileges with respect to trade and investment finally brought on the Second Sino-Japanese War of 1937-45. Japan's military advances, resulting in the rapid occupation of most coastal provinces and the increasing iso- lation of "Free China" in the interior, made it possible to impose those terms without much delay or consideration of the other treaty powers' interests. In response to such measures and the incorporation of the new North China Federal Reserve Bank system into the Yen bloc, Japan's exports to "Occupied China" increased dramatically while its imports from that territory declined in absolute and relative terms. At issue remains whether the consequent export surplus was actually unintended or a variant of the old policy of exporting more to China while importing more from other parts of the world, since China's currency remained convertible for some time and other countries, espe- cially the United States, Southeast Asia and India, sold more to "Occupied China" than they bought from it. As a share of total Japanese imports, those from the entire mainland (Manchoukuo plus Occupied China) approached once again previously common levels while exports to it exceeded any previously experienced percentage of total Japanese sales abroad. -9- The formerly internal trade between Manchuria and the rest of China passed through substantial changes in response to the initial political separation and subsequent reintegration within the Yen bloc. Because of the imposition of tariffs on both sides, the trade between the two entities declined very much during the early 1930s, exports from Manchuria to China falling even more than imports from China into it. With the Japanese occupation of North China in particular, exports to China increased once again and approached the level of the late 1920s by the late 1930s. Imports from China increased also, but not enough to prevent the reemergence of a large export surplus, which had been characteristic of pre-Manchoukuo times as well. Manchuria thus contributed notably to the import surplus of "Occupied China." The pattern of exchange may not have been affected greatly by the political events. Manchuria continued to export to China primarily coarse grains, soya beans, bean oil, bean cake and coal while it imported primarily rice, wheat flour, tea, tobacco, cotton and paper from it. On the eve of the Pacific War, Japan thus had succeeded in trans- forming most of East Asia — all of which had once been part of the Chinese Empire in name if not in fact — into a set of colonies, satel- lites and occupied territories. On all of these entities — Taiwan, Korea, Kwantung Leased Territory and SMR Zone, Manchoukuo and even North China — Japan imposed institutions and regulations which biased their external trade flows in favor of the metropolitan territory as the ultimate or intermediate origin or destination. As a consequence, even the direct trade between dependencies appears to have remained -10- or become smaller than it would have been in less restricted cir- cumstances, and the share of the entire empire in the total trade of all dependencies appeared correspondingly overly large. The benefits of free trade obviously could not materialize fully under such condi- tions, and the dependent populations in particular paid for that, involuntarily. However, the biases which Japan imposed did not favor simply an exchange of Japanese-manufactured consumer goods for colonial raw materials. They also gave rise to a protected empire-wide market for Japanese-made producer goods, which were not yet competitive in free markets. By supplying such goods to both the dependencies and the metropolitan territory, economies of scale could be realized in their production, and the production of primary products as well as their processing could be increased and improved in both locations. As a consequence, most dependencies experienced a process of "dependent" development, which also was clearly "second best" in their circum- stances and not necessarily the choice of the dependent populations. At times and especially during the 1930s, this process was accelerated by massive Japanese investments, which assured, e.g., that the Manchurian economy grew from 1924 to 1941 at roughly the same four percent per annum which the Japanese economy experienced. Korea and Taiwan also achieved similar growth rates at least since the time of the First World War. Moreover, the integration of economic relations within the empire proceeded gradually, and the empire as a whole did not achieve a high degree of autarky — except for lack of alternatives during the final -11- phase of the Pacific War. Until then, Japan as well as its dependen- cies continued to export to the rest of the world products which were competitive in order to pay for imports which could not be produced internally on acceptable terms. As the intermediary in this process and as the territory that was most in need of inputs from the more industrialized countries under the strategy, Japan resorted to trade with the world outside its empire more than any of its dependencies did, with the exception of newly "Occupied China" during the Second Sino-Japanese War. China then as well as before its occupation was one of the major markets where export surpluses were achieved by Japan, which helped to pay for its import surpluses from Europe and North America. The following sections will document this transformation of Japan's economic relations with the various parts of East Asia that need to be distinguished. They will also discuss specific features of these relations in greater detail than this synopsis has done. The conclusion to the paper will address in addition some of the evalua- tive issues which the Japan experience poses. The Growth and Structural Transformation of Japan's Trade Japan's trade with the rest of the world has been reported systemati- cally for the years since 1868. The reported data imply high rates of increase in the values of exports and imports not only per se but also relative to the value of national income, which grew rapidly as well (at approximately four percent per annum in real terras) in comparison with the value of national income in other countries. Trade clearly -12- appeared as the engine of growth, which increased more rapidly even than the value added by Japan's secondary (manufacturing plus) sector until the early post-World War I years. Its share in national income fluctuated during the 1920s and declined slowly during the 1930s under the impact of the depression and all governments' responses to that event (Table x.l). At their height toward the end of World War I, Japan's exports and imports each accounted for somewhat more than 20 percent of its national income. Moreover, both exports and imports consisted of large varieties of goods with relatively small domestic market shares. Lockwood concluded for this reason that ... For most Japanese industries the export market played a subordinate role throughout the prewar (WWI) decades. Also, it tended to absorb goods not essentially dissimilar in character from those widely consumed at home. The pattern varied widely from industry to industry, however, and the total impact of world demand in intensifying the rate of Japanese industrialization was highly significant. 2 Lockwood 's generalization appears to fit even the most prominent export items, viz., raw silk at all times, supplemented first by tea and subsequently by cotton yarn and cotton fabrics. The most promi- nent import items — textiles, sugar, raw cotton — seem to have been similarly marginal to domestic production: ... On the whole, however, the destructive impact of imported foreign manufactures on the traditional handicrafts seems to have been neither very pro- nounced, nor very widespread. It was slight by comparison with the inroads made in later years by Japan's own developing factory industries. 3 The latters' effects on the structure of Japan's foreign trade are made evident in Table x.2. The export shares of foodstuffs and raw ^ -13- Table x. 1 THE SHARE OF INTERNATIONAL TRADE IN JAPAN'S NATIONAL INCOME Unit: Percent of National Income Produced as estimated by Kazushi Ohkawa eriod All Areas Ko rea Taiwan China Hong Kong East Asia Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. 873-80 4.6 5.7 1.0 0.9 1.0 0.9 881-85 5.5 4.6 1.0 1.0 1.0 1.0 886-90 8.1 7.9 1.3^ 1.2^ 1.6 1.5 891-95 10.1 9.3 0.3^ 0.2^ 0.8 1.6 1.5 0.7 2.3 2.3 896-00 10.4 13.9 1.6 1.6 1.8 0.6 3.7 2.4 901-05 13.8 16.2 0.5 0.4 3.0 2.0 1.3 0.2 4.8 2.7 906-10 14.9^ 15.9'^ 0.7 1.0 3.4 2.2 0.8 0.0 4.9 3.3 911-15 16.8 17.0 1.1 0.7 1.0 1.2 4.0 2.3 0.7 0.0 6.8 4.2 916-20 21.3 20.1 1.3 1.3 0.9 1.3 4.8 3.5 0.6 0.0 7.6 6.2 921-25 16.2 20.8 1.5 2.1 0.8 1.4 3.5 2.9 0.5 0.0 6.3 6.4 926-30 18.1 20.4 2.2 2.4 1.0 1.7 3.5 2.8 0.5 0.0 7.1 6.9 931-35 17.8 18.7 2.8 2.6 1.2 1.9 3.0 2.1 0.2 0.0 7.3 6.6 936-40 17.6 16.6 3.9 2.6 1.3 1.7 4.9 2.2 0.1 0.0 10.2 6.5 erived from Hundred-Year Statistics of the Jap. anese Economy, compiled by the Statistics epartment of the Bank of Japan, July 1966, pp. 32, 278-279, 290-292. 1889-90: Including, as before. Hong Kong. Average, 1897-1900. 1910: Excluding Korea. -14- Table x. 2 JAPAN'S INTERNATIONAL TRADE BY CATEGORY'' Unit: Percent of Total Exports/Imports Food Stuffs Raw Materials 1 Fabricated Finished 0th er Period Raw Materials Goods Commod ities Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. 1868-70 32.2 44.3 24.9 4.3 40.9 18.6 1.2 31.1 1.9 1.7 1871-75 39.0 14.4 17.5 3.8 36.6 21.5 3.1 56.6 3.8 3.8 1876-80 38.0 13.5 11.8 3.7 41.5 27.6 4.8 51.9 3.8 3.4 1881-85 31.5 19.1 11.9 4.0 45.6 29.0 8.0 45.7 3.0 2.2 1886-90 26.5 19.7 11.7 7.5 45.0 28.6 13.1 42.3 3.7 1.9 1891-95 18.5 21.7 9.8 20.8 44.7 20.1 23.5 34.9 3.5 2.5 1896-00 13.0 23.3 11.7 26.7 46.6 17.7 25.7 30.9 3.0 1.4 1901-05 12.2 24.8 9.4 32.9 46.1 15.5 29.6 25.3 2.7 1.5 1906-10 11.2 14.6 9.3 39.7 46.7 18.5 31.2 26.3 1.5 0.8 1911-15 10.8 12.1 7.8 51.9 49.4 18.2 30.6 17.1 1.4 0.7 1916-20 8.9 10.3 5.6 52.8 41.3 24.4 42.2 11.9 2.0 0.7 1921-25 6.3 14.2 6.1 49.9 47.9 17.6 38.4 17.7 1.3 0.7 1926-30 7.7 13.8 5.4 54.8 42.1 16.0 42.8 14.6 1.9 0.8 1931-35 8.1 9.2 4.2 60.2 29.4 17.1 55.7 12.7 2.7 0.8 1936-40 10.1 8.7 4.4 51.8 26.0 25.9 57.3 12.9 2.4 0.7 Derived from Hun< ired-Year Statistics of the Japanese Econc imy, compiled by the Statistics Department of the Bank of Japan, July 1966, pp. 280-281. Excluding Korea and Taiwan, which are counted as Japanese territory. -15- materials, which accounted for the oajor share of the export value in the beginning, declined almost continuously to less than 15 percent of the total. The export share of fabricated raw materials, which con- sisted at first primarily and after the turn of the century largely of raw silk, fluctuated until the 1930s, when it declined notably, largely because of a fall in the export share of raw silk. The export share of finished goods rose rapidly to offset the decline in the shares of foodstuffs and raw materials. Until World War I, this rise appears to have been attributable primarily to the growth of textile goods sales abroad. In subsequent years and especially during the 1930s, it reflected mostly the increase in industrial producer goods exports. The last development would be even more apparent if sales to Korea and Taiwan were included in the tabulation. On the import side, this pattern of change was matched by an almost continuous fall of the share of finished goods and a similarly continuous rise in the share of raw materials. The import share of fabricated raw materials fluctuated like their export share around a fairly constant trend, but at half the level. The import share of foodstuffs, which might have been expected to increase continuously as well, decreased after 1905. It would have continued to rise if pur- chases from Taiwan and Korea had been included. But this change would not have been very pronounced, either, because of Japan's pro- tection of domestic food production when that activity began to experience serious threats from foreign competition. Except for this retarding influence of protectionism, Japan's foreign trade evidently -16- experienced a very rapid structural transformation during the course of its extraordinary growth. The Size and Characteristics of Japan's East Asia Trade At the beginning of the Meiji Restoration, Japan's trade with China accounted for almost all of its East Asia trade, and the Bank of Japan one hundred years later reported it as such. The trade with Hong Kong was counted as part of the China trade until 1889. The trade with Taiwan was also part of it until Taiwan became a Japanese colony, Q the statistical separation appearing in 1897. The coverage of the trade with Korea prior to 1910, when Korea became a Japanese colony, is uncertain. Another source reports the following percentage shares of Japan's total exports and imports for the pre-colonial period: Period Exports to Korea Imports from Korea 1877-86 1.2% 1.3% 1877-96 1.9% 3.0% 1897-06 (inferred) 5.0% 2.6% 1907-16 (inferred) 5.5% 4.3% The subtotals for "East Asia" and "Others" in Table x.3 may have to be adjusted accordingly. The data for China after 1931 continue to include the exports and imports of the Kwantung Leased Territory and of Manchoukuo with the SMR Zone. The amendments and corrections to Table x.3 may add to the rela- tive size of Japan's East Asia market during the late 19th century, but they do not modify the table's indications greatly thereby. China, successively net of Hong Kong, Taiwan, possibly Korea, but not -17- Table x. 3 I EAST ASIA'S SHARE IN JAPAN'S INTERNATIONAL TRADE Unit: Percent of Exports/Imports 2riod China Hong Kong Taiwan Korea East Asia Others Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. B73-75 21.8 32.8 21.8 32.8 78.2 67.2 376-80 19.5 19.3 7 7 19.5 19.3 80.5 80.7 381-85 18.5 21.1 ? 7 18.5 21.1 81.5 78.9 386-90 20.2 15.0 13.2^ 6.5^ 7 7 20.2 18.3 79.8 81.7 391-95 7.4 16.8 14.9 8.0 2.7^ 1.4^ ? 7 22.3 24.8 77.7 75.2 396-00 15.3 11.7 16.9 4.6 7 ? 35.0 17.5 65.0 82.5 901-05 21.5 12.6 9.8 1.1 3.5 2.8 7 7 34.8 16.5 65.2 83.5 906-10 22.6 14.1 5.2 0.2 4.9 6.1 7 7 32.7 20.4 67.3 79.6 911-15 23.7 13.6 4.4 0.2 6.0 7.3 6.5 3.9 40.6 25.0 59.4 75.0 916-20 22.5 17.6 2.9 0.1 4.0 6.7 6.1 6.3 35.5 30.7 64.5 69.3 921-25 21.3 14.1 3.4 0.0 4.7 6.7 9.5 10.0 38.9 30.8 61.1 69.2 926-30 19.3 13.7 2.5 0.0 5.5 8.2 12.1 11.8 39.4 33.7 60.6 66.3 931-35 17.1 11.2 1.4 0.1 6.8 10.1 15.5 14.1 40.8 35.5 59.2 64.5 936-40 27.9 13.5 0.8 0.1 7.3 10.3 21.8 15.6 57.8 39.5 42.2 60.5 srived f rom Hund red-Year Statistics of the Jap )anese Economy, pp. 278 -279, 290, 292 • 1889-90. 1897-00. -18- Manchuria, accounted with some variations fairly steadily for about 20 percent of Japan's exports and 15 percent of its imports. Hong Kong also was more important as a destination of sales than as a source of purchases, and it rivaled China in both respects during the late 19th century. But its importance as a place of trade for Japan was short- lived. Japan's trade with it declined rapidly while the trade with the colonies expanded from very small beginnings to very substantial magnitudes. This protected market in Taiwan and Korea matched Japan's open market in China by the mid-1920s and surpassed it soon thereafter. Moreover, unlike the trade with China, the trade with Taiwan registered import surpluses until the end of the period and the trade with Korea exhibited such surpluses until the depression. Within China, the trade with Manchuria developed on the same pattern until the formation of Manchoukuo, when Japan began to invest heavily in the region. In combination, these developments accounted for an increasing share of East Asia in the total value of Japan's external trade, from about 20 percent during the late 1870s to almost 50 percent during the late 1930s, with spurts after the achievement of treaty power status in China, during World War I, and during the Second Sino-Japanese War. Moreover, whereas Japan's total exports tended to fall short of its total imports more often than not, exports to East Asia exceeded imports from East Asia at most times, frequently by substantial frac- tions. Both relations are indicated by the data of Table x.l, which gives an impression of East Asia's importance in terms of national income shares. Exports to and imports from the area initially accounted for one percent of Japan's national income each. They grew -19- to 10.2 percent and 6.5 percent of it, respectively, during the co- prosperity years 1936-40. Changes in the commodity composition of Japan's trade with East 12 Asia have been studied in detail by Mizoguchi Toshiyuki. His find- ings may be summarized as follows: 1. Japan's exports to China prior to the First Sino-Japanese War con- sisted mostly of marine products, mineral products, metals and metal products, chemicals, and textiles — in that order. Soon after the war, textiles became the dominant item which accounted for more than half of the total exports to China during 1907-26. Their share fell sub- sequently but contributed a quarter of Japan's exports to China even during the 1930s. Chemicals as well as metals and metal products remained important commodity export groups, no doubt structurally transformed. They were supplemented by processed foods and rapidly rising supplies of machinery as important categories. 2. Because textiles dominated among Japan's exports generally, their regional concentration ratio (RCR) was not high in the case of China. In fact, it was much less than unit value there as well as for Taiwan and Korea. But Japan's textile exports consisted mostly of raw silk, which were shipped primarily to Europe and North America. Net of raw silk, therefore, the RCR's were higher in East Asia, but much above unit value only in China during 1907-26, when Japan rapidly replaced Britain as the principal supplier of imported cotton yarns and fabrics. 3. Other export groups with continuously high RCR's in all three ter- ritories were chemicals, metals and metal products, machinery, and other manufactured goods, for the reason that Japan protected the -20- provision of such producer goods in its colonies and provided them increasingly to Korea and Manchuria, leaving areas outside East Asia with little more than one third of all their exports from Japan. Exports of primary goods achieved high RCR's during the 1930s in the colonies but not in China, which remained a principal supplier of such products. 4. Japan's imports from China consisted at first primarily of agri- cultural products and secondarily of processed foods. Agricultural products retained their predominance, although their share fell from two thirds to less than one half of the value of all imports from China. But their structure changed, textile raw materials being replaced by cereals as the predominant item. Processed foods lost their importance after the First Sino-Japanese War, when sugar from Taiwan had become a colonial product. In their place, chemicals appeared as the second most important category, chiefly in the form of imports of natural fertilizer, which eventually lost in relative terms while other chemicals, metals and metal products, and mineral products gained correspondingly, especially during the 1930s. 5. The RCR's show continuously high values for Japan's imports of crude cereals from China, Taiwan and Korea. In addition, China was more than proportionately important at first as a source of textile raw materials and eventually as a supplier of other raw materials and producer goods. Taiwan provided other manufactured (consumer) goods to an extremely disproportionate degree as well. Otherwise the region tended to be underrepresented among the suppliers of Japan's imports. In the case of China, Japanese imports of crude cereals, other raw -21- materials and producer goods tended to come disproportionately from Manchuria. The Growth and Structural Transformation of China's Trade China's trade with the rest of the world is on record since 1864. It grew notably over the years though not nearly as rapidly as Japan's foreign trade did. The following average annual changes in the values (measured in haikuan taels) and the quantity indices of China's 13 exports and imports indicate the pace of change: Average annual H. K. T. values of Quantity indices of change during Exports Imports Exports Imports 1868-1895 1895-1913 1913-1929 1913-1931 The rapid growth of imports relative to exports during 1895-1913 re- flects the wave of mostly direct foreign investment that followed the First Sino-Japanese War. The difference between the 1913-29 and 1913-31 rates of change points to the effects of the depression and the tariff reform. China's international trade seems to have grown faster than its national income did, but for lack of adequate data, the magnitude of this relation is in dispute. Aggregate real output increased accord- ing to Perkins at 1.4 percent per annum during the period 1914-18 to 1933 and according to Yeh at 1.1 percent per annum during the period 3.2% 3.8% 2.5% 2.2% 5,9% 6.9% 2.3% 4.4% 5.9% 5.1% 2.5% 2.1% 4.6% 5.3% 1.8% 1.5% -22- 1 A 1914-18 to 1931-36. Rawski has taken issue with both estimates, concluding instead that China's real gross domestic product grew prob- ably more rapidly at 1.8 to 2.0 percent and perhaps even at 2.3 to 2.5 percent per annum during the latter period. Rawski 's revision tends to imply that the share of international trade in China's national income did not rise appreciably during those years. However, such a rise is indicated for the longer interval from the 1880s until 1933, and its relative magnitude appears to be consistent with the range of GDP growth rates derived by Perkins and Yeh. Chang Chung-li's GNP estimate for "the 1880s" yields GNP shares of 2.8 percent for exports and 3.3 percent for imports during that decade. Feuerwerker 's modifi- cation of Chang's estimate serves to reduce these shares to 2.3 percent and 2.7 percent, respectively. The Liu-Yeh estimate for GDP for the Chinese mainland in 1933, which also accounts for Manchuria, implies GDP shares of 3.3 percent for exports and 5.9 percent for imports when the international trade of Manchoukuo (net of that with the Republic of China) is added to the international trade of the ROC (net of that with Manchoukuo ) . China's slower economic growth by any of the measures resulted in a more protracted structural transformation which is evident in the three sets of output estimates as well. Rawski 's findings do not differ much from those of Perkins and Yeh in this respect because his upward revisions of the sectoral growth rates affect all sectors but one and the traditional ones relatively more than the modern compo- nents. The slower shift from primary production to "manufacturing plus" reflected itself in turn in a similarly limited change of the -23- composition of China's exports and imports, which is indicated by the percentage shares of Table x.4. Like the Perkins, Yeh and Rawski estimates, these data cover the years since (the eve of) the First World War, when the effects of China's beginning industrialization became noticeable. Prior to this period, China's exports consisted initially almost entirely of tea and silk plus silk goods. Their shares in total exports declined fast while those of beans, bean cake, oil seeds, oil and a growing variety of other agricultural products rose to supple- ment them. Extractive materials such as coal, ores and metals accounted for relatively small shares at most times but gained notably during the First World War and the Second Sino-Japanese War. Until the loss of Manchuria, the export shares of foodstuffs and of manu- factures tended to remain fairly stable while that for raw materials grew and the one for semi-manufactures fell. After the formation of Manchoukuo, increases in the exports of foodstuffs (oil seeds etc.) substituted for decreases in the exports of semi-manufactures (bean cake etc.), and the export of manufactures (from Shanghai) increased on the eve of World War II. Among China's imports, opium ranked first until the late 19th cen- tury, but gradually lost out to cotton goods, cotton yarn, and an increasing variety of other products, most of them consumer goods. During the period covered by Table x.4, imports of cotton goods and yarn began to be replaced by those of raw cotton, and imports of numerous industrial producer goods (liquid fuel, transport materials, chemicals, metals, machinery) increased in value relative to other -24- Table x. 4 CHINA'S INTERNATIONAL TRADE BY CATEGORY' Unit: Percent of Exports/Imports Food Stuffs Raw Materials Semi- Other Year & Be^ /erages Manufactures Manufactures Commodities Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. 1913 17.4 18.1 29.1 5.3 38.7 26.7 12.2 40.4 2.6 9.5 1916 16.9 22.5 24.7 7.7 43.2 26.2 11.0 40.5 4.2 3.1 1920 20.6 11.5 23.9 9.3 37.5 30.7 14.6 47.0 3.4 1.5 1925 13.9 23.3 31.3 15.4 38.9 21.8 13.8 38.1 2.1 1.4 1928 15.7 22.5 35.4 13.9 34.8 20.1 13.3 31.9 0.8 1.5 1931 15.0 22.6 37.7 21.7 32.5 19.7 13.6 34.4 1.0 1.6 1936 24.7 11.0 35.8 13.4 23.2 22.3 16.3 44.2 9.1 1937 21.4 13.9 37.7 8.2 24.7 22.8 16.2 55.1 1938 21.2 23.9 40.9 7.3 18.6 17.7 19.3 51.1 1939 23.7 28.8 34.4 19.2 16.8 16.1 25.1 35.9 1940 21.2 30.7 33.5 20.0 15.9 16.3 29.4 33.0 Source: Yu-kwei Cheng. Foreign Trade and Indus t rial Deve lopment of China. Washington, D.C.: University Press of Washington, D.C., 1956, pp. 136. 1936-40: Excluding Manchuria. Including living animals. 35, -25- 19 goods. The data of Table x. 4 points to progress in import substitu- tion more generally. The import shares of semi-manufactures and manu- factures tended to fall while that of raw materials tended to rise. Deviations from those trends — and from the tendency of the foodstuff share to remain rather stable — occurred primarily during the period of military action at the onset of the Second Sino-Japanese War. East Asia's Changing Position in the China Market East Asia's shares of these exports and imports are made evident in Table x. 5. The data, which include China's trade through Hong Kong and with Siberia among the "others," thereby focusing on the emerging Japanese Empire, indicate that Japan's share of China's trade grew very rapidly from the 1880s until the period of the First World War, contracted somewhat during the 1920s, and declined more strongly during the 1930s, following the loss of Manchuria and the outbreak of the Second Sino-Japanese War. China's trade with Korea developed with a lag and at a much lower level on a similar pattern, but its balance was positive most of the time, unlike the one with Japan. China's trade with Taiwan, which was included in the trade with Japan from 1895 until 1930, appears to have been relatively small at all times. China's trade with Manchuria, which became international after the creation of Manchoukuo, decreased in response to the erection of 20 tariff barriers and the territory's integration into the Yen bloc. In toto, the share of Japan-dominated East Asia rose from about two percent in the raid-1860s to one third of China's entire foreign trade during the First World War years, when it peaked. -26- Table x. 5 EAST ASIA'S SHARE IN CHINA'S INTERNATIONAL TRADE Unit: Percent of Exports/Imports Period Japan Ko rea Taiwan Kwant ang a. East Asia Others Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp 1864-65 0.6 3.8 0.6 3.8 99.4 96.2 1866-70 2.3 3.2 2.3 3.2 79.7 96.8 1871-75 2.1 3.7 2.1 3.7 97.9 96.3 1876-80 2.7 4.5 2.7 4.5 97.3 95.5 1881-85 2.4 5.1 0.1^ 0.0^ 2.5 5.1 97.5 94.9 1886-90 4.1 5.5 0.3 0.1 4.4 5.6 15.6 94.4 1891-95 8.0 6.0 0.5 0.1 8.5 6.1 91.5 93.9 1896-00 9.7 11.3 0.5 0.4 10.2 11.7 89.8 88.3 1901-05 14.0 13.1 0.7 0.3 14.7 13.4 85.3 86.6 1906-10 14.9 14.2 0.8 0.4 15.7 14.6 84.3 85.4 1911-15 16.9 20.5 1.4 0.8 18.3 21.3 81.7 78.7 1916-20 27.6 34.6 2.9 1.6 30.5 36.2 69.5 63.8 1921-25 25.8 24.4 3.7 1.1 29.5 25.5 70.5 74.5 1926-30 24.0 26.7 5.1 1.2 3.4<^ 0^ 29.1 27.9 70.9 72.1 1931-35 19.7 14.4 3.0 0.4 1.0 0.3 1. 27.1 16.1 72.9 83.9 1936-40 9.3 20.9 0.7 0.8 1.0 1.1 4.3 3. 8 15.3 26.6 84.7 73.4 Derived from Hsiao Liang- -Lin. China's Foreign Trade Statistics, 1864 -1949. Cambridge, MA: Harvard University Press, 1974, pp. 22-24, 152-156. Kwantung Leased Territory representing Manchoukuo. Including Hong Kong and Siberia. ^Average, 1883-85. Average, 1932-35. f -27- Trade relations with Japan did not develop similarly in all parts of China, and regional foci changed during the evolution of Japan's commercial policy. Its emphasis shifted from Hong Kong and South China during the pre-treaty power years to Shanghai and then to Manchuria and North China after the Russo-Japanese War. By the 1920s, more than 40 percent of the Japan trade involved the Northeast, close to 25 percent the North, more than 30 percent Central China, and merely two percent the South. The concentration ratios for these four regions indicate that on the eve of the creation of Manchoukuo, trade with Japan predominated in the Northeast and North but not in Central 21 China and not at all in the South. Imports from Japan 1919 1927 1931 1936 Manchuria North China Central China South China Exports to Japan 1919 1927 1931 1936 Manchuria North China Central China South China A comparison of the RCR's for exports and imports reveals in addition that during the 1920s, Manchuria and North China tended to become more dependent on Japan for their imports but not for their exports. 1.78 1.94 2.85 1.69 1.67 2.04 2.53 0.82 0.80 0.69 0.82 0.07 0.19 0.20 0.39 1.95 1.54 1.63 2.41 1.66 1.27 1.88 0.60 0.60 0.59 0.90 0.06 0.22 0.01 0.03 -28- The regional distribution of China's Japan trade was in large measure commodity specific. In terms of major export items, the re- orientation from the South and Central parts to the North and Northeast involved shifts from (Taiwan's) sugar and from raw cotton to soya beans, bean cake, coal and pig iron, e.g., whose production and marketing developed rapidly in South Manchuria under Japan's "informal" domination and management. Imports from Japan, which consisted pre- dominantly of textiles since the late 19th century, were more widely dispersed in terms of destination, as were other consumer goods. Investment goods, however, followed more clearly the directions of proprietary interests and flowed disproportionately into the Kwantung Leased Territory, the SMR Zone, and eventually other parts of Northeast and North China. China's trade with Korea and Soviet Siberia was concentrated even more on the Northeast. The trade with Siberia, which consisted mostly of exports of soya beans, bean cake and grains as well as imports of coal, iron and steel, gunny bags, cotton piece goods, and sugar during the late 1920s, ceased soon after the creation of Manchoukuo and the Soviets' sale of the Chinese Eastern Railway, as indicated in Table X.6. The trade with Korea, which at most times appeared statistically as part of the trade with the Japanese Empire, involved in particular exports of millet, bean cake, and raw wild silk as well as imports of cotton piece goods and yarn, clothing and sugar during the late 1920s, attesting to Korea's more advanced industrialization as well as to its 22 transit location in the trade with Japan. The data of Table x. 5 would show increases during the 1930s if the transactions of Manchoukuo -29- » Table x. 6 EAST ASIA'S SHARE IN MANCHURIA'S EXTERNAL TRADE Unit: Percent of Exports/Imports 2ar Jap an Koi rea U.S. .S.R. Hong Kong Ch ina East Asia Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp, 929 39.7'' 42.1^' ? 7 9.7 4.8 7 7 21.8 29.1 71.2 76.0 ?30 29.4 37.9 10.7 3.4 12.8 5.1 1,7 4,2 26.3 32.6 80.9 83.2 931 33.6 39.9 5.0 3.1 9.6 6.6 1.6 3,9 31.2 30.2 81,0 83.7 932 30.7 54.0 2.9 4.3 5.5 2.3 0.9 2.7 27.5 18.3 67.5 81.6 933 40.8 60.8 7.2 5.1 3.0 1.5 1.5 0.7 13.0 15.5 65.5 83.6 934 38.4 64.6 10.4 4.3 1.9 0.8 1.5 0.8 14.6 9.7 66.8 80.2 935 43.6 71.9 8.0 3.7 1.1 0.2 1.8 0.5 15.5 5.3 70.0 81.6 936 39.4 73.3 7.2 3.9 0.3 0.0 1.4 0.7 21.3 6.9 69.6 84,8 937 42.9, 62.5^ 69.5^ 70.7, 73.2^ 84.8^ 88.8° 6.9 4.4 0.0 0.1 1.3 0.5 17.6 4.4 68.7 80,1 938 ? 7 0.0 0.0 0.5 0.1 18.6 5.5 74.8 78.8 )39 ? 7 - - 0.0 0.0 16.8 3.7 82.8 88.5 940'^ 9 7 ~ ~ 0.0 0.0 25.6 4,3 95.1 93,1 mrces: The Manchuria Ye ar Book, 1931, 1932- -33; The Manchoukuo Year Book, 1934, 1942; The Japan-Manchoukuc . Year Book, 1935, 1939. 'ncluding Taiwan, including in addition Korea. fanuary to September. -30- were added Co those of the Republic of China. By implication, the declining shares of exports and imports indicate one of the conse- quences of the territorial loss. Manchuria's Evolving Japan Trade As a frontier region which was severely underpopulated as well as underdeveloped at the time of its opening, Manchuria grew rapidly in response to the immigration of labor as well as the importation of capital and the imposition of (Japan's) law and order, beginning with the colonization of the Kwantung Leased Territory and the South Manchuria Railway Zone and ending with the forcible creation of Manchoukuo as a satellite state. The quantitative dimensions of this development have been studied by Kang Chao, whose work will be the 23 principal reference for the following observations. His series of export and import values implies in addition that Manchuria's trade began to accelerate notably already under Chinese rule and Russian ^ . . 24 domination: Average Annual Change Exports Imports 1872-1893 7.6% 4.4% - 1896-1903 8.5% 13.5% 1872-1903 7.7% 7.0% 1907-1931 13.2% 7.9% 1931-1939 1.7% 23.0% 1907-1939 10.1% 11.5% -31- During Japanese times, Manchuria's trade expanded on the familiar cyclical pattern: Very rapid growth from 1907 through the First World War, followed by stagnation in its wake and renewed growth during the later 1920s, terminated by the depression. In contrast with the rest of China, however, exports increased more rapidly than imports did at most times, exceptions being the initial railroad construction period from the late 1890s until the Russo-Japanese War and the years of intensive Japanese investment in Manchuria's industrialization during the 1930s. During that latter period, the rate of growth of exports fell to unprecedentedly low levels in current terms. In real terras, 25 exports apparently peaked in 1931-32 and declined notably thereafter. Prior to its separation from the rest of China, Manchuria thus contributed a rapidly increasing share of China's total exports, its percentage rising from 16.8 in 1913 to 35.4 in 1931. The share of imports on the other hand fluctuated around a fairly constant trend, 9 A changing from 11.3 percent in 1913 to 10.7 percent in 1931. Exports also must have risen relative to Manchuria's gross domestic product while imports may have accounted for a more constant share. After 1931, of course, these relations were reversed when the growth of imports accelerated dramatically and that of exports decelerated greatly, probably turning negative in real terms. Because these move- ments tended to offset each other, the GDP share of total trade appar- ently did not change much during the years 1924-41, while the terri- tory's real output grew at 4.2 percent per annum on the average. Yet it remained fairly stable at a surprisingly high level, exports -32- accounting for 17 percent and imports for 22 percent of the terri- tory's GDP in 1934.^'' Until the 1930s, this rapid economic growth did not result in a significant structural transformation. Agriculture plus (fishing, forestry, and subsidiary production) continued to contribute about 50 percent of the GDP, and the share of manufacturing plus (mining and construction) increased very slowly. The composition of exports and imports remained correspondingly stable. Soya beans, bean cake and bean oil, which had supplied 87 percent of all export value in 1872, 29 still provided 60 percent of this total on the eve of the separation, supplementary export items of major importance by then being millet 30 and raw wild silk, as well as coal and pig iron. Imports consisted of a larger and increasing variety of goods, yet textiles, wheat flour, sugar, alcoholic and tobacco products accounted for close to half of the total import value during the late 1920s, iron and steel, machinery 31 and vehicles adding merely 15 percent to it. Table x. 6 shows that this trade was heavily concentrated on East Asia, before as well as after the separation. It also indicates, how- ever, that the East Asian trade partners' shares of exports and imports changed substantially in response to the establishment of Manchoukuo as a Japanese satellite state. Trade with Soviet Siberia, which had not been negligible, ceased. Trade with Hong Kong, which had been much less important, became practically insignificant. China's trade shares declined, especially on the import side. Accord- ingly, Japan's trade shares rose greatly also in particular on the import side. Japan thus replaced China as a source of imports but not -33- as a destination of exports, even during the years of war-related autarky. Japan's colony Korea apparently did not share much in this development and remained more important as a buyer of Manchurian prod- ucts. " ' ' Table x.7 shows in addition that during the mid-1930s at least, Manchuria depended on Japan disproportionately much for supplies of manufactured goods and disproportionately little for sales of raw materials, which China provided in comparatively large shares. On the export side, Japan appeared as a customer for larger than average shares of semi-manufactures while Korea concentrated its purchases on foodstuffs and China on foodstuffs and manufactured goods. As a con- sequence of the territorial separation, the commodity structure of Sino-Manchurian trade thus changed notably, China losing its estab- lished markets for manufactures to Japan. But Japan and its colonies could not meet all of Manchuria's requirements equally well, and countries outside East Asia therefore remained particularly important as buyers as well as sellers of raw materials. The industrialization efforts of the 1930s accelerated the process of structural transformation of the Manchurian economy and its trade. Both import and export substitution progressed more rapidly then before; In 1932, production goods imports constituted 22.3 percent of total imports while imports of consumption goods amounted to 77.7 percent of total imports. However, the percentage of production goods imports has increased gradually until in 1937 production goods amounted to 39.4 percent and con- sumption goods to 60.6 percent, a trend which indi- cated the increasing importance of production goods. In 1938, 1939 and 1940 this trend continued. This -34- Table x. 7 EAST ASIA'S SHARE IN INTERNATIONAL EXTERNAL TRADE BY COMMODITY GROUP Unit: Percent of Group Total Exports to Import s from Japan Korea China East Asia Japan Korea China Hong Kong Foodstuffs, Beverages, Prepared Tobacco 46.13 31.05 14.01 91.19 34.49 37.11 25.16 96.76 42.48 29.94 23.32 95.74 59.14 7.45 6.20 57.36 7.81 12.86 63.82 10.80 9.26 Raw Materials 39.36 6.78 8.90 55.04 27.59 5.97 8.70 52.26 41.59 5.27 4.07 50.93 33.76 6.75 14.24 34.04 5.01 17.69 20.91 5.37 13.62 Raw Materials for Further Manufacturing 57.36 4.23 13.11 74.70 60.44 4.11 11.90 76.45 61.20 3.57 9.08 73.85 Wholly or Mainly Manufactured Goods 46.80 10.72 38.16 95.68 46.31 7.31 43.15 96.77 36.70 13.46 38.35 88.51 1.08 2.64 1.86 0.96 1.13 0,90 65.20 1.89 5.12 0.64 73.25 3.26 3.76 0.76 62.60 2.82 2.05 0.81 84.43 2.09 3.50 0.11 85.73 2.61 3.58 0.07 83.37 3.28 2.48 0.05 ource: Far East Year Book , 1941, p. 652. Note the omission of Hong Kong, which was the recipient of less than two percent of Manchuria's exports during 1935-37. See Table x.6. -35- fact is a natural reflection of the internal activ- ities in Manchoukuo, going on in the industrial, mining and construction fields. ...32 This change in proportions resulted first of all from the addi- tional acquisition of large amounts of iron, steel and machinery. But it also involved decreases in the importation of wheat flour because of the increased milling of domestic grains, increases in the importa- tion of raw cotton and raw jute as imports for the growing textile industry, etc. On the export side, the changes were less dramatic, but the exports of coal and pig iron decreased, e.g., apparently be- 33 cause they could be used to a greater extent in domestic production. The progress in industrialization was achieved by very substantial external resource commitments, which Japan made in the form of the previously mentioned import surpluses. During the Manchoukuo period, in fact, Japanese investments in the territory varied closely with its trade deficit. The Reorientation and Expansion of Taiwan's Trade The Manchurian experience resembled in many respects that of Taiwan during the initial phase of its colonization, when its economy and its trade were restructured to accommodate Japan's needs and interests. As indicated before, Taiwan's international trade was part of the foreign trade of China until the First Sino-Japanese War and part of the trade of the Japanese Empire thereafter. It has been studied and discussed in detail by Samuel P. S. Ho among others, in the context of 35 his work on the economic development of Taiwan. The following state- ments will be based mostly on this source. -36- During the pre-colonial period, Taiwan's trade grew rapidly until 1880 and fluctuated without any further gain until the outbreak of the First Sino-Japanese War, with setbacks especially during the Sino- French War of the early 1880s. Exports, whose volume apparently increased at close to 15 percent per annum during 1868-1880, consisted primarily of sugar, a traditional crop destined for China and Japan, and tea, a new crop shipped mostly to America, tea replacing sugar as the dominant export during those years. Rice also appeared as an important item, but its shipments were not fully recorded. Imports, whose volume increased at more than 10 percent per annum during the same period, consisted predominantly of opium from India and the Middle East and secondarily of textiles, initially from Britain and then from Japan. The relative importance of opium diminished while that of a growing variety of other consumer goods increased. During the entire period, Taiwan's trade tended to be fairly balanced, its growth driven by the expanding overseas markets for tea. After Taiwan's colonization by Japan, the regional pattern, volume and composition of its external trade all changed greatly. Within a decade, Japan replaced the Chinese mainland as the principal trade partner and retained this predominant position until the end of the period, as Table x. 8 makes clear. Yet the trade with China remained important whereas the trade with the rest of the world, widely dis- persed as it was, became less significant over time, especially since the First World War. Likewise within a decade of the takeover, the balance of Taiwan's total external trade and of that with Japan became 37 notably positive while the balance of its China trade turned negative. -37- Table x. 8 EAST ASIA'S SHARE IN TAIWAN'S EXTERNAL TRADE Unit: Percent of Exports/Imports Year J a Japan China East Asia Exports Imports Exports Imports Exports Imports 1897 14.2 22.6 66.9 45.1 81.1 67.7 1900 29.5 38.2 52.3 27.3 81.8 65.5 1905 56.4 55.3 20.6 22.1 77.0 77.4 1910 80.0 59.5 6.2 11.9 86.2 71.4 1913 75.7 70.2 5.4 12.5 81.1 82.7 1915 79.6 76.0 6.6 15.0 86.2 91.0 1919 80.0 58.6 7.2 20.9 87.2 79.5 1920 83.7 65.0 5.5 19.3 89.2 84.3 1925 81.8 69.7 10.4 17.5 92.2 87.2 1929 87.8 68.5 6.9 15.5 94.7 84.0 1930 90.6 73.2 4.4 14.0 95.0 87.2 1935 89.6 82.9 5.0 11.6 94.6 94.5 1939 86.0 87.5 11.8 9.0 97.8 96.5 1940 81.1 88.4 16.6 8.3 97.7 96.7 Source: Derived from Samuel P. S. Ho, 1 Iconomic Deve lopment of Taiwan, 1860-1970 . New Haven, CT: Yale University Press, 1978, pp. 392-393. .Including Korea. Including Manchuria at all times. -38- Taiwan's incorporation and integration into the Japanese Empire induced a rapid economic expansion and transformation which became evident in the changes of its territorial income and trade. The fol- lowing estimates of average annual growth rates indicate the adapta- T Q tion to Japan's pace: NDP in 1937 prices, 1911-35 4.3 percent GNE in 1934-36 prices, 1905-35 4.5 percent Export volume index, 1905-35 7.4 percent Import volume index, 1905-35 6.0 percent The share of external trade in Taiwan's gross national expenditure increased rapidly as a consequence, to more than 50 percent in 1935. After 1935, most aggregate indicators tended to stagnate or decline, thereby lowering the long run average growth rates until 1940 by perhaps one percent. At the same time, however, industrial production continued to spurt, as it did in Manchuria and in Korea, though with- out resulting in comparable balance of trade deficits. Japan's principal economic objective was to turn Taiwan into its primary source of sugar and a major source of rice, tropical fruits, and raw materials — rather than of tea, which continued to appeal to Chinese and Westerners instead. The effective pursuit of this goal, which involved the development of agricultural production and produc- tivity in those directions, of processing industries for those crops, 39 . and of an appropriate physical and social infrastructure, is ulti- mately evident in the composition of Taiwan's exports and imports during the colonial period. The data in Table x.9, which have been -39- Table x. 9 TAIWAN'S EXTERNAL TRADE BY CATEGORY Unit: Percent of Total Exports/Imports Period Food, processed Other consurap- Raw material and unprocessed tion goods for production Exp. Imp. Exp. Imp. Exp. Imp. Material for construction Exp. Imp. Machinery, equipment :,xp. Imp. 1896-00 76.8 32.9 18.7 39.5 4.3 19.0 0.2 8.1 0.0 0.5 1901-05 74.1 27.7 21.2 41.6 4.4 17.1 0.2 12.4 0.0 1.3 1906-10 80.3 22.8 14.9 35.5 4.6 19.4 0.2 20.1 0.0 2.2 1911-15 77.3 30.2 12.7 28.7 9.7 23.7 0.4 14.9 0.0 2.6 1916-20 77.7 29.8 8.3 24.4 12.9 30.0 0.9 10.6 0.1 5.2 1921-25 82.9 32.2 6.6 26.6 8.2 27.4 2.2 9.6 0.1 4.1 1926-30 84.6 28.5 6,9 28.7 6.8 28.2 1.6 9.2 0.1 5.5 1931-35 86.5 21.8 5.4 29.6 7.1 32.4 0.9 9.4 0.1 6.7 1936-38 89.1 24.0 5.0 28.9 4.7 26.9 1.0 13.4 0.3 6.8 Source: Toshiyuki Mizoguchi, "Foreign Trade in Taiwan and Korea under Japanese Rule," Hitotsubashi Journal of Economics , Vol. 14, No. 2 (February 1974), p. 40. -40- compiled and processed by Mizoguchi, show that exports consisted pre- dominantly and increasingly of foods (sugar, rice, and other products, in that order), which were destined mostly for Japan. Other consumer goods and raw materials for production (in particular alcohol) added relatively little to them. Exports of construction materials, machi- 40 nery and equipment remained insignificant throughout the period. Taiwan's imports consisted mostly of manufactured products, most of which came from Japan. The import shares of foods and of other consumer products (in particular textiles) remained relatively large and stable. The share of raw materials for production rose during the second decade because of the importation of agricultural inputs such as fertilizers, including bean cake from Manchuria. The share of construction material imports fluctuated, rising rapidly first when the infrastructure had to be developed during the first decade and again on the eve of the Second World War. The share of machinery imports increased more steadily but remained relatively small even during the 1930s. '^''" To reorient and develop Taiwan's economy and external trade as indicated, Japan committed substantial resources especially during the initial years of the colonial period. Taiwan's balance of trade defi- cit with Japan during the first decade no doubt understated the magni- tude of Japan's investment. Soon thereafter, however, this relation changed: Taiwan was an economic asset to Japan not only because it was a source of food and raw materials, but equally important, because Japan was able to obtain Taiwan's primary products without exchanging an equivalent value of manufacturing goods. Except -41- for the first decade of its occupation, Taiwan exported substantially more than it imported. From 1916 to 1944 Taiwan's export surplus (here defined in the conventional manner) as a share of its export averaged 26 percent. Because Taiwan's trade was mostly with Japan, the export surplus was essen- tially to Japan's advantage. The very large and persistent export surplus was made possible because in Taiwan the income distribution decision was largely in Japanese hands. The real wage in Taiwan was kept low, so total consumption as well as im- ports of consumer goods also remained low. Profit, on the other hand, was high. Part of the profit was reinvested in Taiwan, but much of it was trans- ferred to Japan. '+2 The empire-wide protection of agricultural products certainly enhanced this distributive effect, at the expense of the Japanese consumer. Korea's East Asia Trade Unlike the trade of Taiwan, Korea's external trade did not require much redirection toward Japan after 1910. Soon after the Meiji Restoration, Japan in 1876 pressured Korea into opening its borders and proceeded at once to pursue its commercial interests, in competi- tion and conflict first with the Souzereign China and then with Russia. By the time Japan resolved these conflicts by force and colonized Korea, the composition of trade and Japan's preponderance as a trade partner were already well established. Information on Japan's involve- ment in Korea's foreign trade during the pre-colonial era appears, e.g., in the decennial reports of the Chinese Maritime Customs for the treaty ports of Jenchuan (Chemulpo, now Inch 'on), Fusan (Pusan), and Yuensan (Wonsan) during 1882-91. The expansion and restructuring of this trade during the colonial period has been summarized by Paul W. Kuznets. His work will serve as one of the basic sources for the -42- following comments, together with Mizoguchi's previously cited article on the "Foreign Trade in Taiwan and Korea under Japanese Rule." During the triennium 1907-09, Japan accounted for close to 66 per- 46 cent of Korea's total trade. Table x.lO demonstrates that during the following three decades, its predominance increased, though it dominated Korea's exports more than its imports. Korea's trade with China, which consisted mostly of trade with Manchuria, developed on an unusual pattern that needs to be considered in the context of changes in the composition of trade. The share of exports to China fell until the raid-1920s and rose thereafter while the share of imports from China during the same periods first rose and then fell. Both changes are distorted by transit shipments (between Japan and Manchuria). The shares of exports to and imports from other countries both declined very rapidly, the former to insignificant levels by the end of World War I. The external trade of Korea thus appeared even more focused on the Japanese Empire than that of Taiwan and the one of Manchoukuo. Korea's integration into the Japanese Empire, like that of Taiwan, generated rates of growth of output and trade comparable to those of Japan. During the interval 1910/12 - 1939/41, Korea's net commodity product grew on the average at 3.9 percent per annum and the volume of its trade at 8.6 percent per annum. The trade ratio therefore increased rapidly as well and exceeded 50 percent during the 1930s. Unlike the growth of Taiwan, that of Korea occurred primarily in the non-agricultural sector, so that manufacturing plus raining increased their share in the net commodity product from 8.2 percent during -43- Table x. 10 EAST ASIA'S SHARE IN KOREA'S EXTERNAL TRADE Unit: Percent of Tj^t^l Exports/Imports^ Period Japan China Other Countries Exports Imports Exports Imports Exports Imports 1910-12 73.7 62.4 16.8 10.1 9.5 27.5 1914-16 79.9 67.5 13.0 12.9 7.1 19.6 1919-21 89.9 64.4 8.8 23.7 1.2 11.9 1924-26 93.1 68.0 6.6 24.3 0.3 7.7 1929-31 91.4 76.5 8.2 15.9 0.4 7.6 1934-36 87.7 84.8 11.6 10.8 0.7 4.4 1939-41 77.4 88.3 21.2 4.8 0.4 6.9 Source: Suh Sang-Chul, "Growth and Structural Changes in the Korean Economy Since 1910," tables 11-11 and 11-14, as quoted by Paul W. Kuznets, Economic Growth and Structure in the Republic of Korea . New Haven, CT: Yale University Press, 1977, p. 10. .Three-year averages based on current values. Including Manchuria and areas in North China occupied by Japan. -44- 1910/12 to 36.9 percent during 1939/41 while agriculture's share decreased from 84.6 percent to 49.6 percent. Changes in the composition of Korea's external trade, which also accelerated during the 1930s, reflected the changes in the structure of output, as Table x.ll indicates. Among the exports, the share of foods, processed and unprocessed, decreased while the shares of other consumer goods and of intermediate products both increased. Classi- fied according to the Brussels Convention, the same data depict a very substantial shift from raw materials to semi-finished and finished 48 manufactures. Among the imports, the share of machinery and equip- ment and the share of raw materials for production both rose while the share of other consumer goods fell. The share of food imports in- creased at first and decreased subsequently, like the share of imports from China. Varying imports of food grains from Manchuria, especially of millet, thus appear to explain both patterns. Food grain imports became necessary to cover at least in part the deficit in the food grain balance which the rapidly growing exports of rice to Japan caused after the First World War. Together with Taiwan, Korea served as the principal supplier of rice for Japan, but unlike Taiwan's output, Korea's production of rice could not be increased fast enough to provide an adequate surplus, which was extracted in the form of rent and taxes. Rural impoverishment and food crises as a consequence contributed to rural-urban migration within Korea as well 49 as to emigration to Japan and Manchuria. In addition to rice (and beans), Korea exported to Japan primarily an increasing variety of other raw materials and intermediate products^ -45- Table x. 11 KOREA'S EXTERNAL TRADE BY CATEGORY Unit: Percent of Tptal Exports/Imports Period Food, p: rocessed Other consump- Raw material Material for Mach linery, and unp: rocessed tion goods for production construction equi pment Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp. 1911-15 72.3 19.1 4.5 47.0 22.4 21.3 0.8 7.1 0.0 5.5 1916-20 68.4 18.5 4.7 44.2 26.4 24.7 0.5 6.2 0.0 6.4 1921-25 67.8 21.7 4.4 41.5 25.6 24.4 2.2 8.8 0.1 3.7 1926-30 66.4 24.7 6.3 36.9 25.1 26.3 1.6 6.5 0.2 5.7 1931-35 61.1 17.0 7.7 39.8 28.7 29.9 1.8 6.4 0.7 7.0 1936-38 49.3 14.6 15.0 38.9 32.5 28.1 1.5 7.7 1.7 10.8 Source: Toshiyuk: i Mizoguc ;hi, "Foreign Tr ade in Taiwan ai [id Korea under Japanese Rule," Hitotsub^ ashi Journal of Economics, Vol. 14, No. 2 (February 1974), , p. 40. -46- Exports of other consumer goods and especially of cotton textiles apparently went mostly to Manchuria, augmented by transit shipments from Japan. Conversely, Korea imported from Manchuria in addition to grains primarily raw materials for production (notably bean cake and raw silk). Japan provided mostly manufactured goods, which changed in composition gradually from consumer goods to producer goods, espe- cially during the 1930s. Throughout the colonial period, Korea experienced a balance of trade deficit which at times reached relatively large magnitudes. Until the later 1930s, however, its commodity account with Japan was fairly well balanced and even in surplus at times. The dispropor- tionate provision of services by Japan may have tipped the balance in the opposite direction. The trade deficits with China and the rest of the world clearly were not covered by their investments and had to be met by exports of specie and bullion as well as by remittances from Koreans residing abroad. Japanese investments may have been financed in part internally. Balance of payments deficits appear to have been covered before the 1920s by government transfers and during the 1930s by long term capital flows. Conclusion The Japanese began their modernization efforts under duress, at a time when the major powers of the time reached the Far East in their quest to open up and carve up the less developed areas of the world, imposing "unequal treaties" on Japan as well as on China. Unlike China and virtually every other country at that time, Japan responded -47- very effectively to this challenge. Within a generation, it had developed sufficiently through free trade, however manipulated, to emancipate itself from all restrictions on its sovereignty and to pur- sue instead openly protectionist and imperialist ambitions. Its integration of Taiwan, Korea, the Kwantung Leased Territory-SMR Zone and eventually Manchuria into the Japanese Empire and co-prosperity sphere accelerated the rates of dependent growth of output and trade in all of these territories to Japanese levels, thereby assuring the metropolis of food and raw material supplies (without payments prob- lems) as well as of markets for its not so competitive producer goods. The rest of China, which expanded and transformed its output and trade much less rapidly under an "unequal" free trade regime, also provided food and primary products but served in addition mostly as an outlet for cotton textiles and other consumer goods, with the opportunity to convert balance of trade surpluses into foreign exchange. The share of this China trade remained fairly stable while that of the colonial trade increased notably. As a result, East Asia's share of Japan's external trade, which became more and more coterminous with the Yen- bloc share, grew dramatically, especially during periods of imperial expansion. In evaluating this experience, Lockwood among others has argued that Japan and its dependencies would have fared as well or better if instead of following the European powers' examples of empire building, Japan had continued to pursue comparative advantage commercially, through essentially unmodified free trade. He stresses in particular that the Pacific War was an inevitable consequence of Japan's con- frontational strategy, that trade with East Asia was not so critical because Japan's comparative advantage did not depend on locational proximity or cultural affinity, and that commercial success in the East Asian market did not require political domination, whether for- mally through colonization or informally through participation in the treaty power system. The Pacific War no doubt was an exorbitant price, and a discus- sion of its inevitability goes beyond the scope of this paper. The assertion that Japan could have gone on trading after 1894 as it had done until then presumes that the rest of the world and in particular those principal powers which had colonized much of it were sufficiently free-trade oriented to accommodate Japan's evolving trade interests. Yet with few exceptions and not by choice, Japan in fact exported less to the more developed countries and their colonies than it imported from them, and it made slow progress in broadening the composition of its exports. It therefore had reasons to be concerned about payments problems which could constrain the pace of its growth as well as of its transformation. The contention that Japan could have traded as much or more in East Asia without becoming imperialistic presumes that China and Korea as well as the Western treaty powers would have responded appropriately without the use of force, which was not the case. In particular, China did not grant raost-f avored-nation status, which meant treaty power status, without military confrontation, and Russia, which had made great efforts to keep Japan out of the Northeast, gave up its -49- concessions in South Manchuria and its sphere of influence in Korea only after a lost war. Moreover, Japan's full-fledged treaty power status granted it equal access to the East Asian market but not necessarily the sought-after changes in trade, which were limited in particular by the slower pace of East Asia's "semi-autonomous" econom- ic development. Japan's resort to colonization and empire-wide protection appeared to be a solution to both problems. Political domination made it pos- sible to export not only consumer goods or capital or labor but the entire system — Americans nowadays might say: of property and agency rights — which created the environment for accelerated growth. Protec- tive tariffs added to the incentives to produce food and raw materials for the Japanese market and to use Japanese producer goods in the process, which thereby benefitted more extensively from economies of scale in production. Securing food supplies internally — apparently a Japanese fixation to this day — in turn limited the payments problems to less critical purchases abroad, at the expense of the Japanese con- sumer. Internalizing economic activities more generally helped to stabilize Japan's as well as its dependencies' growth, also at the cost of sacrificing some comparative advantage. Throughout its colonial period, Japan thus traded off improvements in efficiency for more rapid and more stable development, with notable success especially during the 1930s. The increases in production and 52 trade evidently benefitted the Japanese, no doubt more so as pro- ducers than as consumers. As a means to this end, the colonial development efforts may have had positive effects on the existential -50- conditions there as well, the colonizers' exactions notwithstanding. But the evidence is not uniformly positive. In addition to infra- structure generally, public health and basic education seem to have improved in all dependencies. Real wages increased in Taiwan by more 53 than one percent per annum until the late 1930s according to Ho. Real wages were much higher in Manchuria than in North China (and in Korea), accounting for the immigration from both regions, but fell 54 also during the inflation of the late 1930s. A similar decline is indicated for Korea according to Kuznets, who concludes generally that "... growth may not have brought substantial benefits to most Koreans during the colonial era ..." and that "... the average Korean did not benefit from industrialization and expansion of trade. ..." In comparison, average per capita consumption in China grew by 0.5 percent per annum during 1914/18 - 1931/36 according to Rawski ' s calculations or stagnated during the same interval as an implication of the Perkins and Yeh estimates, followed by the same kind of decline which is evident for the other parts of China during the late 1930s. The similarity of the magnitudes suggests that on the average, people in the colonized areas did not fare any worse and perhaps some- what better than those in the Republic, in spite of the impositions put on them. Cui bono? -51- Notes and References Hundred-Year Statistics of the Japanese Economy , compiled by the Statistics Department of the Bank of Japan, July 1966, pp. 32, 278-279. 2 William W. Lockwood, The Economic Development of Japan: Growth and Structural Change, 1868-1938 . Princeton, NJ: Princeton University Press, 1954, p. 336. 3 Ibid. , p. 325. 4 Mizoguchi Toshiyuki, "The Changing Pattern of Sino-Japanese Trade, 1884-1937," in The Japanese Informal Empire in China, 1895-1937 , edited by Peter Duus, Ramon H. Myers, and Mark R. Peattie. Princeton, NJ: Princeton University Press, 1989, p. 13. ^Ibid. ^Ibid. Hundred-Year Statistics of the Japanese Economy , pp. 290, 297. ^ Ibid. , p. 278. 9 Mizoguchi, p. 12. Note 7. Yu-kwei Cheng, Foreign Trade and Industrial Development of China . Washington, D.C.: University Press of Washington, D.C., 1956, pp. 48-49, 204. 12 Mizoguchi, pp. 17-27. 13 Derived from Hsiao Liang-lin. China's Foreign Trade Statistics, 1864-1949 . Cambridge, MA: Harvard University Press, 1974, pp. 274-275. 14 Thomas G. Rawski, Economic Growth in Prewar China . Berkeley, CA: University of California Press, 1989, p. 272. ^ ^Ibid. , p. 330. Peter Schran, "The Minor Significance of Commercial Relations Between the United States and China, 1850-1931," in America's China Trade in Historical Perspective , edited by Ernest R. May and John K. Fairbank. Cambridge, MA: Harvard University Press, 1986, p. 238. Derived from ibid, and Hsiao, pp. 24, 156, and Manchoukuo Year Book, 1934. -52- 1 ft Cheng, pp. 6, 19, 34, and Hsiao, pp. T- 19 Cheng, loc. cit. , and Hsiao, pp. 30-70, 20 See Table x.6. ; 21 Derived from Cheng, pp. 48-49. ^ ^anchuria Year Book, 1931 , pp. 192-229. 23 Kang Chao, The Economic Development of Manchuria: The Rise of a Frontier Economy . Michigan Papers in Chinese Studies, No. 43; Ann Arbor, MI: The University of Michigan Center for Chinese Studies, 1982. 24 Derived from ibid. , pp. 22-23. 25 Manchoukuo Year Book, 1942 , pp. 272, 313. Derived from Manchoukuo Year Book, 1934 , pp. 579-580. 27 Chao, pp. 14, 17. 28 Ibid. , p. 16. 29 Ibid. , pp. 22-26. 30 Manchuria Year Book, 1931 , pp. 192-211. •^^ Ibid. , pp. 212-229. 32 Manchoukuo Year Book, 1942 , p. 317. ^• ^Ibid. , pp. 318-319. 34 Nakagane Katsuji, "Manchoukuo and Economic Development," in The Japanese Informal Empire in China, 1895-1937 , p. 153. 35 Samuel P. S. Ho, Economic Development in Taiwan, 1860-1970 . New Haven, CT: Yale University Press, 1978. o /I Ibid. , pp. 13-16. •^^ Ibid. , pp. 392-393. 38 Derived from ibid. , p. 27. 39 See ibid. , chapters 3-6, for an analysis of the policies and their effects. 40 Ibid. , pp. 30-31. -53- Ibid. 42 Ibid. , pp. 31-32. Note 8 omitted. 43 China, Imperial Maritime Customs, Decennial Reports, 1882-91 . Shanghai, 1893. Appendix II, Korea: Decennial Reports, 1882-91, pp. xxxiv ff. 44 Paul W. Kuznets, Economic Growth and Structure In the Republic of Korea . New Haven, CT: Yale University Press, 1977, ch. 1. Toshiyuki Mizoguchi, "Foreign Trade in Taiwan and Korea under Japanese Rule," Hitotsubashi Journal of Economics , Vol. 14, No. 2 (February 1974), pp. 37-53. Kuznets, pp. 9-10. ^"^ Ibid. , pp. 10, 19. Ibid. , p. 12. 49 Ibid. , pp. 14, 17. Mizoguchi, pp. 40, 50. Lockwood, pp. 402-404. 52 Ibid. , pp. 144 ff., esp. p. 146. 53 Ho, p. 93. ^'' *Far East Year Book , 1941, pp. 850-851. Kuznets, pp. 22-23. Rawski, pp. 280, 341. D/351 WOnCE: Return op renew all Library Materlalsl TTie Minimum Fm for each Lost Book is $50.00. The person charging this material is responsible for its return to the library from which it was withdrawn on or before the Latest Date stamped below. Theft, mutilation, and underlining of books are reasons for discipli- nary action and may result in dismissal from the University. 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