|Conflict over Natural Resources in South-East Asia and the Pacific (United Nations University, 1990)|
|3. The Japanese economy and South-East Asia: the examples of the Asahan aluminium and Kawasaki Steel Projects|
With the oil crisis in the 1 970s, these industries became an economic shackle. Direct and indirect oil consumption for raw material-processing industries; petrochemicals, cement, nonferrous metals, steel, paper and pulp, and synthetic textiles was much higher than that in assembly industries like machinery and automobiles (Figure 3.1). TheJapanese industries were hard hit by the increase in the price of raw materials in the 19705. Japan relied almost exclusively on oil as its source of energy, and almost all of it had to be imported. Moreover, close to 70 per cent of the crude oil imported by Japan is converted into heavy oil, and heavy oil is supplied mainly to steel and other primary processing industries and to electric power utilities.
The Movement Overseas
Until the oil price hike, the strong competitiveness of Japanese goods was due to the supply of cheap energy from overseas, and the rapid growth of the Japanese economy was due to the expansion of energy- and raw material-intensive industries. The slump that plagued these industries was, therefore, structural. In the mid-1970s, these vulnerable industries began to be scrapped. By ordinance, the Japanese government subsidized companies, which then closed down factories to cut their losses. Other administrative measures were taken to encourage factory closures. Corporations involved in the vulnerable industries actively relocated their factories overseas.
Aluminium manufacture was the most typical raw material processing and energy-consuming industry. The aluminium industry obtained too per cent of the bauxite it needed from overseas sources, and the aluminium-smelting process consumed considerable amounts of electricity. Japan produced 2 million tons of aluminium ingots in 1972, making it the world's second largest aluminium producer, second only to the United States. By 1977 Japan's aluminium output had fallen to 1.2 million tons. Output dropped further, to 660,000 tons in 1981 and to 300,000 tons in 1983. Accordingly, Japan's aluminium imports rocketed. Japan invested heavily in the Asahan project in Indonesia and in the Amazon project in Brazil to import aluminium produced by its joint ventures. Japanese corporations also provided funds to US and European multinational corporations operating in Australia, securing agreements to import their products on a stable basis. This investment-import formula is called the 'development import' scheme.
The petrochemical industry was also a leading raw material processing industry promoting overseas investment. Japanese corporations have been constructing petrochemical complexes in oil producing or oil-processing countries such as Iran, Saudi Arabia, South Korea, and Singapore, where large-scale refineries have sufficient capacity to provide feedstock. (A Japanese petrochemical project in Iran has been suspended because of the Iranian revolution and the subsequent Iran-lraq war, which interrupted construction just before the complex was to be completed.) Ethylene, an intermediate product of the petrochemical process, is then shipped to Japan. However, the steel industry, although experiencing a recession, is an exception. Of the five steel majors, Kawasaki Steel Corporation, Japan's third largest steel company, is the only one favouring overseas investment. Kawasaki is eager for overseas investment because-with the exception of mills in Chiba and Mizushima-it does not have modern steel mills at home. Kawasaki transferred its primary processing sintering plant to Mindanao in the Philippines and is running the Tubarao project in Brazil. Nippon Steel CorporationJapan's top steel producer, with a monopolistic hold on the industry has so far not invested overseas. Even in its two major steel-mill construction projects in Kaohsiung, Taiwan, and Pohan, South Korea, Nippon Steel has invested only in engineering in the form of government-funded technical co-operation.
The steel industry has not invested heavily overseas for several reasons. First, steel production is virtually monopolized by five major companies: Nippon Steel, Nippon Kokan, Kawasaki Steel, Sumitomo Metal, and Kobe Steel. This makes it possible for monopoly prices on steel products to be maintained. Furthermore, since the monopoly of the five giants is not limited to production but extends to distribution involving wholesalers and export import trading firms, the big producers can limit the import of cheap steel products from abroad (especially from South Korea, Taiwan, and Brazil) despite high prices in Japan. Thus the steel industry differs from the aluminium and petrochemical industries. Although the import of crude steel products from these countries which was less than 100.000 tons per year until 1977-grew to 1.34 million tons in 1981, 1.89 million tons in 1982, and 2.4 million tons in 1983, the 1982 amount represents only 3.8 per cent of all crude steel products consumed that year.
Second, the demand for steel products is concentrated in major automobile, shipbuilding, and electrical companies. Both the suppliers of the five steel majors and the buyers, the majors themselves, are in a position where monopolistic prices can be maintained external to market mechanisms. Moreover, since in this supply-demand relationship the suppliers are much stronger, high prices can be imposed. Nippon Steel, which generally has the biggest share of the five majors, holds the chairmanship of Japan's two major economic organizations which influence general business and political decisions.
Thus the strong economic and political power of the steel industry is a factor enabling it to maintain monopolistic high prices and delay overseas investment, despite the effects of recession and the large gap between lowered production capacity and demand. Actual crude steel production was 99.95 million tons in 1982-below the 100 million ton level that has served the industry as a yardstick. Other reasons for the special situation of the steel industry are that the coke ratio used by Japan's steel industry is lower than that of other advanced industrial countries; its international competitive position is stronger because of its high productivity per worker; and since the first oil crisis of 1973, the industry has promoted energy conservation. Its energy dependency is also lower than oil-and electricity-dependent industries, such as aluminium and petrochemicals.
Emerging as the alternative leaders of industrial growth in the 1970s were the machinery and automobile industries. They were followed in the 1980s by new knowledge-and technology -intensive processing industries based on high technology. These industries filled the vacuum left by the relocation abroad of the primary processing industries. Industrial trends from the 1960s to the 1980s indicate that the new processing and assembling industries are recording higher productivity than the raw material processing industries. It is in these industries that Japanese products outperform West German and US commodities on the world market.
Where have all the scrapped industries gone? Japanese capital has been freed, and industrial relocation to the Third World countries has been encouraged by the government with generous subsidies. In September 1974, the Industrial Structure Council, an advisory body to the Ministry of International Trade and Industry, presented a policy recommendation entitled 'A Long Term Vision of Industrial Structure', covering the period 1976-85. This recommendation officially approved the trend already initiated by private business.