Transcript lec.5

Economic Development of Japan
No.5 Meiji 4
Opening of New
Tokyo Stock
Exchange, 1897
Macroeconomy of Late Meiji (1890s-1900s)
Trade, Budget & Finance, Saving Mobilization
• Aggressive public spending continued for militarization and
industrialization, causing budget deficit and gold reserve loss.
• Cotton industry succeeded in import substitution. Trade
exhibited dual structure—exporting light industry goods to
Asia and importing machinery from the West.
• Yen initially floated down, but was fixed at $1=2 yen after
joining the gold standard in 1897.
• Banks and stock exchanges were set up, but main source of
saving remained self-finance and joint stock companies
within the private business sector.
• Japan relied relatively little on FDI. But foreign bonds were
issued to execute the Japan-Russia War, local public
investments and budget financing.
Government was relatively small
Meiji
Composition of Domestic Demand
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1988
1980
1970
1960
1954
1938
1930
1920
1910
1900
1888
Gov invt
Priv invt
Gov cons
Priv cons
Source: Ryoshin Minami, The Economic Development of Japan, 1986.
Tax Revenue Structure
Meiji
100%
Other
80%
Sugar tax
In dir e c t
t axe s
60%
Customs
duties
Liquor tax
40%
Other
Corp. tax
20%
Income tax
Land tax
Dir e c t
t axe s
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
0%
Source: Management and Coordination Agency, Historical Statistics of Japan, vol.3, Japan Statistical
Association, 1988, pp.268-269.
Meiji
PP.60-61
Exports by Commodity (%)
100
80
Other
Manufactured
Textile (incl. silk)
Food
Primary com.
60
40
20
1980s
1970s
1960s
1950s
1940s
1930s
1920s
1910s
1900s
1890s
1880s
1870s
0
Imports by Commodity (%)
100
Shifts in
Trade Structure
80
Other
Manufactured
Light industry
Primary com.
60
40
20
1980s
1970s
1960s
1950s
1930s
1920s
1910s
1900s
1890s
1880s
1870s
1940s
NA
0
Source: Ryoshin Minami, The Economic
Development of Japan, 1986.
Trade Structure in Meiji (incl. colonies)
• Exports to West--silk to US (60-70%) dominated
• Imports from West--machinery, steel, US raw cotton
• Exports to other areas--cotton products, light industry goods
(matches, umbrellas, clocks, glass products, lamp, knitted goods)
• Imports from other areas--foodstuff, Indian raw cotton
Trade content with developing areas & with colonies were similar
Export
100%
Import
100%
80%
80%
Taiwan, Korea, occupied
China
60%
60%
Developing areas
40%
40%
20%
20%
0%
0%
1892
1902
1912
Europe, US
1892
1902
1912
Source: Y.Yamamoto & K.Oku,
“Trade,” JEH vol.5, 1990.
Japan’s Trade Pattern
Early Meiji
Late Meiji
Europe, US
Europe, US
Machinery,
textile products
Tea, silk
Tea, silk
Japan
Machinery, raw
cotton (US)
Japan
Raw cotton
(India), food
Textile & light
manufacturing
Rest of Asia
Average Tariff Rate
Calculated as (tariff revenue)/(import value)
25
%
Meiji
20
1899 Restoration of
tariff rights
15
10
5
All commodities
Average of non-zero tariff commodities
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
1890
1880
1870
0
P.90
Exchange Rate Regime
Silver standard (float): until 1897 – Depreciation against Western
currencies; East Asia (Shanghai forex market) used silver
Gold standard (fix): 1897-1917 and 1930-31 – Adopting global
standard with reparation gold from China (at the initiative of Finance
Minister Matsukata)
Merits of gold standard
Exchange Rate (Dollar/Yen)
1.2
-Pride of joining the firstclass country club
-No exchange risk
-Ease in issuing foreign
bonds
1.0
0.8
0.6
0.4
Demerit?
Meiji
0.2
1940
1935
1930
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
0.0
-No more depreciation
P.103
G old R eserves
(In m illions of yen)
--Due to active public
spending, Japan faced BOP
pressure.
2500
H eld abroad
A t hom e
2000
1500
--Foreign bond issue can be
regarded as a financing
measure to avoid fiscal
belt-tightening.
1000
500
Meiji
1941
1939
1937
1935
1933
1931
1929
1927
1925
1923
1921
1919
1917
1915
1913
1911
1909
1907
1905
1903
0
WW1
--Meanwhile, Japan’s gold
reserves were on a
declining trend in late Meiji.
Reserves in Import Months
10
9
8
7
6
5
4
3
2
1
0
1941
1939
1937
1935
1933
1931
1929
1927
1925
1923
1921
1919
1917
1915
1913
1911
1909
1907
1905
1903
--Japan eventually solved
the BOP crisis not by tight
budget but through WW1
export boom.
Japan-China War (189495) & Reparation
• Japan fought and won a war against Qing
Dynasty of China over the control of Korea (1894-95).
• After the war, Japan received from China:
– Taiwan and Penghu Islands
– Liaodong Peninsula (immediately forced to return to China
under the pressure of Russia, Germany, France)
– Reparation of 365 million yen (4 times the annual budget)
• China borrowed from other countries and paid reparation in
sterling-denominated checks in London
• Japan held this amount in London as gold reserves
• This balance was used to issue convertible paper money in
Japan (establishment of gold exchange standard, 1897).
Special Account for Japan-China War Reparation
(Balance at end 1902)
Million yen
Revenue
Reparation from China
311.07
Compensation for return of LP
44.91
Interest etc.
8.53
TOTAL
364.51
Expenditure
Japan-China War expenditure (past)
78.96
Army buildup
56.80
Navy buildup
139.26
Yahata Steel Mill (see note)
0.58
Budget finance for 1897 (infra.)
3.21
Additional money for navy
30.00
Budget finance for 1898 (Taiwan)
12.00
Imperial family expense
20.00
Education
10.00
Natural disaster fund
10.00
Remaining balance
3.70
TOTAL
364.51
Percent
85.3%
12.3%
2.3%
100.0%
21.7%
15.6%
38.2%
0.2%
0.9%
8.2%
3.3%
5.5%
2.7%
2.7%
1.0%
100.0%
For
military
83.7%
Note: total budget for Yahata Steel Mill was 6.5 million yen, of which reparation covered 9%.
Japan-Russia War (1904-1905)
 Cause: influence over Korea and Manchuria (Northeast China).
Russia gained territorial & economic concessions and kept large
troops in Manchuria. Japan signed Japan-UK Alliance to deter Russia.
 When the war started, few thought Japan would win.
 To cover the war cost, Japan issued government bonds in London and
New York. At first there were no takers, but finally the deal was done.
 Battles were fought on land and at
sea. The fall of Russia’s Lushun
Fortress and the defeat of Russia’s
Baltic Fleet were decisive.
 Many were surprised that a nonWestern latecomer beat Whites.
 Russia paid no war reparation. The
Japanese government accepted this
Jap. army & navy
Major battles
because it needed to end the war
Main cities
asap to avoid fiscal crisis.
Main railroads
Saving
Ratios
Estimated Saving
Ratios
40%
35%
30%
Gross saving (%
of GNP)
25%
Net saving (% of
GNP)
20%
15%
Personal saving
(% of disp inc)
10%
5%
1980
1987
1900s
1970
1880s-90s
Meiji
1960
1950
1940
1930
1920
1910
1900
1890
0%
Dependence on Foreign saving
Dependence Investment
on Foreign
=(Imports-Exports)/Gross
Saving
=(Imports-Exports)/Gross Investment
20%
15%
10%
5%
0%
-5%
1980s
1970s
1960s
1950s
1940s
1930s
1920s
Source: Ryoshin Minami, The Economic
Development of Japan, 1986.
1910s
-10%
PP.92-93
Foreign saving
(bond issues)
Gov’t
Infrastructure
Public spending
Intra-sectoral financing
--Self finance
--Joint stock companies
--Mobilizing rich
merchants & producers
Tax
Agriculture
Industry
Banks
Not very
active
Savings and Investment Balance by Sector (In millions of yen)
1899-1902 1903-1907 1908-1912 1913-1917 1918-1922 1923-1927 1928-1932 1933-1937
Private farms
1
13
4
43
207
23
-12
222
121
120
159
146
175
171
240
197
657
450
523
500
402
414
580
358
62
123
-87
175
81
-290
631
931
Savings
Investment
180
118
310
187
212
299
752
577
1724
1643
858
1148
1498
867
2637
1706
Government
-59
-233
15
120
-146
-112
-626
-1162
24
83
-142
91
205
190
317
197
441
587
801
913
251
877
-298
864
5
-97
-68
338
143
-380
-6
-10
Savings
Investment
Non-farm private sector
Savings
Investment
External sector
Memorandum item:
Agricultural taxes
(% of non-farm gross invt)
104
115
154
166
290
291
188
145
42.0%
38.4%
28.0%
24.2%
19.4%
13.8%
9.0%
11.3%
Note: Prof. Juro Teranishi's estimates. Farms' S-I balance shows transfer of surpluses to the non-farm sector through the
financial system while agricultural taxes are transfer of surpluses through government budget.
Gross Savings (% of estimated GDP)
30%
25%
20%
Government
Non-farm private
Private farms
Prof. Teranishi’s
savings & investment
estimates expressed
in percent of GDP
15%
10%
5%
0%
-5%
1899-1902 1903-1907 1908-1912 1913-1917 1918-1922 1923-1927 1928-1932 1933-1937
Gross Investment (% of estimated GDP)
30%
25%
20%
Government
Non-farm private
Private farms
15%
10%
5%
0%
1899-1902 1903-1907 1908-1912 1913-1917 1918-1922 1923-1927 1928-1932 1933-1937
Note: GDP estimate by Prof.
Yamada, from Management and
Coordination Agency, Historical
Statistics of Japan, vol.3, Japan
Statistical Association, 1988,
pp.344-345.
A Comparison with Vietnam Today
(Nguyen Ngoc Son’s preliminary study)
% of GDP
35.0
30.0
Saving/GDP
25.0
20.0
Business
15.0
Household
--Saving & investment rates are higher than
Meiji
Japan (data problem?)
Tỷ lệ tiết kiệm trong GDP
--Business is a large saver & investor: internal
Tỷ lệ tiết kiệm nhà nước
saving
trong GDP mobilization of business sector (same as
Meiji
Japan)
Tỷ lệ tiết kiệm doanh
nghiệp trong GDP
10.0
5.0
Government
--Mobilization of foreign saving is large
Tỷ lệ tiết kiệm hộ gia đình
(nearly
10%
of GDP)
trong GDP trong
GDP
0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
15.0
45.0
35.0
Investment/GDP
5.0
30.0
25.0
20.0
15.0
10.0
5.0
Household
10.0
40.0
0.0
Business
Government
-5.0
Tỷ lệ đầu tư trong GDP
Tỷ lệ đầu tư nhà nước trong
GDP
1995
1996
1997
1998
1999
Tỷ lệ đầu tư DN trong GDP
Tỷ lệ đầu tư HGĐ trong GDP
Business
2000
2001
2002
2003
2004
(S-I)/GDP
-10.0
Household
Government
-15.0
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0.0
Chênh lệch S-I
Chênh lệch S-I của NN
Chênh lệch S -I của DN
Chênh lệch S -I của HGD
2005
Japanese Economy and Foreign Capital, 1858-1939
Simon Bytheway, 2005 (in Japanese, PhD dissertation at Tohoku Gakuin Univ.)
• After 1858, foreign trading firms came, but their
activities were confined to foreign settlement areas.
• Japan prohibited FDI until 1899 (revision of
commercial law). Even after that, policy and popular
opinion remained hostile to FDI.
• During Meiji period, foreign debt issue was much
larger than FDI
Share in foreign saving mobilization--gov’t bonds 82.5%,
municipal bonds 7.8%, corporate bonds 9.0%, FDI 0.7%
• However, FDI played important roles in some
industries (see below), esp. technology transfer
through patents.
Ex. light bulbs: bamboo filament  tungsten filament
Foreign Bond Issue of Meiji Government
Year
Location
1
2
3
4
5
6
7
8
1870
1873
1897
1899
1902
1904
1904
1905
9
1905
London
London
London
London
London
LN & NY
LN & NY
LN & NY
LN, NY,
Berlin
LN, NY,
Berlin, Paris
LN, Paris
Paris
London
10 1905
11 1907
12 1910
13 1910
Interest Maturity Amount
Purpose
rate
(years) (mil yen)
9.0%
13
4.88 Railroad construction
7.0%
25
11.71 Redemption of samurai salaries
5.0%
55
43.00 War
4.0%
55
97.63 RR, steel mill, telecom, war
5.0%
55
50.00 RR, steel mill, telecom, war
6.0%
7
97.63 War
6.0%
7
117.16 War
4.5%
20
292.89 War
4.5%
20
292.89 War, refinancing of domestic bonds
4.0%
25
244.08 Redemption of fiscal bonds
5.0%
4.0%
4.0%
40
60
60
224.55 Redemption of 6 & 7
174.15 Redemption of domestic bonds
107.39 Redemption of domestic bonds
--Foreign bond issue was made easier by adoption of the gold standard. Other reasons
were economic and legal maturity of Japan, and victories over China and Russia.
--Borrowing in later period was mainly for war and deficit refinancing.
Source: S.J.Bytheway (2005), pp.106-107
Central Government Bonds Outstanding
Billion yen
7
Foreign
6
Domestic
5
4
3
2
1
1930
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
1870
0
Source: Management and Coordination Agency, Historical Statistics of Japan, vol.3, Japan Statistical
Association, 1988, pp.278-279.
Central Government Bonds Outstanding
(Including Domestic & Foreign Bonds)
（％ of Estimated GDP)
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
1870
0%
Note: GDP estimate by Prof. Yamada, from Management and Coordination Agency, Historical Statistics of Japan,
vol.3, Japan Statistical Association, 1988, pp.344-345.
Foreign Bond Issues of Municipalities
Six cities borrowed abroad for building local infrastructure
1
2
3
4
5
6
7
8
9
10
11
12
Year
Issuing city
1899
1902
1903
1906
1907
1909
1909
1909
1909
1909
1912
1912
Kobe
Yokohama
Osaka
Tokyo
Yokohama
Yokohama
Osaka
Nagoya
Kyoto
Yokohama
Kyoto
Tokyo
Interest Maturity Amount
Purpose
rate
(years) (mil yen)
6.0%
36
0.25 Water works
6.0%
23
0.90 Water works
6.0%
78
3.09 Port facility
5.0%
30
14.58 Port facility and roads
6.0%
28
3.11 Port facility
6.0%
8
0.65 Gas factory
5.0%
29
30.22 Street trams, water works
5.0%
33
7.82 Water works
5.0%
29
17.55 Power supply, water works
5.0%
44
7.00 Water works
5.0%
20
1.95 Power supply, water works
5.0%
40
89.56 Street trams
In addition, many public/utility companies issued corporate bonds: RR companies,
banks, textile companies, power companies, etc.
Source: S.J.Bytheway (2005), pp.138-139
Major FDI Firms in Meiji Period
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
1893
1899
1900
1900
1901
1902
1903
1905
1906
1907
1907
1909
1910
1910
1910
1910
Foreign
ownshp
Standard Oil
Standard Oil (US)
100%
Nippon Electric (NEC)
Western Electric (US)
54%
Murai Brothers
American Tobacco (US)
50%
Rising Sun
S. Samuel & Co. (UK)
100%
Singer Mishin
Singer Sewing Machine (US)
100%
Osaka Gas
Mr A.N. Brady (US)
50%
Tokyo Electrical Train
Mr Malcolm (UK)
-Tokyo Electric
General Electric (US)
38%
Osaka Glass Manufacturing Private syndicate (UK, Bel, Fr) 56%
Nippon Steel
Armstrong & Vickers (UK)
50%
Imperial Spinning
J&P Coats (UK)
60%
Dunlop Rubber
Far East Dunlop (UK)
100%
Shibaura Manufacturing
General Electric (US)
24%
Nippon Okijenu & Asechiresu L'air Liquide (FR)
100%
Lever Brothers Amagasaki Lever & Brothers (UK)
100%
Nippon Chikuonki Trading
Mr. F.W. Hohn (US)
-Japanese name
Foreign partner
Remark
Later sold to Nippon Oil
Later under Sumitomo
State-owned in 1904
Oil business
Brady capital exits 1925
Later Toshiba, 1939
Weapon manufacturing
Later, 100% Japanese
Later Toshiba, 1939
Phonograph
FDI was relatively small (cf. China, India). However, it played leading roles in
tobacco, oil refining, electrical and general machinery, weapons, automobiles, glass,
(aluminum). Later, zaibatsu mostly took over FDI technology and production.
Source: S.J.Bytheway (2005), pp.166-167