When trade deficit data came out on Friday, we pointed to the amazing rise in US exports to China. It’s almost parabolic, and it should provide some comfort to those who think the US-China business relationship is purely a one-way street.
Photo: st. Louis fed
But it’s not just the US that’s benefiting from voracious demand from China.
Japan is too.
This chart from Citi’s Graeme McDonald shows machine tool orders from China to Japan.
It too is growing at a blistering pace.
But what’s really remarkable is why it’s growing so fast. It’s all thanks to one company.
Press reports suggest that one of the main drivers of the strength of orders last month was resurgent demand for machining centres for Apple-related work in China. We think the most geared names to this trend are Fanuc and Brother. In CY10, exports to China accounted for 26% of total Japanese made machine tool demand.
At the risk of indulging in overenthusiasm about globalization, the fact that an American company, which builds its products in China, is having a meaningful impact on the export fortunes of Japan is pretty remarkable.
And don’t think this is of trivial important, ultimately, to Japan.
Last month, Nomura’s Sean Darby made a big, bullish call on the Japanese robot makers, saying that as wages picked up in China and other manufacturing hubs, the need to import high tech equipment from long-ailing Japan would necessarily accelerate.
Between an export boom to China, and a population decline that could finally force wages higher, the end of Japan’s deflationary nightmare could be in sight.
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