THE MACHINERY INDUSTRY OF JAPAN 2008

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2 THE MACHINERY INDUSTRY OF JAPAN 2008 CONTENTS 1. Recent Trends in the Machinery Industry 1-1. Production Trends Foreign Trade The Importance of the Machinery Sector in Japanese Industry 2-1. Scale of the Machinery Industry... 3 (1) Number of Operations... 3 (2) Employment... 4 (3) Shipments... 5 (4) Value Added... 6 (5) Exports and Imports... 7 (6) Investment in Plants and Equipment... 8 (7) Research and Development The Machinery Industry s Share of Net Domestic Product Recent Trends in the Establishment of New Factories and Plants Detailed Trends in the Machinery Industry 3-1. Production in the Machinery Industry (1) Production Index (2) Production Value Labor Indices for the Machinery Industry (1) Regular Employment Index (2) Wages and Salary (3) Hours Worked (4) Productivity Index Plants and Equipment Investment in the Machinery Industry (1) Investment Trends (2) Machinery Orders Research and Development in the Machinery Industry Exports of Machinery and Equipment Imports of Machinery and Equipment Foreign Direct Investment by the Machinery Industry Plant Exports Recent Trends in the Establishment of New Factories and Plants Outline of JMF 4-1. Organization and Activities Members... 39

3 1 Recent Trends in the Machinery Industry 1-1. Production Trends According to METI s Current Production Statistics Survey, in 2007 the index of industrial production rose 2.8% from the year earlier to (2005=100), increasing for the fifth consecutive year. Looking at the machinery industry, the production index for general machinery increased 2.6% from the previous year, electrical machinery fell 1.2%, information and communications electronics rose 1.9%, electronic parts and devices rose 11.2%, transport rose 5.5%, and the production index for precision instruments increased 6.3% from the year earlier. For general machinery, although production fell in such areas as agricultural machinery and molds and dies, production rose in areas such as construction, pumps and blowers, oil-hydraulic, boilers and power units, metalworking machinery, and textile machinery, resulting in the fifth consecutive year of increase for the general machinery category. Production of electrical machinery fell for the first time in five years as production of consumer electrical appliances, electric measuring, and other electrical machinery fell, even though production of electrical stationary machines showed an increase. Production of information and communications electronics rose for the third consecutive year as production of consumer electronic appliances increased, even though production of communication and electronic calculators decreased. For electronic parts and devices, the production index rose for the sixth consecutive Table 1-1.Production Index in the Machinery Industry (2005 = 100, % ) Industries Production Index Change(from previous year) ~ 6 Mining and manufacturing ( 2.2) General machinery ( 1.9) Electrical machinery (2.8) Information and ( 1.8) communication electronics Electronic parts and devices ( 5.5) Transport (1.1) (excl. ships and rolling stocks) Precision instruments (2.1) (Note ) ( )change from previous half year (Source ) METI[Current Production Statistics Survey] Industries Table 1-2.Production in the Machinery Industry ( billion yen, % ) Production Change(from previous year) ~ 6 General machinery 16, ( 55.5) Electrical machinery 7, ( 0.4) Information and communication electronics 7, (2.0) Electronic parts and devices 10, ( 4.1) Transport 36, (11.3) (excl. ships and rolling stocks) Precision instruments (14.7) Total 79, ( 10.3) (Note) ( )change from previous half year (Source) METI[Machinery Statistics] year due to increased production in all categories including integrated circuits, electronic parts, and semiconductor parts. Although production of trucks and motorcycles decreased, the production index for transport rose for the sixth consecutive year due to increased production of automobiles, automotive parts, and buses, among others. For precision instruments, although production of watches fell, production of measuring and optical appliances and instruments rose, resulting in the fifth consecutive year of increase. Entering 2008, the industrial production index in Japan was, on average, trending gently upward in the first half of 2008, but turned sharply down in the second half of the year. For the machinery industry in the first half of 2008, the production index rose 1.6% compared with the same period a year earlier (a decrease of 2.2% from the second half of 2007). The index for the general machinery category fell 2.2% compared to the same period a year earlier, electrical machinery rose 0.1%, information and communications electronics rose 2.7%, electronic parts and devices rose 6.8%, transport rose 7.4%, and precision instruments rose 5.9%. For the second half of 2008, the production index for the machinery industry declined mildly during the July to September period, but then turned to a sharp decline in the October to December period. Production of general machinery, electrical machinery, information and communications electronics, electronic parts and devices, and transport all decreased while production of precision instruments increased. According to METI s Machinery Statistics, total production for the machinery industry in 2007 amounted to 79,718 billion Foreign Trade Looking at the export and import trends of machinery and, total machinery exports in 2007 increased 9.5% over the year earlier to 56,613 billion, marking the sixth consecutive year of increase. Exports of general machinery and electrical machinery increased 12.4% and 5.4% respectively, each showing increases for six consecutive years. Transport exports increased for the eighth consecutive year, rising 14.2% over the Machineries Table 1-3.Exports of Machinery Exports ( billion yen, %) Change(from previous year) ~ 6 General machinery 16, ( 1.8) Electrical machinery 16, ( 11.7) Transport (incl. ships and rolling stocks) 20, ( 1.5) Precision instruments 2, ( 5.2) Total 56, ( 4.8) (Note 1)( )change from previous half year (Note 2) See table 3-21 for further information. (Note 3) The classification of machinery is in accordance with the classification for "The Basic Classification Index for The Survey Report on Trade of Japan" (Source) MOF[Trade Statistics] 1

4 Machineries Table 1-4.Imports of Machinery Imports ( billion yen, % ) Change(from previous year) ~ 6 General machinery 6, ( 1.7) Electrical machinery 9, ( 7.2) Transport 2, ( 3.7) (incl. ships and rolling stocks) Precision instruments 1, ( 8.1) Total 20, ( 5.1) (Note 1) ( )change from previous half year (Note 2) See table 3-25 for further information. (Note 3) The classification of machinery is in accordance with the classification for "The Basic Classification Index for The Survey Report on Trade of Japan" (Source) MOF[Trade Statistics] prior year, while exports of precision machinery fell 14.8%, the third consecutive year of decline. Exports of general machinery increased by double digits, even though exports of printing and bookbinding machinery and metalworking machinery fell from the year earlier. Many categories experienced increases including power units, electronic calculators, office machinery, pulp and paper-making machinery, and construction and mining machinery. In the electrical machinery category, exports of visual apparatus and audio apparatus decreased, but electronic parts, which includes semiconductors, as well as heavy electric and telecommunications apparatus showed increases. For transport, exports of automobiles, auto parts, aircraft, and ships all had double-digit increases. On the other hand, exports in the precision instruments category fell by double digits, as exports of scientific and optical and watches and clocks fell. Imports of machinery and in 2007 increased 5.4% from a year earlier to 20,239 billion, the eighth consecutive year of increase. By category, imports of general machinery rose 4.4%, electrical machinery rose 7.7%, and transport rose 12.1%, while precision instruments fell 8.8%. As a result, in 2007 the trade surplus for machinery and rose for the sixth consecutive year. In the first half of 2008, total exports of machinery and rose 2.0% from the same period a year earlier and fell 4.8% compared to the last half of Machinery imports for the first half of 2008 fell 3.3% compared to the same period a year earlier and 5.1% compared to the last half of Both exports and imports turned to a sharply downward trend in the second half of

5 2 The Importance of the Machinery Sector in Japanese Industry 2-1. Scale of the Machinery Industry (1)Number of Operations According to METI s industrial statistics, at the end of 2007, manufacturing operations with four or more employees numbered 258,232, representing a decrease of 0.1%, or 311 plants since the end of The number of operations belonging to the machinery industry at the end of 2007 was 70,627, an increase of 1.4%, or 958 establishments since the end of Machinery industry plants made up 27.4% of all manufacturing operations, up 0.5 points from the end of Breaking down the machinery industry plants by sector, general machinery, with its large number of small and medium-sized enterprises, accounted for the most plants with 33,955 (13.1% of all manufacturing operations), followed by the transport sector with 12,426 plants (4.8%), the electrical machinery sector with 11,932 plants (4.6%), the electronic parts and devices sector with 5,767 plants (2.2%), precision instruments with 4,254 plants (1.6%), and information and communications with 2,293 plants (0.9%). J S I C code no. Industries Table 2-1.Number of Operations Number of operations Number of operations Change (%) Weight (%) Number of operations Change (%) Weight (%) Total(Manufacturing) 276, , , Manufacture of food 34,196 32, , Manufacture of beverages, tobacco and feed 4,869 4, , Manufacture of textile mill products, except 8,167 7, , apparel and other finished products made from fabrics and similar materials 12 Manufacture of apparel and other finished 14,915 13, , product made from fabrics and similar materials 13 Manufacture of lumber and wood products 9,541 8, , except furniture 14 Manufacture of furniture and fixtures 9,564 8, , Manufacture of pulp, paper and paper products 7,894 7, , Printing and allied industries 17,919 16, , Manufacture of chemical and allied products 4,882 4, , Manufacture of petroleum and coal products Manufacture of plastic products 16,616 15, , Manufacture of rubber products 3,436 3, , Manufacture of leather tanning, and leather 2,434 2, , products, and fur skins 22 Manufacture of ceramic, stone and clay 14,013 13, , products 23 Manufacture of iron and steel 4,564 4, , Manufacture of non-ferrous metals and 3,049 2, , products 25 Manufacture of fabricated metal 36,217 33, , Manufacture of general machinery 35,338 33, , Manufacture of electrical machinery 12,388 11, , Manufacture of information and communication 2,368 2, , electronics 29 Manufacture of electronic parts and devices 5,997 5, , Manufacture of transportation 12,420 12, , (incl. 302 manufacture of railroad and parts, and 303 shipbuilding and repairing, and marine engines.) 31 Manufacture of precision instruments and machinery 4,462 4, , Total of machinery industry(26,27,28,29,30,31) 72,973 69, , Miscellaneous manufacturing industries 10,486 9, , (Note 1) Operations with 4 or more employees (Note 2) JSIC means the Japan Standard Industrial Classification (Source) METI[Census of Manufactures(Outline printings)2007] 3

6 (2)Employment At the end of 2007 there were 8,518,545 people employed in manufacturing operations with four or more employees. This represented a 3.6% increase (293,103 jobs) from the year earlier. Employment in the machinery industry was 3,616,268, an increase of 5.0% or 170,761 people from the previous year. The machinery industry accounted for 42.5% of all manufacturing employment, increasing 0.6 points from the year earlier. By sector, the general machinery sector employed the most people with 1,063,957 (12.5% of total employment in all manufacturing operations), followed by transport with 1,050,334 (12.3%), electrical machinery with 581,924 (6.8%), electronic parts and devices with 528,095 (6.2%), information and communications with 231,485 (2.7%), and precision instruments with 160,473 (1.9%). J S I C code no. Industries Table 2-2.Number of Employees Number of employees Number of employees Change (%) Weight (%) Number of employees Change (%) Weight (%) Total ( Manufacturing ) 8,159,364 8,225, ,518, Manufacture of food 1,104,292 1,093, ,135, Manufacture of beverages, tobacco and feed 103, , , Manufacture of textile mill products, except 136, , , apparel and other finished products made from fabrics and similar materials 12 Manufacture of apparel and other finished 243, , , product made from fabrics and similar materials 13 Manufacture of lumber and wood products 126, , , except furniture 14 Manufacture of furniture and fixtures 129, , , Manufacture of pulp, paper and paper products 210, , , Printing and allied industries 340, , , Manufacture of chemical and allied products 342, , , Manufacture of petroleum and coal products 23,824 23, , Manufacture of plastic products 436, , , Manufacture of rubber products 124, , , Manufacture of leather tanning, and leather 31,972 29, , products, and fur skins 22 Manufacture of ceramic, stone and clay 293, , , products 23 Manufacture of iron and steel 213, , , Manufacture of non-ferrous metals and 132, , , products 25 Manufacture of fabricated metal 657, , , Manufacture of general machinery 983,449 1,014, ,063, Manufacture of electrical machinery 559, , , Manufacture of information and communication 205, , , electronics 29 Manufacture of electronic parts and devices 492, , , Manufacture of transportation 944, , ,050, ( incl. 302 manufacture of railroad and parts, and 303 shipbuilding and repairing, and marine engines.) 31 Manufacture of precision instruments and 151, , , machinery Total of machinery industry ( 26,27,28,29,30,31) 3,336,245 3,445, ,616, Miscellaneous manufacturing industries 171, , , (Note) Operations with 4 or more employees (Source) METI[Census of Manufactures(Outline printings)2007] 4

7 (3)Shipments In 2007, shipments for all manufacturing operations with four or more employees amounted to 336,756,635 million, an increase of 7.0% or 21,922,015 million from the previous year. Machinery industry shipments were 159,784,011 million, an increase of 7.7% or 11,380,599 million over Machinery industry shipments accounted for 47.4% of all manufacturing shipments, up 0.3 points from the year earlier. By sector, shipments for transport led the way with 63,910,025 million (19.0% of total manufacturing shipments), followed by general machinery with 36,273,371 million (10.8%), electrical machinery with 21,065,597 million (6.3%), electronic parts and devices with 20,935,923 million (6.2%), information and communications with 13,324,997 million (4.0%), and precision instruments with 4,274,098 million (1.3%). Table 2-3.Shipments (million yen) J S I C code no. Industries Shipments Shipments Change (%) Weight (%) Shipments Change (%) Weight (%) Total(Manufacturing) 296,241, ,834, ,756, Manufacture of food 22,677,541 22,673, ,196, Manufacture of beverages, tobacco and feed 9,665,997 9,596, ,243, Manufacture of textile mill products, except 2,231,736 2,181, ,216, apparel and other finished products made from fabrics and similar materials 12 Manufacture of apparel and other finished 2,108,709 2,008, ,076, product made from fabrics and similar materials 13 Manufacture of lumber and wood products 2,497,913 2,502, ,709, except furniture 14 Manufacture of furniture and fixtures 2,161,703 2,157, ,270, Manufacture of pulp, paper and paper products 7,089,182 7,201, ,659, Printing and allied industries 6,945,444 6,855, ,982, Manufacture of chemical and allied products 25,027,125 26,199, ,293, Manufacture of petroleum and coal products 13,429,286 15,682, ,701, Manufacture of plastic products 10,905,871 11,411, ,398, Manufacture of rubber products 3,098,894 3,295, ,534, Manufacture of leather tanning, and leather 477, , , products, and fur skins 22 Manufacture of ceramic, stone and clay 7,480,109 7,756, ,492, products 23 Manufacture of iron and steel 16,896,431 18,472, ,191, Manufacture of non-ferrous metals and 6,711,626 9,016, ,770, products 25 Manufacture of fabricated metal 14,015,901 14,451, ,188, Manufacture of general machinery 31,210,883 33,331, ,273, Manufacture of electrical machinery 19,028,503 19,663, ,065, Manufacture of information and communication 11,759,653 12,495, ,324, electronics 29 Manufacture of electronic parts and devices 18,720,153 19,004, ,935, Manufacture of transportation 53,999,911 59,835, ,910, (incl. 302 manufacture of railroad and parts, and 303 shipbuilding and repairing, and marine engines.) 31 Manufacture of precision instruments and 3,784,716 4,073, ,274, machinery Total of machinery industry(26,27,28,29,30,31) 138,503, ,403, ,784, Miscellaneous manufacturing industries 4,316,743 4,501, ,545, (Note 1) Operations with 4 or more employees (Note 2) The data of the past correction was revised. (Source) METI[Census of Manufactures(Outline printings)2007] 5

8 (4)Value Added In 2007, value added for all manufacturing operations with four or more employees amounted to 108,656,445 million, up 1.0% or 1,058,294 million from Machinery industry value added came to 50,300,400 million, an increase of 3.3% or 1,616,499 million from the previous year. Value added for the machinery industry accounted for 46.3% of value added for all manufacturing operations, increasing 1.1 points from the year earlier. By sector, transport led the way with 17,690,628 million in value added (16.3% of the value added for all manufacturing operations), followed by general machinery with 13,259,449 million (12.2%), electronic parts and devices with 6,999,918 million (6.4%), electrical machinery with 6,858,731 million (6.3%), information and communications with 3,668,118 million (3.4%), and precision instruments with 1,823,556 million (1.7%). Table 2-4.Value Added (million yen) J S I C code no. Industries Value added Value added Change (%) Weight (%) Value added Change (%) Weight (%) Total ( Manufacturing ) 104,414, ,598, ,656, Manufacture of food 8,528,795 8,562, ,718, Manufacture of beverages, tobacco and feed 2,929,232 2,945, ,024, Manufacture of textile mill products, except 963, , , apparel and other finished products made from fabrics and similar materials 12 Manufacture of apparel and other finished 1,000, , , product made from fabrics and similar materials 13 Manufacture of lumber and wood products 930, , , except furniture 14 Manufacture of furniture and fixtures 940, , , Manufacture of pulp, paper and paper products 2,603,442 2,490, ,450, Printing and allied industries 3,274,618 3,182, ,091, Manufacture of chemical and allied products 11,173,349 10,994, ,801, Manufacture of petroleum and coal products 805, , , Manufacture of plastic products 4,428,305 4,399, ,515, Manufacture of rubber products 1,371,379 1,407, ,423, Manufacture of leather tanning, and leather 187, , , products, and fur skins 22 Manufacture of ceramic, stone and clay 3,692,329 3,847, ,895, products 23 Manufacture of iron and steel 6,189,883 5,961, ,545, Manufacture of non-ferrous metals and 1,890,378 2,779, ,575, products 25 Manufacture of fabricated metal 6,044,493 6,037, ,980, Manufacture of general machinery 12,132,670 12,919, ,259, Manufacture of electrical machinery 6,635,542 6,586, ,858, Manufacture of information and communication 3,239,993 3,585, ,668, electronics 29 Manufacture of electronic parts and devices 6,892,067 6,977, ,999, Manufacture of transportation 15,136,382 16,800, ,690, (incl. 302 manufacture of railroad and parts, and 303 shipbuilding and repairing, and marine engines.) 31 Manufacture of precision instruments and 1,655,006 1,814, ,823, machinery Total of machinery industry(26,27,28,29,30,31) 45,691,660 48,683, ,300, Miscellaneous manufacturing industries 1,769,494 1,742, ,754, (Note 1) Operations with 4 or more employees (Note 2) The data of the past correction was revised. (Note 3) For value added for establishments with 29 or fewer employees, gross value added was used. (Source) METI[Census of Manufactures(Outline printings)2007] 6

9 (5)Exports and Imports According to MOF s Trade Statistics, Japanese exports (yen-based) for 2007 amounted to 83,931,438 million, representing an 11.5% increase from the previous year. Machinery and exports were 56,613,644 million, a similar 9.5% increase. However, machinery and exports made up 67.5% of all exports by value (general machinery claimed 19.8%, electrical machinery 20.2%, transport 24.8%, and precision instruments 2.6%), down 1.2 points from the previous year. Japanese imports (yen-based) for 2007 amounted to 73,135,920 million, an 8.6% increase from the previous year. Machinery and imports were 20,239,105 million, a 5.4% increase. However, machinery and imports made up 27.7% of all imports by value, a decrease of 0.8 points from As a result, the trade surplus for 2007 amounted to 10,795,518 million, increasing 36.6% from the previous year. The trade surplus for the machinery industry alone rose 12.0% in 2007 to 36,374,539 million. Note: 2007 dollar-based Japanese exports came to $711,705,571 thousand, a 10.0% increase from the previous year. Of this amount, machinery and exports were $480,061,426 thousand, an 8.0% increase over dollar-based Japanese imports came to $620,163,826 thousand, a 7.1% increase from the previous year. Of this amount, machinery and imports were $171,619,647 thousand, an increase of 3.9% over Table 2-5.Machinery & Equipment Exports(yen base) Commodity (million yen) 07/06 Weight (%) (%) Grand total 65,656,544 75,246,173 83,931, Foodstuff 318, , , Raw materials 742, ,675 1,046, Mineral fuels 473, ,881 1,026, Chemicals 5,848,037 6,793,864 7,745, Machinery & 45,678,887 51,694,452 56,613, General machinery 13,352,357 14,799,978 16,631, Electrical machinery 14,549,156 16,075,687 16,949, Transport 15,197,299 18,243,616 20,839, Railroad 120,224 98,914 74, Motor vehicles 9,928,760 12,299,549 14,316, Ships 1,302,452 1,635,513 1,823, Precision instruments 2,580,075 2,575,171 2,193, Manufactures goods 7,396,776 8,673,824 9,876, Iron & steel products 3,036,811 3,485,138 4,042, Nonferrous metals 800,294 1,249,620 1,554, Manufactures of metals 932,763 1,048,511 1,121, Non- metallic mineral ware 762, , , (Source) MOF[Trade Statistics] Table2-6. The weight of the machinery exports(2007) (Billion yen) Table 2-7.Machinery & Equipment Imports (yen base) Commodity (million yen) 07/06 Weight (%) (%) Grand total 56,949,392 67,344,293 73,135, Foodstuffs 5,558,823 5,709,641 6,040, Raw materials 3,505,238 4,733,304 5,670, Ore of nonferrous 996,280 1,671,169 2,136, Iron ore and concentrates 615, ,911 1,037, Mineral fuels 14,559,732 18,656,553 20,206, Petroleum 8,823,323 11,535,082 12,278, Petroleum products 1,477,669 1,866,751 1,981, LNG 1,985,329 2,659,474 3,140, Coal 1,512,826 1,611,924 1,740, Machinery & 16,814,687 19,206,130 20,239, Chemicals 4,321,230 4,909,332 5,471, Manufactures goods 5,416,797 6,554,228 7,409, Iron and steel products 798, , , Nonferrous metals 1,461,655 2,162,163 2,618, Manufactures of metals 724, , , (Source) MOF[Trade Statistics] Table 2-8 The weight of the machinery imports(2007) (Billion yen) 7

10 Table 2-9.Machinery & Equipment Exports(dollar base) (thousand dollar) Commodity /06 Weight (%) (%) Grand total 598,837, ,278, ,705, Foodstuff 2,908,117 3,079,647 3,536, Raw materials 6,769,546 7,739,140 8,873, Mineral fuels 4,316,381 5,547,363 8,703, Chemicals 53,338,535 58,441,841 65,677, Machinery & 416,626, ,683, ,061, General machinery 121,783, ,311, ,027, Electrical machinery 132,699, ,285, ,727, Transport 138,610, ,934, ,708, Railroad 1,096, , , Motor vehicles 90,557, ,802, ,402, Ships 11,879,351 14,068,929 15,465, Precision instruments 23,532,242 22,152,009 18,597, Manufactures goods 67,464,210 74,613,540 83,745, Iron & steel products 27,698,021 29,979,682 34,277, Nonferrous metals 7,299,289 10,749,419 13,182, Manufactures of metals 8,507,506 9,019,449 9,512, Non- metallic mineral ware 6,955,618 7,405,170 8,025, (Source) MOF[Trade Statistics] Table 2-10.Machinery & Equipment Imports(dollar base) (thousand dollar) Commodity /06 Weight (%) (%) Grand total 519,421, ,305, ,163, Foodstuffs 50,700,684 49,115,191 51,223, Raw materials 31,970,430 40,716,594 48,081, Ore of nonferrous 9,086,830 14,375,647 18,114, Iron ore and concentrates 5,616,098 7,173,428 8,797, Mineral fuels 132,795, ,486, ,339, Petroleum 80,475,401 99,226, ,119, Petroleum products 13,477,463 16,058,073 16,803, LNG 17,078,099 22,877,196 26,628, Coal 13,798,121 13,866,013 14,758, Machinery & 153,362, ,214, ,619, Chemicals 39,412,897 42,230,813 46,393, Manufactures goods 49,405,299 56,380,456 62,829, Iron and steel products 7,278,493 6,521,738 8,325, Nonferrous metals 13,331,403 18,599,252 22,207, Manufactures of metals 6,603,448 7,642,202 8,444, (Source) MOF[Trade Statistics] (6)Investment in Plants and Equipment According to the survey on planned capital spending compiled by the Development Bank of Japan to assess investment trends, based on firms replying to both fiscal 2006 and fiscal 2007 surveys, total investment in plants and in fiscal 2007 amounted to 22,416.8 billion (construction base), an increase of 7.7% over the previous fiscal year. Among these enterprises, the manufacturing sector spent 9,185.7 billion in total, a 6.6% increase from the prior year, while the non-manufacturing sector spent 13,231.1 billion, an 8.5% increase. Investment by manufacturing represented 41.0% of total investment in plants and while the non-manufacturing sector accounted for 59.0%. For the principal industrial sectors, the general machinery sector increased its investment by 6.9% in fiscal 2007, while sectors such as electrical machinery (8.3%), transport (1.4%), precision instruments (15.0%), chemicals (9.5%), iron & steel (7.8%), electric power (26.2%), and construction (7.2%) all increased as well. On the other hand, investment in sectors such as petroleum (-20.2%), telecommunications/information (-4.8%), leasing (-7.0%), and wholesale/retail (-64.1%) decreased. Overall, investment in plants and in the four principal machinery sectors increased 5.5% in fiscal The share of fiscal 2007 total investment in plants and held by the various sectors is as follows: leasing 12.2%, telecommunications/information 10.6%, electric power 9.9%, electrical machinery 9.1%, transport 8.5%, chemicals 5.0%, general machinery 4.1%, iron & steel 3.6%, and precision instruments 0.8%. Together, the four major machinery industries accounted for 22.5% of the total, an increase of 0.4 points from the year earlier. (7)Research and Development According to the MIC s survey on scientific and technological research, research expenditures by Japanese industry for fiscal 2007 grew by 3.8% from the year earlier to 13,828.7 billion, increasing for the eighth consecutive year. The manufacturing sector invested 88.1% of the total or 12,179.6 billion. The machinery industry spent 8,486.6 billion on research, which is 61.4% of the total amount spent by Japanese industry. The number of researchers in 2007 was 619,835 in all industries, 88.7% or 549,506 of whom were in the manufacturing sector. The machinery industry accounted for 61.0% of the total for Japanese industry, employing 378,078 researchers. 8

11 Table 2-11.Investment in Plants and Equipment by Sector (100 million yen, %) Sector Change Investment Change Weight F.Y.2005 /2004 F.Y.2006 / 2005 F.Y.2006 F.Y.2007 F.Y.2007 / 2006 F.Y.2007 Total , , Manufacturing ,197 91, Machinery industry ,761 50, General machinery ,588 9, Electric machinery ,833 20, Transportation ,785 19, Precision machinery ,555 1, Chemicals ,278 11, Petroleum ,159 2, Iron & steel ,455 8, Other manufacturing ,542 19, Non-manufacturing , , Electric power ,536 22, Telecom. & information ,839 23, Leasing ,407 27, Construction ,029 2, Wholesale & retail ,741 3, Other non-manufacturing ,395 53, (Source) The Development Bank of Japan[Survey on Planned Capital Spending, June 2008] Table 2-12 Weight of Investment in Plants and Equipment by Sector (Source) The Development Bank of Japan[Investment in Plants and Equipment Research Report, June 2008] Table 2-13.Research and Development in Machinery Industry(F. Y. 2007) Sector Companies performing Expenditure on R & D Researchers Number of companies Weight in total companies (%) Total (100 million yen) Weight (%) Weight in sales(%) Total Weight (%) Total 22, , , Manufacturing industry 18, , , Machinery industry 6, , , General machinery 2, , , Electrical machinery 1, , , Information and communication , , electronics Electronic parts and devices , , Transport s , , (incl. ships and rolling stocks) Other manufacturing industries 11, , , Non-manufacturing industry 3, , , (Note) (Source) Statistics Bureau of MIC[Report on Survey of Research and Development 2008] 2-2. The Machinery Industry s Share of Net Domestic Product In 2007, the machinery industry s net domestic product amounted to 39,570.6 billion or 9.4% of NDP for all of Japanese industry, unchanged from This figure also amounted to 43.0% of the total for manufacturing, an increase of 0.2 points from the year earlier. By machinery sector, general machinery had 11,512.2 billion in net domestic product, or 12.5% of the total for manufacturing, while electrical machinery had 12,987.8 billion (14.1%), transport had 13,441.4 billion (14.6%), and precision instruments had 1,629.2 billion (1.8%). 9

12 Classification of economic activities Table 2-14.The Machinery Industry s Share of Net Domestic Product Amount Amount Amount Share of total (Nominal, billion yen, %) Share of manufacturing 1. Industries 375, , , (1)Agriculture, forestry and fishing 5, , , (2)Mining (3)Manufacturing 88, , , Food products and beverages 11, , , Textiles Pulp, paper and paper products 2, , , Chemicals 6, , , Petroleum and coal products 5, , , Non-metallic mineral products 2, , , Basic metal 7, , , Fabricated metal products 4, , , [9~12 Machinery industry] 35, , , General machinery 9, , , Electrical machinery, and supplies 12, , , Transport 11, , , ( incl. ships and railroad ) 12. Precision instruments 1, , , Others 12, , , (4)Construction 26, , , (5)Electricity,gas and water supply 6, , , (6)Wholesale and retail trade 62, , , (7)Finance and insurance 31, , , (8)Real estate 39, , , (9)Transport and communications 26, , , (10)Service activities 86, , , Producers of government services 31, , , (1)Electricity, gas and water supply (2)Service activities 10, , , (3)Public administration 20, , , Producers of private non-profit services to households 8, , , (1)Service activities 8, , , Sub-total 416, , , Taxes and duties on imports 4, , ,711.7 Other 3, , ,769.6 Imputed bank service charge 24, , ,609.6 Grand total 393, , ,115.7 (Source) Economic and Social Research Institute, Cabinet Office[National Accounts] 2-3. Trends in the Establishment of New Factories In 2007, the number of new factories built was 1,791, an increase of 0.5% or 9 plants over the 1,782 established in The total area of new factories was 2,741 hectares (1 hectare=10,000 sq. meters), an increase of 15.9% or 376 hectares from the 2,365 hectares utilized in Both figures have increased for five consecutive years. By machinery sector, the transport sector established 206 new plants in 2007, a substantial 34.6% increase over the 153 plants established in These plants covered 522 hectares, much greater (59.1%) than the 328 hectares used by new plants in The area covered by new plants in the general machinery sector increased 47.5% from 339 hectares in 2006 to 500 hectares in However, the number of new plants in this sector fell 7.5% from 320 in 2006 to 296 in For the electrical machinery sector, both the number of plants and the area covered continued to decline. For the electronic parts and devices sector, both the number of plants and the area covered decreased from the previous year, after increasing previously. Table Trends in the Establishment of New Factories and Plants Change(%) 2007/2006 Number 1,302 1,544 1,782 1, Area(ha) 1,579 2,298 2,365 2, (Note 1) 1. Lands of 1,000 m2 or over, newly acquired or leased, for the purpose of constructing factories, plants or business sites for manufacturing, electricity(excluding hydroelectric or geothermal power plants), gas or heat supply business ha = 10,000 m2 (Note 2) See table 3-34 for further information. (Source) METI[2007 Survey of New Locations for Factories and Plants] 10

13 3 Detailed Trends in the Machinery Industry 3-1. Production in the Machinery Industry (1)Production Index According to METI s Current Production Statistics Survey, the index of industrial production of Japan in 2007 increased 2.8% from the previous year to (2005=100), rising for the fifth consecutive year. 1 General Machinery In 2007, the production index for general machinery increased 2.6% from the previous year to 109.2, the fifth consecutive year of increase. Looking at the types of machinery, the production index for construction machinery increased 8.5%, the fifth consecutive year of increase, due to increased production of shovel-type excavators, construction cranes, and site finishing machinery. The production index for boilers and power units rose 7.6%, the fourth consecutive increase, due to increased production of boiler parts, water-pipe boilers, internal combustion engines, and steam turbine parts. The production index for chemical machinery rose 14.7%, the first increase in three years, due to increased production of reactor and dust collection. For textile machinery, the production index rose 13.7%, the third consecutive year of increase, due to increased production of knitting machines and looms. The production index for fans, pumps, and hydraulic and pneumatic machinery rose 2.0%, the fifth consecutive year of increase, due to increased production of hydraulic and pneumatic, pumps, and compressors. For agricultural machinery, although production of power cultivators increased, production of combines, wheel tractors, and agricultural drying fell, resulting in a 9.7% decline, the first decrease in six years. Although production of playback robots increased, the production index for industrial robots fell 4.0%, the first decrease in five years, due to decreased production of NC robots. 2 Electrical Machinery In 2007, the production index for electrical machinery fell 1.2% to Looking at the types of machinery, the production index for batteries increased 6.8%, the sixth consecutive year of increase, in spite of decreased production of lead storage batteries. Production of large storage lithium ion batteries, designed for products such as cell phones and PCs, increased. In the category of stationary electrical, the production index rose for the second consecutive year, this time by 7.9%. Although production of standard transformers fell, production of non-standard transformers, arc welding, and electric current step increased. In the category of rotating electrical machinery, production rose for the second consecutive year, this time by 2.4%. Although production of engine generators for general use fell, production of nonstandard three-phase induction motors, small motors, and servo-motors all increased. In the category of consumer electric appliances, the production index fell for the first time in two years, by 7.1%, due to production decreases in products such as electric refrigerators, stand-alone air conditioners, and ventilation fans. 3 Information and Communication Electronics Equipment In 2007, the production index for information and communication electronics rose 1.9% to Looking at the type of, the production index for household electronic machinery rose 15.3%, increasing for the sixth consecutive year, despite decreased production of products such as car stereos. Production of digital cameras, LCD televisions, and car navigation increased. The production index for communication fell 5.4%, after rising the previous year. Although production of fixed communication increased, production of cell phones, electronic exchange devices, and communication base decreased. The production index for electronic computers fell 0.6%, after rising the previous year. Although production of terminal devices increased, production of products such as mainframe computers and PCs decreased. 4 Electronic Parts and Devices In 2007, the production index for electronic parts and devices rose 11.2% to 131.0, marking the fifth consecutive year of increase. The production index for integrated circuits rose 13.0%, the second consecutive year of increase. Although there was a decrease in the production of bipolar type semiconductor integrated circuits, increases were seen in memory, logic, and CCDs. The index for parts for electronic increased 7.8%, the sixth consecutive year of increase, despite a decrease in the production of magnetic heads. Production of fixed capacitors and active matrix LCDs (large type) increased. The production index for semiconductor parts rose 4.4%, the second consecutive year of increase. Although production of rectifier elements fell, Year Mining and manufacturing Table 3-1. Production Index in the Machinery Industry General machinery Electrical machinery Information and communication electronics Electronic parts and devices Transport (Note) (2005=100,%) Precision instruments / (Note) Excluding ships and rolling stocks. (Source) METI [ Current Production Statistics Survey] 11

14 production of photoelectric transformer elements increased. 5 Transport Equipment The production index for transport in 2007 increased 5.5% from the previous year to 113.5, and marked the sixth consecutive year of increase. Looking at the type of machinery, the index increased 7.9% for passenger cars, the fourth consecutive year of increase. Enjoying the positive effect of new models, there was increased domestic demand as well as increased exports mainly to Europe, the Middle East, and the U.S. The overall index for trucks decreased 3.4%, the fourth consecutive year of decrease. Although exports increased, especially to ASEAN countries and the Middle East, domestic demand dropped. The production index for parts for motor vehicles increased 5.6% from the previous year, the ninth consecutive year of increase, as exports increased, primarily to Asian and European countries. The index for motorcycles and motorbikes fell 5.8%, the first decrease in four years, as exports to the U.S. and domestic demand both fell. 6 Precision Instruments The production index for precision instruments in 2007 increased 6.3% from the previous year to 114.9, and marked the fifth consecutive year of increase. Looking at the type of machinery, the index for optical instruments rose 22.3%, marking the fourth consecutive year of increase. Although production of 35mm cameras declined, production of interchangeable camera lenses increased. The production index for measuring and instruments rose 2.3%, marking the fifth consecutive year of increase. Although production of precision measuring declined, production of gas meters, analytical instruments, and testing all showed increases. (2)Production Value Although there were concerns such as the high cost of energy and resources, production in the machinery industry of Japan has continued to expand, supported by investment in plants and machinery, which is backed by steadily increasing corporate profitability, as well as a solid base level of personal consumption and strong exports, especially to other Asian countries. Production for the machinery industry in 2007 showed a 3.8% increase from the previous year to 79,718.3 billion, according to Machinery Statistics of METI. The production trends by sector are as follows: 1 General Machinery Production of general machinery in 2007 increased 5.7% from the previous year to 16,216.2 billion. Looking at the type of machinery, boilers and power units increased 21.6%, due to increased demand from electric power and overseas markets. In addition, there was high demand for replacement upgrades of boilers/ turbines and internal combustion engines. Production of mining and construction and crushers increased 15.8%, as overseas demand, especially from emerging economies, showed strong growth. Production of chemical machinery and storage rose 18.1%, as the demand for large-scale facilities such as plants was strong and exports to Asia maintained a high level. The category of pulp and paper making machines; plastic processing machinery; and printing, plate making, bookbinding and paper converting machines fell 1.0%. Although foreign demand for composite resin processing machinery rose not only from the primary market of Asia but from the Middle East and Europe as well, demand for this machinery from the domestic auto industry decreased. Production of printing machinery, bookbinding machinery, and paper converting machines remained strong due to an increase in foreign demand, but domestic and foreign demand for plate making machinery fell sharply. Production of oilhydraulic and pneumatic increased 4.8% due to healthy demand from construction machinery makers and related exports. Production of conveyance machines and industrial robots increased 1.7%. Although foreign demand from Asia, South America, and Africa increased for conveyance machines, domestic demand for these machines decreased from the food, general machinery, electrical machinery, automotive, and newspaper/ printing industries. Demand for industrial robots from the electronic/electrical machinery industry did not do well as capital investment in digital appliances and information and communications stagnated. However, Year Machinery industry Table 3-2.Production in the Machinery Industry General machinery Electrical machinery Information and communication electronics Electronic parts and devices Transport (million yen, %) Precision machinery ,105,288 11,435,649 6,545,973 8,433,866 8,910,374 29,130, , ,892,444 13,201,310 7,142,214 8,040,070 9,482,842 30,343, , ,212,377 14,121,159 7,255,236 7,870,423 9,141,807 32,117, , ,822,030 15,339,160 7,550,095 8,112,570 10,035,932 34,987, , ,718,352 16,216,182 7,677,014 7,722,550 10,297,273 36,957, ,535 Weight / (Note 1) In this table, ships and rolling stocks were excluded from" transport ". (Note 2) As statistical figures are rounded off to the nearest figure, there are cases where the total figure and the figures in the breakdown do not reach the same total. (Note 3) The data of the past correction was revised. (Source) METI[Yearbook of Machinery Statistics 2007] 12