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The Revival of the Kansai Economy: Truth and Fiction

Sep 11, 2006


From an economic fluctuation perspective, the economy of the Kansai region has been growing since 2002, overcoming a "plateau phase" along the way, and a number of economic indicators suggest that it has performed at least as well as or better than the national average.

During the current economic expansion phase, the industrial output of the Kansai region has risen slightly faster than the national average. Business sentiment in the manufacturing sector has also improved more than the national average. However, the growth of the Kansai economy in economic fluctuation terms and its strength in terms of economic and industrial structure need to be examined from another perspective.

The Kansai region has a high concentration of production bases established by companies from a wide range of industries, including materials industries supplying basic materials to other industries, such as steel and plastics, processing & assembly industries, such as consumer electronics and construction machinery, research & development-based industries, such as pharmaceuticals, and urban manufacturing industries, such as printing. Although not conspicuously so, it is also one of Japan's most important centers of manufacturing of digital products.

The number of factories being established by manufacturing companies in the Kansai region is recovering at a rapid rate. However, the recovery has been still stronger in a number of other regions, including the Chubu region. The Chubu region has large numbers of factories belonging not only to companies that have their head office in the region, but also to companies whose head office is in other regions, including the Kanto and the Kansai. From a long-term perspective, in terms of expansion of production capacity that serves as the foundation of production growth, the Kansai is far behind the Chubu region.

There are clear signs that the non-manufacturing sector is faring better in the Kansai region than in "provincial areas". This is because, as compared with "provincial areas", it is influenced to a lesser extent by the performance of the construction and retail industries, and the fact that the fortunes of non-manufacturing industries that most readily benefit from the general revival in business activity are improving.

Because the Kansai is one of Japan's most important economic centers and includes a number of major cities, it has, within the non-manufacturing sector, as high a concentration of distribution, real estate and restaurant businesses as the Kanto and Chubu regions. However, within the non-manufacturing sector, in areas closely related to corporate transactions and in certain specialist areas, it lags far behind the Kanto region, which has a particularly high concentration of businesses in these areas.

During the current economic expansion phase, the Kansai economy has recovered faster than "provincial areas" of Japan, and has recovered at least as far as or further than the national average (which includes "provincial areas"). However, if Japan's three major economic centers are compared in terms of the economic and industrial structure, it is the strength of the Chubu region in manufacturing, and that of the Kanto region in non-manufacturing, which stands out.

The Kansai region should not be satisfied by its recent strong performance but continue to work to expand its economic and industrial base. Stepping up the inducements aimed at encouraging Kansai companies, which have bases in many other regions besides the Kansai, to establish more bases in the Kansai region would be one obvious way to achieve this and would no doubt be a way to take advantage of the high concentration in terms of number of companies that is one of the strengths of the Kansai.

For more information on the content of this report, please contact:
Kiyoshi Yoshimoto, the Japan Research Institute, Limited.

Tel: 06-6534-5204

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