1.2 A Survey of Japan's Economic Development
Through all the arduous efforts of ten years from 1949 to 1955, Japan's economic situation restored to the pre-war level from runs of the World War II. Japan's economy experienced drastic development at a rate of 10% in the 1960s and entered a high-speed growth period. In the 1970s and 1980s, Japan's economy witnessed a period of steady growth at an average growth rate of 5%, and developed by leaps and bounds, enabling Japan to rank among the world advanced countries while having become the second largest economic power next to the USA. From the end of the 1980s to the early 1990s. "bubble economy" occurred in Japan as a result of overheated economic growth. The "bubble economy" collapsed in early 1990s and the economy entered into a sustained decline. The economic growth rate in Japan for the years 1992,1993 and 1994 was 0.4%, 0.5% and 0.6% respectively. The years 1995 and 1996 enjoyed a growth rate of 3% and 3.6% respectively, marking a brief economic recovery. Then a decrease of 0.1% appeared in 1997 and 1.9% in 1998. The GNP in Japan in 1999 was Yen 494 trillion, an increase of 0.5% over the preceding year and the government pre-estimated target of 0.6% was basically achieved, an sign of economic improvement. The economic growth rate reached 1.2% in 2000, however, the pace of growing slowed down since 2001.

1.3 Development of Major Industries in Japan
1.3.1 Significant gaps of development among different industries.
Viewing from industrial categorization:
The primary industry has further contracted. The comprehensive output index of agriculture, forestry and aquatic product sectors has decreased year by year. The output of major agricultural products has glided drastically, with the exception of rice, eggs, beef and milk, which have enjoyed a stable situation. The market of agricultural products in Japan has been increasingly opened up over the recent years, and Japanese agricultural products have experienced more and more significant impact from low-priced foreign products of the like.
Most sectors of the secondary industry are in stagnation, with only a few exhibiting a tendency of increase.
Japan is not rich in mineral resources, and its mining sector has registered a declining one. The mining and manufacturing sectors have presented lower output index than the datum reference (1995=100) in all period except in 1996, which witnessed a brief coming with output index exceeding 140. An investigation made in 2000 by the Ministry of Industries concerning 15 categories of products in the manufacturing sectors has shown that 9 categories of industries such as general machinery and textiles exhibit a tendency of slow-down while 6 categories including electronic machinery and chemical industry are beginning to upturn. As for commodity series, influenced by counter-cyclical policies, the capital products, building and construction goods, durable and non-durable consumables have seen a slow gradual upturn in demand, while both the demand and supply of information associate products (such as fax machine, cellular phone, pager and PC) are on the rise.
The tertiary industry, especially information associated service sectors is rapidly developing, with a high growth rate both in output and in the number of employees, and can be regarded as the "ocomotive industry" to drive the economic growth.
1.3.2 Polarization of the industrial structure
The existing traditional industries have come to maturity, lacking new breakthrough of growth but with heavy debt burdens. Though new leading industries have not yet taken shaped, IT related new industries such as information, communications, electronics and software are experiencing rapid growth.
The maturity of industrial structure is characterized by the saturation of products on domestic market, and standardization and maturity of technology, as is the case with iron and steel, petrochemical, auto, household appliances and machinery industries. For such an export-oriented country as Japan, the maturity of industrial structure is also characterized by a trend of export decrease in leading industries and the fact that the competitive edge has narrowed or become unclear. Further import will impose pressure on the domestic industries and the overseas production ratio of leading industries will rise progressively (see the Table), In order to seek now comparative edge, traditional industries of Japan have continued to transfer to Asia, and both the ratio of overseas equipment investment and the value of re-import have continued to rise; on the other hand, 80% of the value of re-import comes from Asia.

As "ulti-peak type" industry groups, new leading industries meet the requirement of the national conditions of Japan, although these new industries have not risen to play a leading role. Nevertheless, as with the increase of IT and R&D investment, a new "third wave" industry with competitive edge is taking shape in Japan, in which Japan has been expert. It caters to the consumption demand of the information age and will have a wide range of prospects. Information & communications and biological industries are also new high-tech industries which have incorporated energetic development. It has become a basic strategy for developed countries which attempt to take the lead in finance and economy, including Japan, to promote global financial and economic development by means of the Internet revolution. As traditional industries are continuously infiltrating into new fields, such important industries as the information and financial industries are becoming integrated into each other. At the G8 Kyushu Okinawa Summit, which closed in August, the network and IT revolutions, were for the first time linked with finance and debt issues. In the strategy for industrial restructuring in 2000, Japanese enterprises took the IT industry as their first-choice objective on after another, and involved themselves in the information network and high-tech industries, aiming at becoming leading enterprises in the new industry. Many traditional comprehensive business firms have started to take part in the competition in high-tech industries such as IT, communications and electronics. The magnificent prospects of the information industry not only have attracted traditional industries but also are progressively changing the orientation and pace of financial investment and restructuring. The information industry enjoys a larger investment expectancy and a higher ratio of return on investment in comparison with the weak manufacturing and other traditional industries. Therefore, investing in the information industry has currently become an important decision-making orientation of major banks in Japan. Take Kangyo-Fuji-Industrial Bank, which ranks the first among the top four financial groups in Japan. Although it is the bank with the largest amount of bad debt in Japan (the balance of bad debt reaching up to Yen 4.7388 trillion), its investment in the information industry has exceeded Yen 150 billion, making it the first among Japanese banks and the fourth worldwide in this regard.

1.4 Status of Japan's Information Industry
Japan is the world's second largest market for IT next to the USA, with the extent of development of IT and its products and their market share second only to those of the USA. The USA ranks the first worldwide in respect of computer sophisticated technology, and Japan follows next. The USA monopolizes the three fields of database, chips and operating systems, and its network products possess significant competitive edge. On the other hand, Japan holds a leading position in the data compression, image and notebook computer display technologies, and growth of the information industry has imposed a positive effect on the development of the whole economy in Japan. The output of the information industry has played a leading role in the overall industrial output in Japan.
The information industry has become the largest industry in Japan. From 1993 to 1996, the average annual growth rate of the information industry was 6.4%, far above the average 1.68% of all industries during the same period. The total output of Japan's information industry reached Yen 103.3 trillion in 1996, accounting for 11.4% of the total output of all industries. The information industry has become the locomotive of economic development.
The investment in the information industry has played an important role in its contribution to the national economy and has given an impetus to the development of related industries. In 1996, investment in the information industry contributed 15.4% to the actual domestic production growth rate, that is, a share of 0.6 percentage points to the 3.9 percentage points of GNP growth, much higher than that of any other industry. From 1990 to 1996, production in the information and communication industry imposed an effect of Yen 30 trillion, of which the information and communication industry played a role of 50.9% and imposed an effect of 16.4%

1.5 Features and Evaluation of Japan's Current Overall Economic Development
15.1 Japanese economy is currently weak in recovery and the situation very grim.
The post-war economy in Japan has experienced more than ten cycles, and each economic cycle from booming to recession has its own characteristics. The current cycle is characterized by a lack of strength in recovery and no occurrence of booming stage before entering into recession. The previous economic recession, which was the first one during the Heisei period, occurred between April 1997 and April 1999, lasting a total of 25 months. The booming phase occurred in 1996, and the very year witnessed an economic growth rate as high as 5%. The recovery phase lasted from November 1993 to the end of 1995, during which the annual economic growth rate did not reach 1% for several successive years, which was one with the slowest, longest and weakest recovery of all cycles, so to speak. Furthermore, the booming phase that followed was also one with the least feeling of booming of all. The reason was that in 1996, the Japanese government went in for infrastructure construction in a large scale in order to stimulate economic recovery, and public investment promoted the economic upturn to a certain extent; in the meanwhile, the tax reduction policy gave an impetus to the growth of individual consumption by 2.9%, and IT oriented enterprise investment in equipment experienced an up rush by 11.3%. However, as a result of overoptimistic estimation on the economic situation, the growth due to policy was misunderstood as normal recovery and entrance into a booming phase, and several economic reform programs were promulgated to cause the economic recession in 1997 because of over-dosage.
In contrast, the current economic cycle has shown that the recovery phase lasted only 16 months, shorter than the previous one, and hardly had the economy entered into the booming phase when it slumped into recession again, a rare case among all post-war economic cycles. "The economic situation in Japan is rather grim."
15.2 The business operation of Japanese enterprises is drastically worsening
The operating profits of listed enterprise groups in the first half of 2001 dropped by a large margin. Operating achievements of 662 listed Japanese enterprise groups as settled in the middle of 2001 (by the end of September) most recently published indicated that the turnover of enterprises increased by 0.4% over the same period of the preceding year, the profits of current accounts decreased by 45.1% and the after-tax profits decreased by 51.3%. The year-end turnover was expected to decrease by 1.6%, the profits of current accounts to decrease by 45.1% and the after-tax profits to decrease by 48.3%.
Manufacturing industries and non-manufacturing industries other than the banking sector faced more or less the same situation of business operation in the first half of 2001. Both experienced a decrease in profits of current accounts by 46.4% and 44.01% respectively over the same period of the preceding year, and a decrease in after-tax profits by 51.9% and 49.4% respectively. By the end of 2001, the profits of current accounts and after-tax profits of manufacturing enterprises would have decreased by 49.2% and 54.3% respectively, and those of non-manufacturing enterprises would have decreased by 27.8% and 25.8% respectively. Of the 17 industries in the manufacturing sector, 11 suffered profit decrease and incurred a financial deficit. 84 enterprises in household appliances, of which the profit for the first quarter of the year was in positive figure, incurred a financial deficit as high as 260 Yen billion for the first half of the year, and thus came to be known by public opinion as the "earthquake focus" of the worsening operating condition of manufacturing industries and of all Japanese industries at large. This was mainly attributable to excessive investment in semi-conductor and liquid crystal production. While the IT industry was confronted with frustration, such investment did not translate itself into economic benefits; on the contrary, it turned out to be heavy burdens.
As a result of dull domestic demand in Japan, the economy has been long in stagnation, and Japanese enterprises have had to seek opportunity of development overseas one after another over the recent years. This phenomenon has made home industries hollowing out of Japan, adding to the pressure of domestic structural reform. The overseas output value of Japanese enterprises has accounted for 23% of the total national output value, a record high up to now. By the year 2004 the overseas output value is expected to account for over 30%. According to an investigation by the International Cooperation Bank, Japanese enterprises set up around 1000 factories and plants in Thailand, Indonesia, Malaysia and the Philippines in the year 2001. The tendency for Japanese enterprises to gradually shift their operating focus to overseas has attracted attention of authorities concerned. The New Growth Group of the Japanese Industrial Structure Examination Commission recently forwarded a report which points out that the accelerated transfer of Japanese enterprises especially to Asian countries will lead to reduction in opportunities of employment in Japan and hollowing out of domestic industries and technology. As estimated by this department, if such tendency is allowed to continue, the surplus of current accounts in Japan will decrease by a large margin and during the period from 2006 to 2010, the otherwise likely c.a. 3% of economic growth rate of Japan will remain at the level of 0.5% while the rate of unemployment will reach above 5%. As a matter of fact, influenced by the global economic sliding after the September 11 terrorist attack, the situation of employment in Japan has worsening and the rate of full unemployment might continue to rise after hitting a record low of 5.3% in September.
1.5.3 The social demand further decreases
It can be seen from some other important economic indexes published by the Japanese Cabinet during the same period that the household expenditure in April 2001 was reduced by as much as 4.5% as compared with the same period of the preceding year. This is mainly because the employment situation became rigorous (with the rate of unemployment up to 4.8%) and the income expectancy is not optimistic, resulting in an decrease of 19.3% and 26.8% respectively in education and automobile expenditures; on the other hand, traffic and communication expenditures decreased by 7.5% over the same period of the preceding year. The industrial production in Japan in April decreased by 1.7% over the previous month, of which the production of electrical appliances and machinery decrease by 6.1% as a result of significant reduction in the demand of cellular phones, computers and electronic spare parts. Mechanical Equipment Orders, an index to reflect the investment situation from June to September, also decreased by 7.0% in the period of January to March as compared with the same period of the preceding year. Reduction in production caused a decrease of enterprises' investment in equipment and influences employees' income, which in turn resulted in a decrease in consumption, and the social demand was further reduced, thus making the next round of social and economic activities more tightened. Generally speaking, the economic retrenchment will continue until the end of overstock adjustment, and production of enterprises will step into the growing track again; economic recession ends and a new economic cycle begins.
1.5.4 Overall evaluation of Japan's current economic development
On the whole, the current economic recession in Japan is rigorous but comparatively not extremely so. In the first place, although recovery was weak and no booming phase appeared, the whole decade with exception of 1996 witnessed a continuously weak economic development with consumption at a low ebb; so this current recession was just a process from an economic growth of 1.2% in 2000 to further slowdown of growth in 2001 and 2002, and the recession was not felt so keenly as that during 1997 and 1998. Secondly, after taking office, Japanese Prime Minister Junichiro Koizumi has vigorously advocated carrying out drastic reform with an intention to thoroughly settle the various complicated problems existing in Japan's economic, social and even political fields. The bold reforms for settling all these problems will surely affect the economic booming. Reform requires that overall consideration be given to the economic growth, stable employment and social stability however, it is hard for measures of reform to cater to all factors and the unknowable will catch you unprepared; what is more, the execution of reform will surely involve various interest groups in all aspects, for instance, the reform in the postal undertaking and the public investment system will touch upon the economic foundation of the Liberal Democratic Party; social security reform system will relate to the stability of citizens' life; banking reform and bad bonds settlement might involve the interest of high-ranking bank officials and relevant enterprises in debt. It is, therefore, unpredictable whether the reform can achieve the optimum dual objectives of "eforming and growth" in the near future. Given such situation, people will not generally have high expectancy of Japan's economic growth, and it would not be easy to even maintain a slight growth through efforts.
Japan's economy is such a case that "ngrained habits are hard to change" and the course of reform will not be smooth. The cycle of economy and the reform will take place in a staggered fashion. It is impossible to evaluate Japan's economy by viewing the economic cycles alone; rather, greater attention should be paid to its policy reform, new development strategy and the result of the policy and strategy. In any case, drastic reform in Japan's economy is after all a positive aspect of development. Japan is the second largest economy in the world which is closely related to the economy and trade of the whole Asia. In the long run, the positive effect of the drastic reform of Japan's economy on Asian and global economy will be revealed progressively.