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Japan Inc has thrived in China of late

by Ace Damon
Japan Inc has thrived in China of late

In 1977, FIVE years after the re-establishment of diplomatic relations between China and Japan, Miyakoshi, the electronics manufacturer, became the first Japanese company to receive commercial permission from the Communist Party to produce cassette recorders. In 2017, about 32,000 Japanese companies had investments worth $ 117 billion on the continent, one of the largest foreign corporate footprints. Last year, they dumped nearly $ 11 billion in China, halved since 2010 and not far from the long stagnation of the United States. The large Japanese listed companies made 17 percent of their profits overseas from China, according to Jesper Koll, Tokyo's fund manager.

The relationship between the world's second and third largest economies has never been better. Last year, Chinese officials paid a visit to Panasonic, Canon and Toyota in Japan to meet executives and lure their companies into new free trade zones. A year ago, Shinzo Abe, Prime Minister of Japan, traveled to China for a forum attended by 1,000 entrepreneurs. During the trip, the two countries announced 500 deals worth more than $ 18 billion. However, despite all the bonhomie, it is also an unusually delicate time for Japanese companies in the People's Republic of China.

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The first reason is the changing nature of trade relations between an enriched China and the world. Japanese companies went through this change well, showing no overconfidence that plagued their clumsy American adventure in the 1980s. As Chinese labor became more expensive, many moved their manufacturing to cheaper places in the region. UNIQLO, a Japanese clothing manufacturer, is one of the clutches to move to Southeast Asia.

At the same time, many of the same companies have successfully turned into desirable brands in China. Chinese buyers covet UNIQLO's well-made clothes. Fed up with security scandals from local producers, they prefer Asahi or Yoshinoya Japanese-brand snacks and drinks or medical products made by Kobayashi. Kao, a Japanese consumer goods company, recently began producing a premium version of its Merries diapers for the Chinese market only. This summer Toyota invested $ 600 million in Didi Chuxing, a Chinese passenger car giant. Miyakoshi, who now sells property instead of cassette player, generates all his sales in China. Chinese consumption has gone "beyond the point of no return," says Takeshi Niinami, head of Suntory, a Japanese distilling giant.

Japanese products attract not only China's consumers, but also its companies. In April Toyota agreed to sell electric car technology to Singulato, the Chinese manufacturer of low-emission vehicles. In June, it announced partnerships to build batteries with China's CATL, a technology company, and BYD, an automaker. When, in 2015, JD.com decided to build China's largest hydroponics factory outside Beijing, the Chinese e-commerce giant sought the right technology in Israel and the Netherlands to regulate the temperature of its seedling and dirt-free rooms. . vegetable beds. In the end, it was decided by Mitsubishi Chemical. The Japanese company has already helped build about 20 factories like JD.com in China and plans to open ten a year.

Japanese companies face the same obstacles as others trying to do business in China. Tokyo bosses echo Western complaints about confusing and haphazard rules, a biased tax system for Chinese companies, unreliable courts and intellectual property theft. But Japan's government and industry groups may be doing more to help them than the Americans or Europe do for them. Its embassy in Beijing and the Japan Foreign Trade Organization, an independent government agency, have hired IP specialists to assist companies. Japanese advertisers have settled in China to help the compatriot market with local tastes. Having burned its fingers in China a few years ago in May, Rakuten, a Japanese e-commerce giant, opened an office in Dalian, a Chinese coastal city that now houses about 1,500 Japanese companies.

Despite all its recent success in China, Japan must still be careful there. One reason is ghosts from the past. In 2005, a controversial change in Japanese history textbooks, seen as bleaching the sins of Imperial Japan, provoked riots in China and boycotts of Japanese companies. In 2012, during a political dispute over the disputed Senkaku Islands, which Japan controls, but China claims (and calls it Diaoyu), Toyota and Honda dealers, as well as a Panasonic factory, were set ablaze.

Japanese companies have improved their handling of Chinese complaints about Japan's failure to repair its occupation of parts of China during the war, when companies like Mitsubishi Materials forced Chinese workers to work in the Japanese mines. Three years ago, Mitsubishi even issued a rare formal apology and created a compensation fund. But resentment boils – and can easily boil if China's self-confidence continues to find expression in assertive nationalism.

Between the eagle and the dragon

Then there is the specter of Sino-American rivalry. Japanese companies have long benefited from US geopolitical proximity and China's geographical proximity. Both are the most important markets for many Japanese companies whose supply chains intersect at both. As the superpowers vie for everything from commerce to technology, this blessing seems increasingly like a curse. Because Japanese companies are more exposed to China than American companies – China is Japan's largest trading partner – they find it harder to give up the Chinese market. It would be "a nightmare" to have to choose between Japan's largest neighbor and its main strategic ally, says Ichiro Hara of Keidanren, a Japanese business lobby. As geopolitics clashes with globalized trade, choice may become inevitable.

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