|
|
|
|
Japan's unfinished business in
China
Editor's
note
"In the past, Japan, through its
colonial rule and aggression, caused tremendous
damage and suffering for the people of many
countries, particularly those of Asian nations,"
Japanese Prime Minister Junichiro Koizumi said on
Friday, in a speech delivered at the opening
ceremony of the Asia-Africa Summit in Jakarta
attended by both Koizumi and Chinese President Hu
Jintao. "Japan squarely faces these facts of
history in a spirit of humility ... with feelings
of deep remorse and heartfelt apology always
engraved in mind, Japan has resolutely maintained,
consistently since the end of World War II, [the
policy of] never turning into a military power but
[rather] an economic power, its principle of
resolving all matters by peaceful means, without
recourse [to] the use of force."
At almost
the same time, China turned off the taps of the
recent wave of anti-Japanese demonstrations with
several cooling-off measures, including a forceful
statement by Chinese Foreign Minister Li Zhaoxing,
who said that Chinese should not take part in
unapproved protests that could "affect social
stability". The Chinese Communist Party's
Propaganda Department and the Foreign Ministry
also held a series of "lectures" on Sino-Japanese
relations delivered by experienced diplomats,
according to official Chinese news reports. More
than 9,000 people attended the meetings in
Tianjin, Shanghai and Guangzhou, which all saw
anti-Japanese demonstrations this month. At the
session in Tianjin, Wu Jianmin, former Chinese
ambassador to France told attendees, "we need to
express our feelings in a calm, rational, legal
and orderly way, and turn further patriotic fervor
into action in our work and studies".
As
diplomats tried to arrange a one-on-one meeting
between Koizumi and Hu in Jakarta, the flurry of
attempts to quell surging Sino-Japanese tensions
had one constant: ever-increasing economic ties
between the two nations. Koizumi's statement and
Beijing's efforts to cool things down may signal
that politicians in both countries are paying more
heed to the economic fallout from their political
rows - at least some of the politicians. (At
almost the same time as Koizumi was making his
speech, a group of 80 Japanese lawmakers visited
the controversial Yasukuni Shrine in Tokyo,
ostensibly in observance of an annual spring
festival.)
For a variety of reasons,
Japan's economic relationship with China may be
more important to Japan than China's economic
relationship with Japan is to China, limiting the
Japanese government's freedom of action.
Ultimately, Japan may be forced to choose between
its massive investments in mainland China - which
have become increasingly indispensable to Japan
Inc - and its historic unwillingness to confront
right-wing nationalist forces. At the same time,
China's outdated Leninist dictatorship, which is
under constant pressure to demonize foreign or
domestic "enemies" as a way of distracting
attention from spiraling corruption and its own
massive crimes against the Chinese people (which
are not only far greater in magnitude, but much
more recent, than imperial Japan's war crimes in
China), may have to pass into history for the
Chinese civilization to consistently remain at
peace with its neighbors.
The following
article is an in-depth look at the economic side
of what is at stake.
SPEAKING
FREELY
By George Zhibin Gu
Japan Inc in China
Japan Inc has
been the third-most important investor in China,
after "Overseas Chinese Inc" and "US Inc". By
2004, Japan had invested US$66.6 billion in equity
into China. Japanese banks are leading
international lenders to China. In addition, the
booming Chinese economy has become an engine for
Japan's economic recovery. Of late, 50% or more of
the total increase in Japanese exports has been
attributable to China.
Japan Inc's
investments in mainland China have come in three
waves. The first wave, which really only tested
the water, came in the 1980s. Japanese investors
of that period felt that Chinese lacked sufficient
buying power to make the investments worthwhile.
In 1993-95, as Chinese growth began to accelerate,
the second wave arrived. Still, however, Japanese
investments remained limited in scope and reach.
China was treated as a factory, not a market.
Goods made in China by Japanese manufacturers were
largely sent to overseas markets. But by the late
1990s, seemingly all of Japan Inc rushed in - the
third wave. By 2005, not only giant Japanese
multinationals, but also countless small and
medium-size firms had arrived. Shanghai alone has
more than 40,000 Japanese residents. Japanese
schools are operating in major cities such as
Beijing, Shenzhen and Shanghai. In 2004, the
number of people traveling between the two nations
reached 4.35 million, a new record.
Basically, Japan Inc is now completely
hooked on China. This should not come as a
surprise - China has already become the largest
consumer market in the world, besides being a top
manufacturer and top trading nation. In 2004,
China had 334 million mobile handset users and
sold nearly 15 million personal computers, giving
it the second biggest global market for these
goods, trailing only the United States. Countless
Japanese firms are now established in China,
including Mitsui, with more than 110 joint
ventures; Matsushita, which runs more than 49
factories and is adding more; and Canon, which
intends to make China its biggest market and site
of its biggest factory. Japanese auto giants Honda
and Toyota are already top players. Clearly, the
fortunes of Japan Inc are already seriously tied
to China.
Furthermore, many Japanese
companies are setting up research and development
(R&D) labs in China, and lining up Chinese
research institutes and universities to support
future R&D efforts. Outsourcing is another
major activity; Sony alone has more than 3,000
China-based suppliers, and Japanese firms are
increasingly turning to China, rather than India,
for their software outsourcing. Japan Inc is
active in all economic sectors, not just
manufacturing. Retail giants like Justco,
Ito-Yokado and 7-Eleven (which has been
Japanese-owned since its Japanese subsidiary
purchased it from the Southland Corporation in
1991) are all established in China. Increasing
Chinese consumption has become a goldmine for
these retailers, who are competing with Wal-Mart,
Tesco, Carrefour and everyone else to set up more
stores. Japanese banking and financial service
giants are increasingly active in China as well.
In particular, venture capital companies are
coming in crowds. Top venture capitalist firm
Softbank is already a major investor in numerous
Chinese Internet and information-technology
companies.
China Inc in
Japan
Chinese exports to Japan have been
increasing fast. By 2004, China had replaced the
US as the top exporter to Japan. Chinese products
in Japan are mostly consumer products, and their
penetration has been greatly aided by Japan Inc's
operations in China. Relying on low costs in
China, Japan Inc has adopted a strategy of
manufacturing its vast range of products in China,
then selling them in Japan and elsewhere,
including China itself. The cost advantages are
tremendous, since the average Chinese
manufacturing job pays only around $115 a month,
but the labor pool is vast.
Besides trade
activities, China Inc has become increasingly
active in Japan lately. Some Chinese companies are
interested in acquiring Japanese assets as a way
to obtain better technology, a distribution
network, or both. Several high-profile cases come
to mind. First, the Shanghai Electric Group
acquired a bankrupt Japanese manufacturer of
high-tech printers, Akiyama. Another purchase came
from Guangdong-based Midea, a major
home-appliances manufacturer, which acquired the
entire microwave division from Sanyo Electric Co.
Also, the Chinese company 999, a Shenzhen-based
pharmaceutical and consumer-chemicals business,
has an active joint venture with a Japanese
pharmaceutical concern, with the aim of
cross-selling each other's products.
Chinese purchases like this have shocked
Japan Inc. In the case of Shanghai Electric
Group's purchase of Akiyama, made basically for
its printer factory, the Chinese factory had been
in distress itself; before the acquisition, the
Chinese firm's technology was three decades
behind. By buying the Japanese asset, the
resulting company benefited tremendously, and it
now offers popular printers for the Chinese market
and beyond. Such acquisitions have become one
popular way for Chinese firms to upgrade their
technology and gain a new market at the same time.
This has naturally concerned Japan Inc, which has
always been more concerned with building business
empires headed by Japanese than with actually
making money.
But China Inc doesn't need
to buy Japanese assets to advance its interests.
Chinese firms can simply hire Japanese talent to
work for them, for example. This is what Skyworth,
a leading Chinese consumer electronics company,
did when it recently hired a veteran Matsushita
engineer together with many of his research
colleagues. The Japanese engineer has become a
senior executive at Skyworth. Due to such
activities, and for other reasons as well, the
technological gap between Japan and China is
narrowing fast - faster than expected. The eroding
of technological advantage has increasingly become
a concern for Japan Inc.
In addition, many
leading Chinese companies are actively expanding
into Japan. So far, these efforts have met with
limited success. Partly this is because Japan's
domestic market has always been notoriously closed
to foreign companies; surprisingly, in many ways,
Japan is not as open as China. Typically, a more
effective way to penetrate the Japanese market is
via joint ventures with Japan Inc. So far, most of
these joint ventures have aimed for the China
market. But this is gradually changing, as more
Chinese companies attempt to invest in Japan as
well. In recent months, leading Chinese brands
such as ZTE, TCL and Haier have all increased
their efforts to tap into the Japanese market. In
particular, Huawei, a top Chinese telecom
equipment manufacturer, has established joint
ventures with NEC and Matsushita dealing with
third-generation (3G) mobile phone technology.
Interdependence and beyond
As
the world's second-largest economy, Japan has both
advantages and challenges. The biggest advantage
is that Japan has hundreds of truly global
companies that are well equipped to operate
anywhere it is beneficial for them to do so. Its
biggest challenge is at home, Japan has had a
14-year economic slump. Deep-seated problems, such
as high costs, low efficiency in many industries,
rampant overstaffing and a banking sector that is
still recovering from massive bad loans made
during the "bubble economy" period, are not likely
to go away anytime soon. Domestic stagnation
virtually compels Japanese businesses to expand
overseas - and China has been their overwhelming
first choice.
Unfortunately for the
increasingly globalized Japan Inc, the Japanese
political establishment has been behaving in a way
that is contrary to its interests. The political
leadership is keen to re-establish Japanese
assertiveness, politically and militarily. This
unresolved conflict has been causing wide debate
within Japan. The recent protests in China and
Korea against new Japanese textbooks that minimize
war crimes committed by the former imperial
Japanese government; Japan's alleged interference
in the Taiwan issue; and conflict over certain
islands claimed by both China and Japan, among
other issues, has heightened this conflict of
interest between Japan Inc and the Japanese
government.
At the same time, Japan Inc's
competitive edge is no longer as sharp as it was
back in the 1980s. For example, both the European
Union and the US surpassed Japan in total trade
with China in 2004. Also, "South Korea Inc" is
investing more in China. Leading South Korean
names like LG, Samsung and Hyundai have made huge
progress in China, although they were late
entrants into the Chinese market. LG did $10
billion in business in China in 2004, a level even
the biggest Japanese brands have hardly reached.
So, Japan Inc feels great pressure to do more in
China, and do it bigger and better, for fear of
losing out to Japan's global competitors.
For now, China is less dependent on
Japanese investment than it had been. This is due
partly to the fact that international investment
in China has been so massive. By 2004, more than
$560 billion worth of foreign investment had
entered China, of which Japan accounted for only
$66.6 billion, a small fraction. Although Japanese
investment is still significant, its relative
level of significance is decreasing.
Also, domestic Chinese companies have
developed significantly, and many of them have
gained the ability to produce all sorts of
products. Furthermore, Japan has a high-cost
structure, and Chinese buyers generally prefer
low-cost, but highly competitive, products and
services. For example, Indian software companies
are far better equipped to sell in China than
Japanese companies. Overall, Japan Inc faces an
increasingly uphill battle in China. Its entire
business line faces tough competition from both
China itself and international firms. Japanese
products no longer have any unique advantages, as
they did in the 1980s. For example, in the auto
industry, Honda and Toyota faces competitors like
GM, Volkswagen and Hyundai, among others. And in
home appliances and consumer electronics, which
have been traditional strengths for Japanese
firms, the domestic brands are improving fast, and
there is intense competition from other
international brands.
One can predict that
the opposing interests of Japan Inc and the
Japanese government will impact Japanese foreign
policy more in the future. Traditionally, there
are close ties between Japan Inc and the Japanese
government, and it is difficult for the Japanese
government to act in a way that is contrary to the
interests of the business community. Japanese
foreign policy is in fact more influenced by
domestic politics than is widely believed. For the
benefit of Japan as a whole, the Japanese
government has every reason to try to make Japan
part of the solution for regional conflicts,
rather than part of the problem. Japan's neighbors
are watching eagerly for signs of this.
George Zhibin Gu is a business
consultant based in China. He is the author of a
forthcoming book, China's Global Reach:
Markets, Multinationals and Globalization
(Haworth Press, Fall 2005). He can be reached
at gzb678@yahoo.com.cn. |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
