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| August 24, 2001 | atimes.com | ||
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Editorials
Japan-China: Love you, love you not ... As love affairs go, Japan's with (investment in) China has been a rough ride. After the 1985 Plaza Accords on exchange rates, the yen quickly about doubled in value against the dollar and Japanese companies engaged in an aggressive investment offensive in East Asia. China became a major recipient of outbound Japanese direct investment (FDI) as well as development assistance (ODA). But hand-in-hand with that, Japan's trade surplus with China soared and strained economic relations. With the June 4, 1989 "incident" (as the Tiananmen massacre is called in Japan) they were disrupted and the first China trade and investment boom went bust. As the table below shows, that didn't last long, however. Devaluation of the Chinese currency in 1994 and accelerated reforms initiated by Deng Xiaoping drew Japanese investors back to China in droves. According to a Keidanren estimate, some 15,000 Japanese companies were operating in China by 1996, Japan had become China's largest trading partner (and China Japan's second after the US) and - other than Hong Kong and Taiwan - its largest source of FDI. And then the Asian crisis hit. Exports by Japanese manufacturers from China to the rest of Asia declined sharply, Japanese investment went into rapid decline through 1999. So, what's happening now that leads analysts to expect that in calendar year 2001 Japanese investment in China will likely hit a new record? Irony of ironies, the Japanese economic crisis. The still worsening economic slump is putting ever increasing pressure on Japanese firms to cut costs and find new customers. China's huge pool of low-paid workers and increasingly sophisticated consumers are inspiring Japanese manufacturers to shift production there - the great escape. Both for China and for Japanese direct investors the big question is whether this time it's for real and fast growth in Asia's most important economic relationship can be sustained. There is every indication that it can, and if the dream comes true, it will prove an important element in the economic salvation of Japan and the rest of Asia. For Japan, the shifting of principle manufacturing industries to China will be a powerful driver for restructuring of domestic industries and redeployment of idle labor into higher value-added employment. For China it will mean accelerated technology transfer from Japan and upgrading of industrial production. For the rest of Asia a recovering Japan, continued fast growth in China, and expansion of the Japanese Asian network of production and division of labor will create substantial new opportunities for trade and investment. The intra-Asian trade nexus which was growing by leaps and bounds before the Asian crisis, but then came to stagnate relative to trade with the rest of the world will become more tightly knit and expand. It's a win-win situation, even if in the short run, there will once again - much as in the late 1980s - be hollering about the hollowing out of Japanese industry. For the best of Japan and Asia, it should be ignored. Japanese foreign direct investment [Outward; unit: Yen 100 million]
*) The Japanese fiscal year (FY) begins in April and ends in March of the following year. **) Estimate based on Japanese companies' direct investment contracts in China concluded in the first four months of calendar year 2001. [Sources: Ministry of Finance; Nihon Keizai Shimbun] ((c)2001 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.) |
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