Japan firms make 鈥榮trategic adjustments鈥 as China growth slows
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China’s middle class has been beating a path to Japan for holidays in the last year as a 16 percent depreciation in the yen versus the yuan has made hotels, restaurants, shopping and property more attractive. China’s economy may be slowing, but interest in Japan is rising.
Corporate Japan has been more mixed in its reaction. Some companies, like watchmaker Citizen and electronics giant Panasonic, have closed plants in China, but Itochu has announced it will invest a record US$10 billion in China to tap e-commerce opportunities.
The political situation between China and Japan has long been fraught with periodic tensions, but now commerce is playing into the mix of bilateral relations.
Shanghai Daily sat down with Kazuyuki Katayama, who was appointed Consul-General of Japan in Shanghai this August, to discuss how Japanese companies are coping with China’s “new normal” economy and how economic ties are trending.
Q: Some Japanese companies have withdrawn production from China’s mainland since 2014 as the economy has cooled. The economic slowdown isn’t expected to end anytime soon. Does that suggest more companies may pull up stakes?
A: It is true that some of major Japanese manufacturers have recalled their economic activities in China. As a result, direct investment from Japan to China in the January-October period dropped 25 percent from a year earlier.
It should be noted, however, that companies providing services, such as healthcare and pet businesses, are trying to expand in China. Retail chains like Muji, Aeon and Uniqlo are also generating steady profits. If you look at the number of Japanese firms based in Shanghai, you will find that it grew in the first five months of this year to 9,962 from 9,854.
With China facing a turning point in its economic restructuring, the old days of regarding China as just a world factory have faded. The time has come for each company in each sector to think about its own level of investment, based on supply and demand in China’s markets. I think that’s the reason for both the retreat of assembly lines and new beginnings in some high-end Japanese services in China.
Q: The Yangtze River Delta is one of the biggest economic bases for Japanese companies overseas. How are those companies coping with changing times?
A: Under a changing environment in the world’s second-largest economy, Japanese firms still insist upon providing high-quality products and services to Chinese customers, and building their brand profiles. China has a thorough supply chain together with top talent, and a huge market as its back-up. The basic stance for Japanese companies doing business in China hasn’t changed.
But, obviously, some firms based in Shanghai have had to make strategic adjustments in cost-savings and efficiency improvements. That includes shifting business focus from export to one of domestic consumption, buying equipment for automated production and hiring more local workers instead of dispatching staff from overseas.
Each Japanese firm has to make its own business decisions in adapting to China’s economic reform. I think most of companies see new opportunities opening in various industries.
Q: The Shanghai Free Trade Zone set up two years ago has hung an “open for business” sign out to foreign companies. How do Japanese companies see this testing ground for market deregulation?
A: Some 114 Japanese firms in manufacturing, logistics, trade and finance had set up branches in the zone as of March. JTB, Japan’s biggest travel agency, and trading houses like Itochu and Toyota Tusho all have operations there or have tied up with local players to take advantage of looser regulations.
Indeed, the Free Trade Zone is a good concept, and Japanese firms hope to utilize it to the utmost. At the same time, some firms are taking a wait-and-see attitude because of concerns about mixed signals from different government units and about delayed procedures of all kinds.
Together with the Japan External Trade Organization and Shanghai Japan Commerce and Industry Club, we submitted a proposal to Mayor Yang Xiong in October, discussing possible improvements to the zone and asking for further opening-up measures. We would like to see a system with fewer procedures, easier approval for the entry of foreign e-commerce players and a higher debt ceiling for bank accounts in the zone.
Q: In previous interviews, you said that Consulate-General of Japan in Shanghai is going to issue 1.5 million visas for Chinese visitors in 2015, the highest number of any of Japan’s embassies and consulates. The boom in travel to Japan has created bakugai, or an explosive shopping spree by Chinese tourists. That includes investment in Japanese real estate. How do you view this trend?
A: It’s difficult to say how long the phenomenon will last, but it has all been a positive stimulus for Japan’s economy. We are grateful that Chinese want to visit Japan and hope that interest never wanes. We estimate that about more than 4 million Chinese tourists will visit Japan this year.
But based on last year’s figure, only about 2 percent of Chinese went to Japan among those traveling abroad, so there is room for growth.
As for investment in Japanese real estate, we continue to welcome it. Some voices in Japan have expressed concern about foreign capital pouring into the domestic property market, but I think that’s a common occurrence throughout the world. As long as investors follow the rules, there should be no problems.
I do hope that Chinese property investors are taking a long-term view and will participate in local life and corporate social responsibility activities in Japan.
Once a better communications channel is built, there’s a higher possibility for those investments to generate greater profits. That’s beneficial for both foreign investors as well as local residents.
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