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February 2, 2015

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Home » Business » Finance Special

Some Japanese firms say “sayonara, China”

By Leng Cheng | February 2, 2015, Monday | Print Edition

Panasonic Corp and other Japanese electronics companies are starting to shift production of some goods from China to Japan as the weaker yen and higher labor costs make exporting products back to the home market more expensive.

Moves by Japanese companies, especially major electronics makers, to bring home some of their overseas production have become more pronounced, Atsushi Miyanoya, manager of the Bank of Japan’s Osaka branch, told media in January.

The yen has tumbled almost 10 percent against the US dollar in the last three months, after the Bank of Japan eased monetary policy. Since late 2012, the yen has lost almost a third of its value. The decline has been attributed to Prime Minister Shinzo Abe’s economic policies and to the dollar strengthening on the back of improving growth in the US.

The Japanese currency fell from around 5.60 yuan per 100 yen to as low as 5.05 yuan. The Japanese currency will weaken to about 125 to the dollar by the end of this year, according to the median estimate of about 150 analysts surveyed by Bloomberg News.

Analysts said that may deepen the trend of companies like Panasonic, Canon Inc, Daikin Industries Ltd and Sharp Corp pulling home some of their overseas manufacturing.

“When the yen started weakening, there was some time lag,” UBS economist Daiju Aoki said. “But now, after more than a year, manufacturers are changing business plans. I think this trend will continue for some time.”

Rising labor costs in China and higher work quality in Japan are also factors, analysts said.

“There’s a high possibility that some firms will increase domestic production rate of high-end commodities to be sold in Japan,” Hideyuki Araki, chief analyst at Resona Research Institute, told Shanghai Daily. “With a weaker yen to boost the production cost overseas, Japanese makers will find it no need to put their assembly line overseas any more.”

Increasing labor cost

Rising labor costs in China feed the trend.

China’s per capita disposable income, a figure that reflects general salary levels, rose 10.1 percent to 20,167 yuan (US$3,250) in 2014, according to National Bureau of Statistics. The figure has been growing at a fast clip in the past three years.

“More companies are likely to implement a policy of local production for local consumption,” said Araki. “It’s more profitable when doing business under current circumstances.”

Chinese analysts said they don’t think the weaker yen will have a significant impact on Japanese manufacturing presence in China. There is no strong indication that the trend is spreading to other key industries, such as automaking.

“Although some shifting will occur,” said Wu Huimin, an analyst at China International Capital Corp, in a recent report, “there will be only a limited impact in the short-term. The localization of these companies is pretty much complete, and the differentiation of domestic and overseas production depends on separate classes of consumers.”

Still, changes are afoot.

Panasonic, Japan’s biggest consumer electronics group, said it had been considering a shift of white-goods manufacturing, such as washing machines and microwave ovens, to domestic production for some time.

“Most white goods sold in Japan are imported from Chinese factories, so it’s natural that we would want to see more goods manufactured in Japan on the back of a weaker yen,” company Chief Executive Kazuhiro Tsuga said at the Consumer Electronics Show in Las Vegas earlier this month, according to Kyodo News.

Panasonic has its main mainland production bases in Shanghai, Hangzhou and Guangzhou.

The Shanghai factory has the capacity to manufacture 4 million microwave ovens yearly, while the Hangzhou plant produces about 3.6 million washing machines, and Guangzhou plant fills orders for about 4 million air conditioners a year.

Overall assessment

“We are doing an overall assessment,” Panasonic spokesman Takahiro Asano told Shanghai Daily. “It’s not likely that we will withdraw all production from China all of a sudden.”

Daikin, a leading air conditioner maker, said in an announcement that it is curtailing more of its production lines in China and relocating operations to Shiga Prefecture in Japan.

The company began co-producing air conditioners with China’s Zhuhai Gree Electric Appliances Inc in 2008. The partnership produced some 800,000 units in 2013.

In early 2014, Daikin decided to transfer 250,000 of that production back to Japan, shifting 100,000 more units last July.

“Daikin sees great potential in being able to turn yen depreciation into a positive advantage,” CEO Noriyuki Inoue said in a January 7 press conference, adding that Japanese businesses have a role to play in revitalizing the domestic economy.

Canon, the world’s largest camera maker, said it wants to increase its domestic production to 60 percent in three years from 40 percent now. The company, which has its main China manufacturing base in the southern city of Zhuhai, has a capacity to produce 70 million camera lenses and 20 million digital cameras a year, according to its website.

But new copiers, cameras and printer products will be built in Japan as older overseas factories are replaced, according to company spokesman Hirotomo Fujimori.

Sharp, which has manufacturing facilities in Shanghai, Nanjing and Wuxi, also has said it plans to move production of some air purifiers, refrigerators and televisions to Japan from China, a spokeswoman told Shanghai Daily. No timetable was disclosed.

Finance Special


 

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