Japan's investment in China last year was noticeably less than
the previous year, while its total investment overseas grew by a
big margin year-on-year. What exactly caused the contrasting
developments? This writer believes a complex set of political,
economic and security-related factors lie behind the
phenomenon.
On the political front, though Sino-Japanese relations have been
improving and leaders of the two nations have reached consensus on
building a "strategic mutually-beneficial relationship" since
Japanese Prime Minister Shinzo Abe's China visit last October and
Chinese Premier Wen Jiabao's Japan trip in April, people must not
overlook the fact that Sino-Japanese ties and the feelings of the
two peoples toward each other have been hurt in the past few years,
and the damage has been so great, that relations between the two
nations are still "fragile."
There is still a long way to go and a great deal of effort is
required on the part of the two countries to repair bilateral ties
and feelings.
The decrease of Japan's investment in China, to a certain
extent, is due to the aftermath of the "chilled political ties." As
far as the economic community is concerned, corporate Japan was
left "in the cold" as some Japanese government departments,
economists and the media exaggerated the political risks of
investing in China. Some others advocated the so-called "China plus
1" investment strategy -- directing part of investments to India or
Vietnam, where "political ties-related risks" do not exist.
Despite repeated assurances by Chinese experts that China is a
safe place to invest and their objections to the claim that
"investing in China comes with risks," corporate Japan was still
unsure about the positive comments by leaders of the two nations on
constructing a "strategic relationship of mutual benefit," and
wished to see this turned into action. They were aware that some of
the major disputes between the two countries were yet to be
resolved. Some were even worried Sino-Japanese relations could turn
sour again.
Some people in Japan's economic circles believed direct
investment in China's major manufacturing industries was almost
saturated, which is one of the reasons why Japan's investment in
China decreased last year. As a result, Japanese enterprises
directed their investment into financial, logistics, and other
services. In the meantime, labor costs and other expenditures in
China's coastal areas were rising, motivating Japanese companies to
move investment to countries where labor costs were lower.
As for high-tech industries engaged in state-of-the-art
technologies or basic research in manufacturing technologies, some
of the enterprises moved their production bases back to Japan
because China, though rich in labor resources, lacks highly skilled
workers. Another reason for the withdrawal of such firms was the
fear of losing core technology to Chinese competitors.
Some Japanese economists in recent years have also spread rumors
that China's economy had many bubbles and this would burst around
the time of the Beijing Olympic Games in 2008 or the Shanghai World
Expo in 2010. However, China's economy and national conditions are
vastly different from Japan's during its bubble economy era in the
1980s.
Chinese economists have stated time and again the Chinese
economy is unlikely to "crash-land" or even "collapse" but the
"experts" trumpeting the theory of "China's bubble economy" in
Japan wield an influence that cannot be ignored.
A few commentators particularly hostile toward China went so far
as to suggest Japan should step up activities that "inflate
bubbles" so as to make "China's bubble economy" burst sooner. Many
average investors were thus worried they might suffer
financially.
On the security issue, the "China threat theory" is all the rage
these days as some influential scholars and media entities have
misinterpreted China's peaceful development as an effort to revive
"the Chinese empire" and restore the "territorial map" of the past,
claiming all countries that used the word "peaceful" had ulterior
motives.
With this pretext, Japan has tightened control on the export of
technologies that could be used for military purposes and even
punished companies that sold unmanned aircraft, designed for farm
use, to China. Unmanned aircraft and other military robotic
hardware are one of the next-generation weapon systems the United
States is developing as part of its future military strategy.
In the area of high-tech transfer, Japanese manufacturers not
only have to be mindful of their government's close watch but also
keep in mind a lesson from the "Toshiba incident" of the 1980s (the
Japanese conglomerate was severely punished by Washington for
selling a digitally-controlled multi-axel processing center that
can be used in making advanced submarine propellers to Russia) and
remember they are under ever closer monitoring by the US.
This reality is no doubt seriously hampering direct investment
and technology transfer to China by Japanese companies.
On the environmental front, despite gaining the title of "the
world's factory," China has paid dearly in terms of environmental
damage, especially in the eastern coastal regions, where the
eco-environment has been harmed as industrialization expands.
China is now restricting the development of manufacturing
enterprises that consume too much energy and water, while applying
tighter vetting of foreign manufacturers seeking to invest in the
country. Because the manufacturing industry occupies a significant
portion of Japan's investment in China, the tighter eco-environment
regulations have affected Japanese manufacturers' investment in
China.
Even so, Japanese enterprises will continue to invest in China
in the future, though this writer thinks the direction and focus
will be different from what it has been so far. It might take on
some new trends.
First, the Chinese government is pushing for the implementation
of its scientific development philosophy, which offers enormous
opportunities for Japan's energy-saving and environmental
protection industries. From China's perspective, it needs to absorb
advanced technology and management in energy saving and
environmental protection from foreign countries.
It is only logical for Japan, as a model of energy efficiency,
to be a key investor in our country's relevant industries. It would
help encourage Japanese enterprises to invest in China's energy
saving and environmental protection projects if the two countries
carry out cooperation in the area with Japan transferring related
technology to China.
Second, food is more important than everything else. It is
natural for China, with its population of 1.3 billion, to view
agriculture and farm produce as a key to maintaining food security
and social stability. If China acquires the latest farming
technology from Japan it will not only help improve China's
agricultural production but also enable the country to export
more.
Japan's Asahi Brewery established its first solely-owned pilot
farm (100 hectares) in Laiyang of Shandong Province with
state-of-the-art farming technology that incorporates the whole
process from planting, production, processing to distribution and
sales.
This form of investment should be encouraged.
Third, China and Japan should increase cooperation in the
transformation of deserts and wastelands. For years non-government
organizations in Japan have sent members to China to help carry out
tree-planting and forestation campaigns. In fact, transforming and
utilizing deserts and wastelands can also be profitable and an
important area for Japanese enterprises to invest in as well.
To be more specific, Japanese investment is needed in such
efforts as planting resilient trees that can survive desert
conditions. A Japanese enterprise holds the patent for a technology
that makes high-end building materials out of the poplar, spreading
solar power generation in desert areas, reclaiming pastures
devoured by deserts and turning wastelands into fields of
crops.
Fourth, China is keen on obtaining Japanese technology and funds
for sewage treatment and seawater desalination.
Fifth, we should also seek more Japanese capital and technology
for the development of the vast western region, logistics networks
and building railways, which are more suitable to China's national
conditions than highways. The latter takes up more land and causes
more pollution.
Raising a green Asia and protecting the eco-environment in East
Asia is key to the common interest of China and Japan. For this we
have reason to believe the two governments will support and
encourage Japanese enterprises to invest in the above-listed
areas.
The author is a researcher with the Institute of Japanese
Studies at the Chinese Academy of Social Sciences
(China Daily August 21, 2007)
