Changing views of the Chinese marketplace

Japanese companies shift focus from manufacturing to services

BEIJING - More and more Japanese companies are increasing their investments in China because they believe the country - once viewed as a manufacturing base - is also an important consumption market where they can sell goods and services, a top Japanese trade promoter has said.

"They regard China as a would-be birthplace of a new way of consuming, especially by the young Chinese consumers," said Shuji Sakoh, director-general of the Japan External Trade Organization in East Asia, in an exclusive interview with China Daily.

The new investment boom will probably continue into the next decade and create benefits for Japan, which is troubled by slowing economic growth, an aging population and a rising currency.

In 2011, Japanese direct investment in China surged by 49.6 percent from a year earlier, according to statistics by the Japanese agency.

Sakoh said such a robust growth is sustainable as he cannot see any reason in the short term why it would end.

"China is an attractive market for Japanese manufacturers," said Sakoh.

That was due, he said, not only to excellent workers and low labor costs, but also to "the largest consumption market worldwide".

Previous Japanese investments in China had mainly gone into the manufacturing sector. They regarded China as merely a manufacturing powerhouse, assembling components and processing raw materials and exporting the final goods overseas.

Last June, for example, Japanese companies including Mitsubishi, Itoham Foods and Kume Shoji joined hands with China's food giant COFCO to establish a 10-billion-yuan ($1.6 billion) food processing venture.

However, Japanese companies in recent years have begun to tap the service sector including healthcare, medical services and schools.

"It's an important change, and also a good trend to see," Sakoh said.

Aeon, Japan's largest supermarket chain operator, said it plans to open at least 2,000 stores in China in the next 10 years.

Such a shift by the Japanese companies also ties in with the new foreign investment guidelines promoted by the Chinese government.

Last year, China launched new industrial guidelines for the development of foreign investment, in which the nation encouraged foreign companies to invest or add investment in high-end manufacturing, high-tech and strategic emerging industries.

Sakoh said it is a well-written policy through which one can see China's aims to transform its economy.

Japanese companies can and would like to contribute to the change in a wide range of sectors, he said.

However, he would like to see China's opening-up continue and the country become even more welcoming to foreign investment.

A large number of Japanese companies swarmed into China when the nation launched its reform and opening-up policy more than three decades ago. Another such boom happened when China joined the World Trade Organization in 2001.

Yet a report by the Japanese Chamber of Commerce in China, based on interviews with more than 6,000 Japanese companies in 2011, showed there are still hurdles to doing business.

They include delays in implementing rules by local governments and complicated red-tape procedures in applications.

In 2011, foreign investment in China hit a record high and surged by 9.72 percent year-on-year to $116 billion. But the investment from developed nations dropped, including declines of 26 percent and 4 percent from the United States and the European Union.

A spokesman of the Ministry of Commerce said Asian markets, especially Japan, are the major drivers behind the investment growth.

The devastating earthquake that hit Japan last March and destroyed the local economy has also stimulated Japanese companies to move their manufacturing facilities to China to reduce commercial risks, said experts and Chinese government officials.

But Sakoh said the boom is not merely related to the earthquake.

"They believe they have a lot of chances in China," he said. "They have long prepared for that before the earthquake."

As the appreciation of Japan's yen has eroded the profits of Japanese exporters, and power shortages have deterred investments by manufacturers, the Japanese government last year began to encourage companies to invest overseas through mergers and acquisitions.

"The earthquake accelerated Japanese companies' overseas investments because of the energy shortage and concerns about possible nuclear radiation," said Wang Luo, a researcher from the Chinese Academy of International Trade and Economic Cooperation.

"Japan's aging population and shrinking domestic market also drove manufacturers abroad," Wang said.

For Japanese businesses, "India and Vietnam were within consideration, but they lag behind China in infrastructure, market size and business environment. In the short term, no other nation can surpass China as a destination in attracting foreign investment," Wang said.