Japanese still look to China's market despite political row

CHANGCHUN - Japanese enterprises remained optimistic in China's market with more veering towards the service sector from traditional manufacturing as Sino-Japan economic ties cooled down due to disputes over the Diaoyu Islands.

"Given the difficult times between China and Japan, no Japanese firm, as far as I know, has considered retreating from China's market," said Fumio Kanda, a representative of NTT Data China, on the sidelines of the East Eurasia Forum, held in northeast China's Liaoning Province from September 6 to September 11.

The forum attracted representatives from more than 20 Japanese firms, from which some were eager to woo partners with their presentation in Chinese.

The renewed tension following the Japanese government's unilateral move in September 2012 to "nationalize" part of the Diaoyu Islands, which have been Chinese territory since ancient times, has started to take economic toll.

Japanese cabinet members' worshipping at the war-linked Yasukuni Shrine on August 15, 2013, the day of Japan's surrender at the end of World War II, further strained the tension between the world's second- and third-largest economies.

China's official customs statistics suggest that the volume of China-Japan trade has dropped 8.5 percent year on year in the first eight months of this year.

However, for Japanese firms, the Chinese market became increasingly important, especially under its sober economic environment with a dwindling domestic market due to low birth rate and the aging of population.

"Japanese firms are putting greater emphasis on China's market, " said Shiori Mori, chief of marketing department at Dalian branch of Japan External Trade Organization(JETRO),a government-related organization promoting mutual trade and investment between Japan and the rest of the world.

Analysis from JETRO suggested that some companies in traditional tertiary industries as retail and catering are now "going out" to emerging markets like China.

As Prime Minister Shinzo Abe resorted to monetary quantitative easing to stimulate the Japanese economy, the yen became cheaper and made Japanese companies pay more in their software outsourcing to China. Many of those Japanese companies are now seeking to localize their business in China to avoid higher costs.

Take NTT Data China as an example. Software outsourcing to Japan accounted for 90 percent of its overall business, but it now aims to sharply expand its China operations to more than half to lower the burden brought along with a weaker yen.

"Japanese firms are more active in every field in China, introducing more investment and services into the vast market," said Minoru Arahata, director of the Dalian branch of JETRO.

Ichiro Moritani, CEO of IBC JAPAN CO, Ltd., a consulting firm advising firms on foreign investment, said the sway from the product to service sector beefs up the brittle economic ties stretched by the souring China-Japan relations.

"If the bilateral trade was solely in the automobile industry, for example, it would be on high risks if cars cannot be sold, while cooperations in service industry helps reduce such risk," said Ichiro Mori.

"Entrepreneurs on both sides should establish mutual trust so that trade would not be affected by fluctuations between the two countries," said Mutsuo Imaizumi, president of Japan Enman Co, Ltd.