May 12, 2017 2:00 pm JST

Japan Inc. showing renewed interest in China investment

Travel boom whets Chinese consumers’ appetite for high-quality Japanese goods

WATARU KODAKA, Nikkei staff writer

Rinnai's new gas equipment plant in Shanghai, which went online in March, and trailer-type showroom.

SHANGHAI -- After several years of shifting away from China, a growing army of Japanese manufacturers are again focusing on the massive market with new investment in their local production capacity.

Nissin Foods Holdings, for example, plans to put a new cup noodle plant into operation soon. Panasonic and Rinnai have also opened new plants recently. These and other Japanese companies are aiming to cash in on new trends in the Chinese market.

Many Chinese consumers have seen their purchasing power strengthen thanks to rising income. Their appetite for high-quality Japanese foods and other products has also grown amid the Japan travel boom.

Investment spree

A survey by the government-affiliated Japan External Trade Organization also found renewed interest in China investment among Japanese companies.

The survey was conducted at the end of 2016 and covered Japanese companies with operations in the rest of Asia and Oceania.

According to the survey, 40% of Japanese companies with operations in China plan to expand their operations there in the next one to two years, up 2 percentage points from a similar survey in 2015 and the first increase in three years.

The percentage of Japanese companies willing to expand their operations in China had been on a declining trend since peaking at more than 60% in 2011, according to annual JETRO surveys.

The Japanese food industry is particularly enthusiastic about investing in China, with the latest JETRO survey showing that 54% of companies in that industry plan to expand their operations there.

Nissin Foods has invested about 350 million yuan ($50.7 million) to build a new cup noodle plant in Zhejiang Province. The new plant will go online in late May.

The company is seeking to capitalize on the huge Chinese market for instant noodles, which reached about 40 billion portions in 2015, seven times more than the Japanese market.

House Foods Group is also constructing a new curry roux plant in Zhejiang, its third in China, to double its local production capacity to take advantage of new market trends in that country.

As concerns grow among Chinese consumers about food safety, Japanese foods and other products are developing a reputation for reliability, benefiting from word-of-mouth amid China's booming Japan-bound tourism.

Highly functional Japanese home appliances are also gaining popularity among Chinese consumers, increasing business opportunities for Japanese manufacturers.

Rinnai opened a new gas equipment plant in Shanghai at a cost of about 500 million yuan in March. The plant doubles its annual water heater production capacity in China to 1.2 million units.

Prices for the company's water heaters are nearly double those of Chinese makers' products. "As a result of a rise in income levels, high-quality products have come to sell well, even if their prices are high," said Rinnai President Hiroyasu Naito.

Honda Motor and Panasonic are also among the growing number of Japanese manufacturing companies making new investments in China.

Honda is building a new plant in Wuhan, Hubei Province, in inland China, and Panasonic inaugurated a new automotive battery plant in Dalian, Liaoning Province, at the end of April.

New trends

Many Japanese companies have either withdrawn from or scaled back their operations in the Chinese market in the past several years. Citizen Holdings closed a local factory, and Sony also divested a local plant.

That is largely because China's attractiveness as the "world's factory" has eroded amid soaring labor costs.

But the latest JETRO survey shows that the percentage of Japanese companies planning to scale back or pull the plug on their operations in China declined to 7% from 11% in the previous 2015 survey.

Wages have been rising in China, leading to a sharp spike of consumer demand.

China's total retail sales grew 10% in 2016 from a year earlier to 33.2 trillion yuan. The amount of increase in China's total retail sales in 2016 is larger than Thailand's annual gross domestic product.

Chinese consumers with their stronger purchasing power are starting to prioritize the quality, safety and high-grade appearance of products rather than just their prices.

There are still lingering risks regarding Japanese companies' business strategies in China, such as concerns over a property bubble and the deterioration of political relations between the two countries.

Many Japanese companies rushed to the Chinese market in the 2000s. Some of them have now become resistant to "China risks" after many years of experience. These Japanese companies with mature risk-management capabilities are now making new investments in China.

Nissin Foods Holdings Co., Ltd.

Japan

Market(Ticker): TKS(2897)
Sector:
Industry:
Consumer Non-Durables
Food: Specialty/Candy
Market cap(USD): 7,305.42M
Shares: 117.46M

Panasonic Corp.

Japan

Market(Ticker): TKS(6752)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 30,689.4M
Shares: 2,453.05M

Rinnai Corp.

Japan

Market(Ticker): TKS(5947)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 4,640.63M
Shares: 52.21M

House Foods Group Inc.

Japan

Market(Ticker): TKS(2810)
Sector:
Industry:
Consumer Non-Durables
Food: Specialty/Candy
Market cap(USD): 2,554.5M
Shares: 102.75M

Honda Motor Co., Ltd.

Japan

Market(Ticker): TKS(7267)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 49,928.8M
Shares: 1,811.43M

Sony Corp.

Japan

Market(Ticker): TKS(6758)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 45,666.6M
Shares: 1,263.78M

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