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Business Trends

Japanese manufacturers turn back to China

Belt and Road and Made in China 2025 strengthen business confidence

Japanese companies have been encouraged by Beijing's efforts to strengthen the country's manufacturing sector.   © Reuters

TOKYO -- Japanese manufacturers are increasingly turning back to China as a destination for investment, having previously shifted their focus toward emerging Southeast Asian economies.

Industrial products maker Yaskawa Electric's sales in the country jumped roughly 30% to 103 billion yen ($940.9 million), in the fiscal year ended February.

The business environment in China is expected to be positive “at least until 2025," according to the company. 

Much of the improving sentiment is down to policies implemented by President Xi Jinping, such as the Belt and Road Initiative and Made in China 2025.

Yaskawa is planning to open a new factory in Jiangsu Province later this year. Fueling the strong sales was growth in demand for components and robots used to produce machinery, particularly for manufacturing smartphones.

Rival Fanuc stated in its annual report for the fiscal year ending March that "capacity investment in China was especially active" compared with other regions. The company's sales in the country more than doubled to 215.9 billion yen over the 12-month period, and total revenue stood at 726.6 billion yen.

China is a key market for environmentally friendly electric appliances and electric vehicles. According to semiconductor maker Rohm, whose revenue in the year to March increased 12.8% from a year earlier, demand for energy-saving air conditioners and cars is increasing throughout Asia.

The Chinese government launched its Made in China 2025 program three years ago as a means of strengthening manufacturers' productivity and spurring capital investment. It also set out key areas of focus, including energy-saving products, information technology and agricultural machinery.

"China is being revalued," said Koji Sako, senior economist at Mizuho Research Institute, citing the benefits Japanese companies are reaping from investments in improved manufacturing productivity in the country. "ASEAN was previously overrated but not so much anymore," he added.

Japanese manufacturers began shifing away from China in the 2000s under "China plus one" strategies, which have been implemented to reduce dependency on the country due to rising wages and political risks. Much of the production was transferred to other Asian countries.

"There is a lot of talk about the closing of factories making low value-added products," said Hitoshi Yokozuka, senior consultant at Mitsubishi UFJ Research and Consulting. However, "companies can expect growth in industries mentioned in 'Made in China 2025,'" he added.

Beijing's initiatives have made the environment more stable and predictable, and Japanese manufacturers feel increasingly satisfied with the country as an investment destination, according to a survey by Mizuho Research Institute.

Mizuho's earnings satisfaction index, which subtracts "dissatisfied" responses from "satisfied," last year turned positive for China for the first time since the survey began in its current form in 2007.

The satisfaction index for the Association of Southeast Asian Nations returned to positive territory last year.

The survey, which gathered responses from 1,052 companies, was conducted in February and targeted Japanese manufacturers with capital of 10 million yen (about $91,000) or more.

Companies from other developed markets are also looking more favorably at China. Volkswagen and General Motors aim to expand sales in the country, while Intel has ramped up its manufacturing facility in Dalian. German chemical company BASF last year announced plans to set up a new factory in Nanjing.

Companies across various industries have stood to benefit from a strengthening Chinese economy, which expanded 6.9% last year.

Japanese instant-noodle maker Nissin Foods Holdings positions the country as one of its most important markets. It opened a new factory in eastern Zhejiang Province last year to meet growing demand.

Some of the concerns cited by participants in Mizuho’s survey were "rises in labor cost," "economic conditions in China" and "Japan-China relations." Compared with 2016, more companies showed concern over increasing competition with Chinese manufacturers.

ASEAN remained an important region for Japanese companies, but the survey showed that their focus may be starting to shift away from Southeast Asia.

When asked about the regions where they saw the most potential, the percentage of companies that answered "China" increased by 1.4 points from the previous year. The number that answered "ASEAN" decreased by 1.3 points, but remained above China.

However, the survey was conducted before Washington and Beijing's latest round of tit-for-tat tariff hikes. Sako noted that the results may have been different had it been run since then, although to what degree is uncertain.

 

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