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Business Trends

Southeast Asia passes China in luring Japanese staff and money

Trade war pushes Panasonic and others to relocate

Luxury apartment buildings under construction in Bangkok. Thailand had 33,000 Japanese workers in 2017, up 33% from 2012.   © Reuters

TOKYO -- Southeast Asia has become the leading focus for the overseas operations of Japanese companies, which now send more cash and staffers there than to China in hopes of tapping the region's growing economic potential.

A total of 83,000 Japanese employees were posted to offices in members of the Association of Southeast Asian Nations in 2017, up 32% from 2012, Japan's Foreign Ministry says. In contrast, the number working in China fell 16% over the same period to 70,000.

Southeast Asia hosts more Japanese workers than any other region abroad, including North America and Europe.

Japan's businesses began reducing postings in China six years ago, when anti-Japanese protests broke out across the country over a territorial row. Rising wages in China and growing competition from local players have even pushed some of these businesses to downsize their overall Chinese operations.

Suzuki Motor decided in September to stop production in China, citing weak sales in the country. Nikon closed a digital camera factory in Jiangsu Province last year. And Honeys Holdings, which sold women's clothing at nearly 600 stores across China at its peak, is exiting the retail scene there amid growing pressure from online rivals.

The opposite has been true in Southeast Asia. Thailand alone had 33,000 Japanese workers in 2017, up 33% from 2012. Singapore saw a 28% uptick to 13,000. Many companies are setting up their de facto overseas headquarters in these countries, like the joint venture by maritime shippers Nippon Yusen, Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha in Singapore.

Companies also are moving their export hubs to Southeast Asia in order to avoid heavy U.S. tariffs on Chinese exports amid the trade war. Panasonic plans to start shipping car stereos and other in-car devices out of Thailand and other countries instead of China.

As wages rise in Thailand and Malaysia, labor-intensive industries are turning toward other Southeast Asian nations. Myanmar in particular has enjoyed an influx thanks to its efforts to open the economy, with the number of Japanese workers there growing sevenfold in five years to 1,200. Kirin Holdings acquired Myanmar Brewery, the top beer maker in the country, in 2015.

Money is pouring into Southeast Asia as well. Japanese direct investment in ASEAN members totaled $22 billion in 2017, twice as much as in 2012, according to the Japan External Trade Organization.

Such cash once was devoted primarily to capital investment for manufacturing, but the service sector now attracts growing interest. Toyota Motor in June invested in Singapore's Grab, a major ride-hailing platform in the region.

Meanwhile, Japanese investment in China fell 30% over the five years to $9.6 billion.

Credit extended by Japanese banks to overseas operations paints a similar picture. This figure grew 45% to a combined $85.1 billion in Indonesia, Malaysia, Thailand, Vietnam and the Philippines in the five years through March, while falling 7% to $30.7 billion in China, according to the Bank for International Settlements.

Other countries also seem to be shying away from China. U.S. investment there fell 18% in 2017, while such funding from South Korean dropped 22%.

Yet China remains a much larger market than Southeast Asia. China's nominal gross domestic product in 2017 was $12 trillion, while the 10 ASEAN members combined logged only $2.7 trillion. The gap is expected to widen, with China reaching $20 trillion by 2022 and Southeast Asia hitting $4 trillion.

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