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Business trends

Japanese companies rediscover Dalian's charms

Chinese government works hard to woo investors in face of US trade war

The port city of Dalian has seen a slump in Japanese investment in recent years, but companies such as Nidec are bucking the trend, due in part to overtures by Chinese authorities. (Photo by Akira kodaka)

DALIAN, China -- Japanese companies are again investing in the northeastern Chinese city of Dalian, which has a reputation as being friendly to Japan.

In recent years, the talk in Japanese business circles was of cooling interest in China in favor of low-cost locations in Southeast Asia. Now Japanese companies are showing renewed interest in Dalian, due in part to the Chinese government's efforts to woo them in response to growing trade friction with the U.S.

Precision motor maker Nidec and e-commerce company Rakuten recently moved to set up operations in the city, bucking the trend of Japanese companies pulling back in China.

When Chen Qiufa, Liaoning's governor, met with Nidec Chairman and CEO Shigenobu Nagamori in Kyoto on April 22, Chen stressed the importance he places on economic and trade cooperation with Japan. He traveled to Japan to sign a memorandum of understanding with Kyoto-based Nidec on construction of a $500 million plant in Dalian that will make motors for electric vehicles. The plant will be Nidec's second in China for such motors.

China is concerned that the U.S. trade dispute could hurt demand for electrical components. But Nidec went ahead with the investment because, said Hiroyuki Yoshimoto, the company's president, China is a "large market that drives electric vehicles."

Japanese information technology companies are also active in Dalian. Online retailer Rakuten set up an office in March with about 25 employees in the city because it "has many high-tech companies and excellent engineers," according to a company representative, who added that Dalian's location just three hours from Tokyo by air is also a plus. "We plan to expand the office by consolidating it with other development bases in Shanghai and Beijing," the representative said.

Orix, a leasing and financial services specialist, began a project with local companies to construct a large building complex in Dalian. The plan is to create a hub for financial services in the city.

Dalian has a long history as a manufacturing and export center, and has drawn investment from many Japanese companies. But as the economy grew and labor costs rose, many Japanese manufacturers moved to cheaper places such as Vietnam and Thailand.

Another factor in the downturn was a regional economic slump that made Dalian a symbol of Japanese companies' exodus from China. According to Japan's Foreign Ministry, there were around 1,550 Japanese offices and other facilities in Dalian, as of October 2017, a decline of about 10% from three years earlier. New investments also shrank, although there were some big projects such as a Panasonic lithium-ion battery plant that came online in 2017.

The flurry of renewed interest by Japanese companies is due in part to overtures by the Chinese government. The U.S.-China trade war has killed off a number of projects. Chinese authorities, eager to stave off an economic slowdown, are turning to Japanese companies to fill the gap.

In April, the Dalian municipal government held an event to bring together Japanese executives and city officials. There are plans to hold such meetings regularly. A Liaoning government bureau also sent out a notice last October to officials underscoring its pro-Japan policy, saying the province is committed to strengthening exchanges with the Japanese.

Kenji Mizuta, head of the Japan External Trade Organization's Dalian office, praised the shift in attitude, saying the city makes it "easy for Japanese companies to find [local] companies to invest in."

"European and U.S. companies compete intensely to invest in Shenzhen and Shanghai, which makes it hard for Japanese companies to gain entry," Mizuta said. But Dalian, with its flowering of high-tech startups in recent years, is likely to regain its status as an attractive investment destination for Japanese companies in China.

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