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Business trends

Over 70% of East Asian execs say trade war will hurt businesses

Poll finds Chinese, South Korean and Japanese CEOs' hopes rest on AI and startups

While over 70% of executives in China, South Korea and Japan are bracing for trade war pain, many are turning their attention to AI opportunities.

TOKYO -- More than 70% of corporate leaders in China, Japan and South Korea expect the trade war to damage their businesses, according to a recent joint newspaper poll of about 100 executives in each country.

About 79% of respondents from Japan, 73% from China and 81% from South Korea said the trade war will deal a blow to their operations, according to the survey, which was conducted by Nikkei, the Chinese daily Global Times and South Korea's Maeil Business Newspaper from Nov. 27 to Dec. 13.

Chinese executives viewed the trade war's impact so far as particularly severe, with 59% saying they will have to revise their global strategies, such as by moving production centers. By contrast, 64% of Japanese companies said the trade war has had no effect whatsoever. Only 12%, however, said it would not be a factor in the future.

In Japan, greater protectionism by Washington and Beijing was seen as the biggest risk for 2019, at 67%, followed by China's economic slowdown at 50%.

"Companies are already curbing capital investment and business confidence is falling," said Tatsuo Yasunaga, president and CEO of Japanese trading house Mitsui & Co.

The impact can also been seen in companies' willingness to invest. With regard to plans for 2019, 33% of Chinese companies said they would reduce investment in the U.S. compared with 2018. As the Chinese economy loses steam, just 14% of Japanese companies said they would increase investment in China from 2018 levels.

The effects are already surfacing in the real economy. Ford Motor's sales in China, the world's largest auto market, fell over 30% in 2018. Nissan Motor will reduce production 20% at its three main factories in the country.

In politics, business leaders expect Japan to drift away from South Korea and grow closer to China in 2019. More than half of executives in Japan and South Korea -- 53% and 54%, respectively -- predicted that relations will worsen. Lawsuits by former wartime laborers against Japanese companies were cited as one of the main causes, by 69% in Japan and 45% in South Korea.

South Korea's Supreme Court ruled against both Nippon Steel & Sumitomo Metal and Mitsubishi Heavy Industries in separate damages cases in the fall. Nippon Steel Vice President Katsuhiro Miyamoto said in November that the decision violates a treaty normalizing relations between the two countries and is contrary to the Japanese government's position. The plaintiffs are now proceeding with steps to seize the steelmaker's South Korean assets for failing to begin compensation talks.

"The rulings will become a source of concern about the legal security of Japanese businesses conducting business in South Korea," said Hiroyuki Ishige, chairman of the Japan External Trade Organization.

Many corporate heads expected Sino-Japanese relations to improve, on the other hand, with 45% in Japan and 77% in China predicting closer ties. None in Japan and just 2% in China said the relationship will worsen.

About 60% of respondents in both countries said that the October summit between Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe was a key factor in the rapprochement. China and Japan also agreed to cooperate on 52 overseas infrastructure projects worth a total of $20 billion, according to Chinese Premier Li Keqiang.

Half of Chinese companies cited greater tourism and cultural exchange as reasons for the improved ties. "Consumption by Chinese visitors to Japan could grow to between 5 trillion yen and 10 trillion yen ($46 billion and $91 billion) should Japan build out its cashless payment infrastructure," said Makoto Koyama, CEO of Alibaba Group Holding's Japanese arm.

Over 70% of Japanese companies, and about half of Chinese and South Korean ones, expressed a desire to buy or partner with startups. November's China Hi-Tech Fair in the southern city of Shenzhen attracted over 560,000 attendees in just five days, with exhibits from more than 3,000 companies on display.

Artificial intelligence was the top field in which corporate chiefs would like to acquire or team with startups, at 32% for China and Japan, and 22% for South Korea.

China has more than tripled its count of so-called unicorns, or startups valued at over $1 billion, in the last three years to roughly 70, according to a survey by CB Insights last summer. China's top two e-commerce companies, Alibaba and Tencent Holdings, have actively invested in the country's proliferating startup scene.

"Their startup investments are in a growth phase now," said a source close to Tencent.

Tencent has led about $3 billion in funding for Groupon-style e-commerce platform Pinduoduo, which listed on the Nasdaq this past summer. Alibaba also helped pour $600 million into Hong Kong-based AI startup SenseTime in April. Their appetite for startups does not seem like it will be satiated anytime soon.

In Japan, 74% of respondents said their companies are investing or are likely to invest in startups to secure growth, the highest of the three countries. China followed at 53% and South Korea at 50%.

Telecommunications equipment maker Huawei Technologies was chosen as the top Chinese company to watch in 2019. Its chief financial officer, the daughter of the company founder, was arrested in Canada in early December, inflaming tensions between the U.S. and China.

Toyota Motor was picked as the top Japanese company to watch. The carmaker was praised for its partnerships with SoftBank Group and other players from outside the automotive industry in its efforts to develop next-generation technologies like automated driving.

Respondents chose Samsung Electronics as the top South Korean company to keep an eye on. Samsung Group and other family-run business empires in the country are facing government pressure to reform. Samsung BioLogics, the group's biotech arm, was fined in November after the country's financial regulator said it committed accounting fraud.

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