Ten­sions take toll on China-Ja­pan FDI

China Daily (Canada) - - BUSINESS - By LI JI­ABAO li­ji­abao@chi­nadaily.com.cn

Last year’s de­cline in China’s bi­lat­eral in­vest­ment with Ja­pan is a sign that com­pa­nies in Asia’s top two economies are con­cerned about the im­pact of pro­longed ter­ri­to­rial dis­putes and strained ties, an­a­lysts said.

Ja­pan’s di re c t in­vest­ment in China fell 4.28 per­cent to $7.06 bil­lion, which rep­re­sented about 6 per­cent of China’s over­all for­eign di­rect in­vest­ment, the Min­istry of Com­merce said on Thurs­day.

China’s overa l l FDI in­flows rose 5.25 per­cent in 2013, com­pared with a 3.7 per­cent slide in 2012.

In 2012, the coun­try’s FDI in­flows from Ja­pan surged 16.3 per­cent to $7.38 bil­lion — a pace much faster than the FDI inf lows from the United States or the Euro­pean Union.

“Po­lit­i­cal ten­sion was the ma­jor rea­son for the slide in Ja­pan’s in­vest­ment in China last year. Af­ter the is­lands dis­pute, Ja­panese en­ter­prises were wor­ried about in­creased risks in China and shifted some of their plants to South­east Asia,” said Yao Haitian, a re­searcher at the In­sti­tute of Ja­panese Stud­ies, which is un­der the Chi­nese Academy of So­cial Sciences.

In Septem­ber 2012, Ja­pan’s “pur­chase” of the Diaoyu Is­lands strained its ties with China. More re­cently, Ja­panese Prime Min­is­ter Shinzo Abe’s visit to a con­tro­ver­sial Tokyo war shrine sent re­la­tions into a deep freeze.

“The im­pact of po­lit­i­cal ten­sion will per­sist in the near fu­ture as con­fronta­tions be­tween the two coun­tries are ex­pected to in­crease this year. This will weaken the will­ing­ness of Ja­panese com­pa­nies to in­crease in­vest­ment,” Yao said.

“What’s more, Ja­panese en­ter­prises were con­cerned about the slow­down in China’s eco­nomic growth last year. Costs in China, es­pe­cially wages, rose quickly in re­cent years, which prompted some la­bor- in­ten­sive Ja­panese en­ter­prises to shift their plants to emerg­ing economies,” Yao said.

Ja­panese in­vestors were early movers in the Chi­nese mar­ket decades ago and played an im­por­tant role in China’s rise to the world’s sec­ond-largest econ­omy.

“Ja­panese en­ter­prises will not aban­don the fas­t­ex­pand­ing Chi­nese mar­ket, and com­pa­nies aim­ing at the huge Chi­nese mar­ket are likely to in­crease their in­vest­ment,” said Song Zhiy­ong, a re­searcher at the Chi­nese Academy of In­ter­na­tional Trade and Eco­nomic Co­op­er­a­tion, a think tank of the Com­merce Min­istry.

“La­bor-in­ten­sive ones may shift their busi­ness from

Po­lit­i­cal ten­sion was the ma­jor rea­son for the slide in Ja­pan’s in­vest­ment in China last year. Af­ter the is­lands dis­pute, Ja­panese en­ter­prises were wor­ried about in­creased risks in China and shifted some of their plants to South­east Asia.” YAO HAITIAN RE­SEARCHER AT THE IN­STITUE OF JA­PANESE STUD­IES

China ow­ing to fast-ris­ing wage costs.”

He added that this year, Ja­pan’s di­rect in­vest­ment in China is ex­pected to be the same as last year or per­haps slightly larger.

China’s out­ward di­rect in­vest­ment in Ja­pan plunged 23.5 per­cent in 2013, com­pared with the 16.8 per­cent in­crease of China’s over­all ODI last year, ac­cord­ing to the min­istry.

In 2012, China’s di­rect in­vest­ment in Ja­pan jumped 47.8 per­cent, faster than the 28.6 per­cent growth of the coun­try’s to­tal ODI.

“Chi­nese di­rect in­vest­ment is very small, and it’s easy to have big fluc­tu­a­tions from just one or two projects,” Yao said.

The de­pre­ci­a­tion of the yen also curbed Chi­nese en­ter­prises’ spend­ing in Ja­pan, where la­bor costs are very high. Chi­nese com­pa­nies are keen to ob­tain man­age­ment ex­per­tise through in­vest­ment in Ja­pan, Song added.

“The Chi­nese gov­ern­ment at­tached great im­por­tance to the is­lands dis­pute and Chi­nese com­pa­nies are con­cerned about the pres­sure and op­er­a­tional risks be­fore in­vest­ing in Ja­pan,” Song said.

“Chi­nese spend­ing in Ja­pan will re­main at a low level, while China will re­tain its at­trac­tive­ness to Ja­panese com­pa­nies.”

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