China-Japan ties to move forward
Japanese Prime Minister Shinzo Abe is currently paying an official visit to China. This is the first time in seven years that a Japanese prime minister has made an official visit to China, a sign of warming relations between the two countries. Deepening economic cooperation and joint third-party market exploration will be among the key topics during his trip.
The Japan External Trade Organization (JETRO), managed by the Ministry of Economy, Trade and Industry, has been focusing on promoting mutual investment and trade between China and Japan for many years.
In an exclusive interview, Global Times reporter Xing Xiaojing (GT) talked to Takeo Donoue (TD), director-general of JETRO’s Beijing office, about recent hot issues in the China Japan relationship.
GT: Japanese companies have played an important role in China’s reform and opening-up process. What lessons can be drawn from this role?
TD: When China and Japan normalized diplomatic relations in 1972, their bilateral trade was merely $1.1 billion. The volume climbed to $5.1 billion in 1978 and exceeded $10 billion in 1981. Bilateral trade grew exponentially to reach $296.9 billion in 2017.
From my perspective, China has undergone tremendous changes since the 1990s, and Japanese companies have played a huge role in that change. Of course, it is inevitable for some companies to fail in China. For example, small and medium-sized export trading companies are vulnerable to factors like rising production costs and exchange rate fluctuations. The Chinese market is changing fast, and Japanese companies must learn to quickly adapt to such changes.
GT: There were media reports that Japanese companies intended to withdraw from the Chinese market and move to Southeast Asia. Have there been any developments in this area?
TD: That’s not the case. Generally speaking, Japanese companies have high expectations for the Chinese market.
According to a JETRO survey released in January, 70.3 percent of Japanese companies operating in China forecast making profits for 2017, an increase of 5.9 percentage points compared with 64.4 percent in 2016. Almost half of the companies believe that they will continue to expand business in China the next one to two years. It shows that most Japanese companies in China are profitable and optimistic about the market.
Although there are factors like rising costs, the impact is quite limited because Japanese companies mainly sell to the Chinese market and can raise prices accordingly.
GT: Observers believe that Prime Minister Abe has reversed his previous opposition to the Belt and Road initiative (BRI) and is willing to offer support and cooperation. What has
caused the shift?
TD: To be exact, Japan previously was not opposed to the BRI, but there were many things about it we didn’t understand. The BRI is a very big program, so we want to learn more about it.
The Japanese Chamber of Commerce and Industry in China also set up a liaison council to beef up its information collection and help Japanese companies better understand the initiative. Over the years, more and more Japanese companies have seen the huge development potential in the BRI.
In addition, Chinese Premier Li Keqiang, during his trip to Japan in May, reached a consensus with Prime Minister Abe on cooperation in such fields as technological innovation, third-party markets and finance.
During Abe’s visit to China, both countries will also hold a forum on cooperation in exploring third-party markets. The third-party markets actually have a broader coverage than the BRI, and the combination of government and business could improve the confidence of Japanese companies.
GT: How will Chinese and Japanese companies cooperate and complement each other in third-party markets?
TD: There is great scope for cooperation between Chinese and Japanese companies in third-party markets, which offer many possibilities. Infrastructure construction is a major aspect, which covers energy generation, transportation and environmental protection.
Japanese companies have advantages in brand image, technology and core components, while Chinese companies have advantages in mass production, supporting infrastructure construction in emerging countries, strong government support and widespread overseas Chinese connections. Some Japanese companies have already started cooperation with their Chinese peers on such projects as resource exploration in Egypt and public construction in Ethiopia.
GT: How is bilateral cooperation going in cutting-edge technologies?
TD: Intellectual property rights (IPR) represent a relatively big problem in terms of cooperation between Chinese and Japanese companies. Japanese companies have invested a lot of time, money and labor costs in developing cutting-edge technologies, so IPR protection is especially important to them.
Some Chinese companies don’t understand this position and want to buy technologies directly. This is not conducive to the establishment of longterm cooperative relationships. Japanese companies cannot easily transfer these technologies without recovering their costs.
There are many methods of cooperation, however, and I believe every business will eventually find the most appropriate method.
GT: What’s the status of Chinese investment in Japan? What’s your advice for Chinese investors that want to do business in Japan?
TD: In terms of the number of investment projects in Japan, China is only second to the US. Chinese investments cover a wide range of fields, including information and communications technology, tourism, new energy, catering and education. For example, Huawei set up a research center; Ctrip opened a branch to better serve tourists; JD.com established a company in Tokyo to conduct cross-border e-commerce business.
However, Chinese companies seem to like investment in big cities such as Tokyo and Osaka. My suggestion is that they could also consider other places for their investment choices in Japan.
Many prefectures also have good technology companies, and their land and operation costs are much lower.