Japan Inc makes renewed US push

Illusion about Chinese market disappearing, says think tank

TOKYO: Japanese firms are increasingly hitching their growth plans to the US, as concerns about Chinese demand and Beijing’s influence over supply chains prompt a noticeable pivot toward the world’s largest economy.

Robot maker Yaskawa Electric, drinks company Asahi, chipmaker Renesas Electronics and automaker Honda are just a few of the companies that in recent months have either expressed interest in expanding in the US or announced plans to do so.

While Japan remains tied to China through extensive trade and manufacturing operations, Tokyo has pledged with other members of the G7 nations to “derisk” but not “decouple” from the world’s second-largest economy.

That trend of limiting supply-chain exposure to China was highlighted by Prime Minister Fumio Kishida’s trip last week to the US.

Kishida, who visited North Carolina to tour a Toyota Motor electric vehicle (EV) battery facility now under construction, also emphasised cooperation on supply chains.

After years of seeing China as a market of almost endless opportunities, Japanese companies are now taking a more cautious view, executives and analysts say.

Almost half of Japanese firms operating in China did not invest there last year or reduced investment, a survey showed in January.

Some of the caution is due to economic security risks – China last year detained a senior Astellas Pharma executive on suspicion of spying – while many companies cite pessimism about Chinese demand and a weakening economy.

“The illusion about the Chinese economy, the Chinese market, is disappearing,” said Kunihiko Miyake, research director at the Canon Institute for Global Studies think tank.

“I think Japan and the United States started to discover the merits of each other.”

Miyake said he has been advising companies to bring home state-of-the-art technology from China.

The share of Japanese firms planning to expand in China fell below 30% for the first time, an annual survey from the Japan External Trade Organisation showed in November.

Only Hong Kong and Russia scored worse. Meanwhile, the share looking to expand in North America rose above 50%.

Still, it remains to be seen how the tension around Nippon Steel’s bid for US Steel will impact the outlook.

For Japan automakers, the importance of the US market has been amplified by their decline in China, where they have steadily ceded ground to EV giant BYD and other local players.

“China has turned into very rough going for the Japanese automakers as sales have declined there a lot, particularly as consumers have been tilting towards ... electric vehicles made by local brands,” said Christopher Richter, senior Japan autos analyst at brokerage CLSA.

“That heightens the importance of the US market,” he said, adding that historically, the United States has been the most profitable market for Japan’s car companies, exceeding even their home country.

Toyota late last year said it would boost investment by US$8 billion (RM38 billion) at its EV battery plant in North Carolina, bringing the total investment to around US$13.9 billion.

The plant, which is expected to begin operations in 2025 will be its first automotive battery plant globally.

Honda this month said it would invest at least US$700 million in transforming its Ohio plants as it creates an EV hub in the state.

The Honda investment showed how Japanese car companies were not just investing for next year but for “years down the line” said Anita Rajan, general director of Jama USA, a lobby group that represents the Japanese automakers.

Privately, one senior executive at a Japanese automaker said he was amazed by the dynamism of the US economy.

That, together with the difficulties in China, made him think the US market offered the better opportunity for growth, he said.

Last year Japanese overseas acquisitions totalled ¥8.1 trillion (RM254 billion), the most since 2019 and roughly double from a year earlier, according to LSEG data.

More than half of that was in the US.

But the US is not without its complications. Nippon Steel’s US$15 billion bid for US Steel has riled politicians, with President Joe Biden saying the manufacturer must remain domestically owned and operated, while Donald Trump has pledged to block the deal if he becomes president again.

And despite the many headwinds in China, Japan Inc remains heavily reliant on its neighbour, both as a manufacturing base and a market.

Last year, mainland China was Japan’s largest source of imports, at US$174 billion, and its second-largest export market, at US$126 billion, according to IMF trade statistics.

The United States was its top export market. While some companies may see the US market as a better long-term option, others do not have that option, said Miyake.

“It’s what I call the Hotel California syndrome. “You can check out any time.

“You can never leave.” – Reuters