Japanese Companies' Investments in China

Author Name SHIBOTA Atsuo  (Former Senior Fellow, RIETI / Director General, Trade and Economic Cooperation Bureau, Ministry of Economy, Trade and Industry, METI)
Creation Date/NO. December 2009 09-P-004
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This research paper provides an overview of Japan-China economic relations focusing primarily on Japanese companies' direct investments in China.

First, I will outline the chronological development of investment relations between Japan and China over the past 20 years. Historically, there have been three boom periods for Japanese investments in China: the first boom from 1985 through 1987, the second from 1991 through 1995, and the third from 2000 through 2005. I will summarize the characteristics of Japanese investments, first for each of these three boom periods and then on an industry-by-industry basis, and provide an overall picture of developments in more recent years, such as a shift in the sectoral focus of new investments from manufacturing to financial and other service sectors as well as an increase in investments aimed at tapping into the huge domestic demand in China. Then, I will analyze the current trend of Japanese investments in China, using figures for years 2007 and 2008. Most recently, there has been a conspicuous increase in investments designed to strengthen marketing capabilities and/or research and development (R&D) functions as well as investments in the areas of banking and insurance services. Meanwhile, there have been increasing instances of strategic alliances between Japanese and Chinese companies. These latest developments will be discussed using a series of specific examples. I will also outline how Japanese companies' investments are positioned in the Chinese economy, including comments made by a Chinese government official.

Next, I will examine some of the issues surrounding Japanese investments in China, which include: statistical discrepancies between Japan and China; China's strategies to develop its western, northeast, and central regions; a switch in its growth slogan from "youkuai youhao" (fast and good) to "youhao youkuai" (good and fast); and the advantage of investing in China that remains unchanged despite the peaking out of manufacturing investments and changes in the investment environment in China. Furthermore, in considering future directions for Japanese investments in China in light of the U.S.-triggered financial crisis and its impact on the Chinese economy, I will discuss such issues as: Chinese companies' investments in Japan; risk associated with investments in China; risk hedging strategies; and the financial crisis and its impact on the China business of Japanese companies.

China, a country that is huge and diverse both in its geographical regions and population, has sustained its social integrity and economic development by maintaining a unique and unprecedented mechanism known as a socialist market economy. This paper, as a whole, is intended to provide a practical viewpoint to promote the development of "a mutually beneficial relationship based on common strategic interests" between Japan and China, particularly in the area of investments and other business activities.