2 years after protests, "China risk" still haunts Japan firms

2 years after protests, "China risk" still haunts Japan firms

DANYANG China - Amid a revival in sales of Japanese goods in China and talk of renewed investment from some big firms such as Toyota, a dusty industrial park near Nanjing offers a cold reality check on the health of ties between Asia's two biggest economies.

Despite offering rent-free premises for the first three years to companies expanding to China, the Japan Automotive Parts Industrial Center (JAPIC), set up in Danyang, 200 km (120 miles) west of Shanghai, in 2011, remains near empty.

A visit to the Danyang park, the brainchild of former Toyota Motor Corp executive Kazuo Azuma, challenges the view that Japan Inc's engagement with China is slowly recovering from the shock of anti-Japanese protests that erupted two years ago.

"Do we see any ray of hope?" asks Azuma, who has spent more than 20 years in China, mostly building factories for Toyota. "To be honest, none at the moment. Japan’s full of risk-birds chirping, 'China risk'."

Azuma's vision was to transplant up to 400 auto parts makers from Japan’s industrial heartland, to help them survive the global shift in car demand to emerging economies. China, which is expected to generate annual sales of well above 30 million vehicles by 2020, appears the obvious choice for such firms to establish a base.

But JAPIC has only 24 parts producers in operation – half of what had been envisioned by now.

Azuma and the Danyang local government, which has invested at least 220 million yuan ($36 million) in the project, have called off the second and third phases of construction.

They have also decided to drop "Japan" from the park's name and to try to woo Taiwanese and other suppliers with ties with Japanese producers.

INVESTMENT SLUMP

Tensions between Tokyo and Beijing spiked in September 2012 after Japan nationalised a small chain of disputed islets in the East China Sea, triggering sometimes violent demonstrations and a boycott of Japanese goods by some Chinese consumers.

Firms such as Toyota, Honda Motor Co Ltd and Nissan Motor Co Ltd saw sales slump.

Japan’s direct investments to China fell nearly 20 per cent in 2013 and dropped another 40 per cent to 300.8 billion yen ($2.8 billion) during the first half of 2014 compared with a year earlier.

Southeast Asia became a primary destination for Japanese investment, attracting almost three times the amount going to China. During the first half of this year Southeast Asia attracted 878.1 billion yen worth of investments.

Jing Donggen, a senior Danyang government official in charge of the economic development zone where JAPIC is located, thinks the downturn in Japanese interest is temporary.

"We’re confident in this programme because there is limited growth opportunity for Japan’s small- and medium-sized companies in their homeland," he said.

There is some recent evidence from bigger Japanese companies to support that hope, with the major car makers, for example, seeing some pick-up in sales and making bullish forecasts.

Honda is aiming to boost volumes by 19 per cent to 900,000 vehicles this year. Toyota, which is also trying to boost sales by about 20 per cent to 1.1 million vehicles in 2014, is considering adding manufacturing capacity again, possibly building a new assembly plant by as early as 2018.

Yet smaller companies remain wary.

Kyowa Metal Works Co., a manual transmission supplier in Yokohama, passed up an opportunity to expand its operations in Wuhan in 2012, opting instead for a 2 billion yen move to open a plant near Jakarta.

"If there are political conflicts in China, who knows. We might not be able to repatriate what we have invested,” said Chief Executive Masumi Takashima.

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