New business deals and investment on rise, but uncertainties remain: experts
Japanese companies appear to be showing greater confidence in China, as fresh business plans mainly aimed at the vast consumer products market and high-end manufacturing in the world's second largest economy are emerging.
The latest development, along with an overall rebound in Japanese investment in China last year, poses a sharp contrast to the previous trend of Japanese capital leaving China reportedly due to rising labor costs and political tension.
In one of the latest examples, Japan's leading coffee chain operator Doutor Nichires Holdings is reportedly entering the Chinese market via a joint venture with local partner Xiao Nan Guo, a Shanghai-based food and beverage company.
The Japanese firm believes that its low-price Doutor Coffee chain will have a niche among price-sensitive Chinese consumers, Nikkei reported on Sunday. The first location is expected to open as early as the fiscal year starting March 1, according to the report.
The partnership is set to be announced on Monday. Neither Doutor nor Xiao Nan Guo could be reached for comment by press time on Sunday.
In December 2016, Japan chemical and cosmetics company Kao Corp, which was said to have poured over 15 billion yen ($134 million) into China since 2012, told investors that the company would further increase its investment in a plant in Hefei, capital of East China's Anhui Province.
Taking Kao's earnings as an instance to show China's rising purchasing force, sales of Kao's China unit reached 103 billion yen in the fiscal year ending December 2016, up 6.2 percent year-on-year, the company's financial reports showed, while its home market sales slightly rose 0.9 percent.
"Japanese firms' confidence in the Chinese economy is picking up," Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges, told the Global Times Sunday.
The improved confidence from Japanese companies in the Chinese economy was also reflected in a survey conducted by the Japan External Trade Organization (JETRO) from October to November 2016.
Survey results released in late December 2016 showed that 40.1 percent of the respondents intend to expand in China in the next one to two years, up 2 percentage points from a previous survey.
Head of the JETRO's Beijing Representative Office was quoted by China Business Journal in a late January report saying that Japanese firms anticipate that the Chinese economy will be driven up by the demand of China's rising middle class for high-quality products.
Japanese investment in China rose 1.7 percent in 2016 from a year earlier, reversing three consecutive years of double-digit declines, data from China's Ministry of Commerce showed.
Although China has lost its labor cost edge to some Southeast Asian nations, the country's competitiveness remains, "buoyed by stable economic growth, strong domestic consumption and advanced manufacturing lines," said Wang.
In January, the IMF upgraded the forecast for China's GDP growth in 2017 to 6.5 percent up 0.3 percentage points from its previous forecast in October 2016. The global growth was estimated to stand at 3.4 percent this year.
Still, Wang said he is "cautiously optimistic" on the prospect of Sino-Japanese trade and investment which may be dampened by political uncertainties and yuan appreciation.
According to the JETRO survey, Southeast Asia has been the top destination for Japanese investment since 2012 when protests in China intensified following a territorial dispute in the East China Sea. Japanese investment to ASEAN markets reached 20.1 trillion yen by the end of 2015, almost triple from five years ago, according to data from the Bank of Japan.
Wang Danqing, a partner with Beijing-based consultancy ACG, thinks Japanese investment in China will grow but at a slow pace.
"Political tension will create some headwinds. But China is the second largest economy which Japanese firms would surely not miss," he told the Global Times Sunday.
While investment in China's labor-intensive industries is lackluster, the consumer products sector and high value-added sectors like high-end manufacturing will become key targets for Japanese investors, said experts.