Envoy: China still vital for Japanese firms

China remains crucial for Japanese enterprises despite strained relations between the two largest economies in Asia and the sharp decline of Japanese investment in China, according to the Japanese consul-general in Shanghai.

"Emerging as a huge market, China will occupy a more important role in the strategies of Japanese enterprises, including manufacturing businesses," Masahiro Kohara said in an interview with First Financial Daily.

"In this sense, China's crucial role (for Japanese enterprises) has not changed much."

From January to June, Japanese direct investment in China fell by 48.8 percent from a year earlier to $2.4 billion.

Kohara said: "The primary reason for the sharp decline is the rising cost of labor. In the past, massive investment by Japanese enterprises in China was mainly driven by cheap and qualified labor. But the situation is changing."

In recent years, Japanese enterprises have adopted a "China plus one" strategy, selecting a cheap investment destination outside China, but Kohara said China's role can never be ignored.

"China's services and banking sectors are at a crucial stage in reforms. This means there is a golden opportunity for related Japanese enterprises. We will pay high attention to any policy adjustment in these areas, such as the establishment of the China (Shanghai) Free Trade Pilot Zone," Kohara said.

Yao Haitian, an Institute of Japanese Studies researcher at the Chinese Academy of Social Sciences, agreed and said the huge and expanding Chinese market is important for each transnational company.

"The Chinese market continues to hold an important position for Japanese companies, as they have cultivated the market for decades and accumulated large stocks of investment here.

"Despite the fall in Japanese investment in China, Japanese companies continue to show an interest in some emerging sectors in China such as retail, logistics and finance, owing to their advanced management," Yao said.

However, he added that the strained ties between the two countries will continue to dent Japanese investment in China.

"As Japan continues to foster investment destinations outside China, China's role for Japanese enterprises will probably weaken in the future.

"Meanwhile, competition between Chinese and Japanese companies in other markets will be somewhat clouded by political factors," Yao said.

On May 17, the first investment pact between China, Japan and South Korea took effect, boosting the ongoing trilateral free trade agreement.

Kohara said,"I am very optimistic about cooperation between China, Japan and South Korea in economic areas."

Referring to a fall in the number of Japanese residents in Shanghai, Kohara attributed this to difficult political ties, air pollution concerns, the drop in the yen's value and the increased use of local employees at Japanese companies.

lijiabao@chinadaily.com.cn