Japan's Carmakers Grow in China
10/20/2005
John Brinsley and Lindsay Whipp Bloomberg News,
International Herald Tribune
A day after Prime Minister Junichiro Koizumi of Japan drew Chinese government condemnation by visiting a Tokyo war shrine, Honda Motor and Toyota Motor announced plans to invest $328 million and create more than 1,000 jobs in China.
The political standoff over Koizumi's visits to the Yasukuni shrine, most recently on Monday, is unlikely to slow the surge - up 49 percent last year -of Japanese investment in China. Japan relies increasingly on China's cheap labor and growing consumer market for its economic survival, while China counts on Japanese companies to help sustain growth in an economy that grew 9.4 percent in the first nine months of 2005.
"It's a mutually complementary relationship," said Glenn Maguire, chief economist at Société Générale in Hong Kong. "Most of the economic and trade relationship between the two countries occurs in the private sector. Political tensions should not be blurring short-term corporate decisions."
Koizumi has visited Yasukuni five times since he took office in April 2001, straining relations between Asia's two biggest economies and spurring anti-Japanese riots and boycotts across China in April. That did not hinder Chinese imports of Japanese steel, computers and other goods from more than doubling between 2000 and 2004. China and Hong Kong together surpassed the United States as Japan's No. 1 trade partner last year.
China's Foreign Ministry said Tuesday that Koizumi's latest visit to Yasukuni would have "very serious political consequences." The ministry scrapped an Oct. 23 visit to Beijing by the Japanese foreign minister, Nobutaka Machimura. The dispute could also damage economic relations, Zheng Jingping, a spokesman for the National Bureau of Statistics, said Thursday.
Thousands of Chinese rioted in Beijing and other cities in reaction to Koizumi's policies in April, prompting some Japanese manufacturers to temporarily shut Chinese factories.
Still, the standoff has not stopped the flow of investment. Toyota said Tuesday that it would spend 1.9 billion yuan, or $235 million, to expand engine production in China, on top of $739 million it had already invested. Honda said the same day that it would build a $93 million transmission plant in Guangdong Province, southern China.
In July, Matsushita Electric Industrial began building a ¥10 billion, or $86 million, semiconductor factory in China. Matsushita had about 70,000 employees in China as of December and the new plant will add another 2,800.
"Politics seem to be going in one direction and economics in another," said Kenneth Courtis, vice chairman for Asia at Goldman, Sachs in Tokyo. "The bread and butter of China-Japan economic relations have enough shared interests to see this through."
China depends on Japanese investment and imports to supply goods such as steel, cars and televisions as domestic demand rises. Japanese automakers accounted for $5 billion of the $19 billion that foreign carmakers had invested in China at the end of 2004.
Japanese foreign direct investment in China reached $5.9 billion in 2004, according to the Japan External Trade Organization. More than half of Japan's foreign investment in Asia went to China.
"Japanese investment is necessary for China," said Koichi Kato, a former secretary general of Japan's governing Liberal Democratic Party. "It helps employment, for one. China knows this, so in that sense I don't think there'll be too much of an impact."
Even so, anti-Japanese riots on the scale of those seen in April could hurt Japanese companies.
A survey by the Japan External Trade Organization after the riots showed that 37 percent of 414 Japanese companies in China worried that the demonstrations would hurt business, and 9.7 percent said they were directly affected.
In Beijing on Monday, police cordoned off a street in front of the Japanese Embassy. A group of about 10 protesters shouted slogans like "Down with Japanese militarism." No other protests have been reported.
"Popular nationalism and sometimes the Chinese government's manipulation of the issue, as well as Japan's poor handling of it over the years, sometimes supersede their rational economic interests," said Ellis Krauss, a professor of Japanese politics at University of California, San Diego. "It's a dangerous pattern if it gets out of hand. So far it hasn't."
Still, Kato said, diplomatic tensions could hurt Kawasaki Heavy Industries and other Japanese companies that are hoping for a Chinese government contract to build a high-speed railway between Beijing and Shanghai.
"The order for that doesn't seem to be moving forward," he said. "It seems they're having to wait for Sino-Japanese relations to improve first."
Seoul also objects to Koizumi's shrine visits. The latest prompted President Roh Moo Hyun to cancel a meeting with Koizumi at next month's Asia Pacific Economic Cooperation forum gathering in Busan, South Korea.
Koizumi's landslide victory in Sept. 11 national elections suggests that his shrine visits have not cost him popular support. In a telephone survey published by the Kyodo newswire Wednesday, 48.1 percent of respondents supported the visits, while 45.1 percent opposed them.
Despite the strains, Koizumi's administration recognizes the importance of maintaining close ties with China.
"It isn't simply a relationship affecting the two countries," Finance Minister Sadakazu Tanigaki said Tuesday. "It's one that holds significance for Asian and world economies, so we must cooperate to develop this favorable relationship further."
