Messages from Northeastern China (Part Three)

|China

The Recent Course of Events

Leaving the present time for seven years before, in 2004 there were many visitors to northeastern China from Japan, including local authorities, economic bodies and firms examining business expansion. The only-just-opened Itochu Shenyang Liaison Office was also favored with a great many visitors. All as one had the ardent feeling of wanting to confirm with their own eyes such things as the targets and prospects for the Northeast revitalization policy which was launched in 2003, and the advantage as an investment destination.

From then on, for the six years that I stayed there, there has been no let up for this course of events, yet the taking of the steps toward the opening of a liaison office and the realization of investment business was very slow. There has been, however, an increasing trend for expanding Japanese-affiliated companies coming here to Shenyang and Changchun, and the Japanese Associations of both places are bustling with new members.

At the Japanese companies expanding overseas the degree of the contribution to income from overseas business has been increasing. More than half of that is made up by Asia, and within that China’s share has been increasing rapidly. Recently, at the seminars to explain the investment situation for each country that the economic bodies of Japan organize, interest has been rising in emerging countries such as India and Vietnam, yet the idea that “next after China is China none the less” is also often heard. Along with the momentum toward a review of the systems of production from the global standpoint of survival after the Great East Japan Earthquake, it is expected that more than ever intense interest will be drawn to northeastern China also.

Let’s Try Taking an Upside-Down Look at the Map

I explained the local situation with eagerness to the visitors to the Shenyang Liaison Office. During this, what had everyone say “Of course! The scales have fallen from my eyes” was the change of view from looking at the map upside-down.

  • The line of sight of the people of northeastern China seems to be directed in a southerly direction. The three provinces of China’s Northeast, viewed by latitude, are in a positional relationship translated exactly to the west of Hokkaido (Shenyang = Hakodate, Harbin = Wakkanai). If you put Shenyang, the largest city in northeastern China, in the position of a baseball catcher, then the first base is Beijing, the pitcher is Dalian, the second base is Qingdao, and the third base is Seoul. What spreads out before the eye is the Bohai Economic Rim. In both political and economic terms the location of Shenyang is an extremely strategic one.
  • Meanwhile, Jilin Province, sandwiched by Liaoning Province to the south and Heilongjiang Province to the north, is a landlocked province. Distribution to Japan via Dalian is distant. If the development of the Japan Sea route from the ports of Russia, which when facing south are to the left, can be realized, then the distance from Japan will be made much less.
  • For Heilongjiang Province, China’s most northerly province, the maintenance of friendly ties with Russia is the matter to be most focused on. Every kind of event in Harbin is colored by Russia. Japanese firms’ expansions there have not grown from a dozen or so companies in number. The advantage for Japanese firms can still not be found when it comes to decide on business in Heilongjiang.

Itochu’s Initiatives

In addition to getting a hold on the overall picture—such as industrial trends for northeastern China in its entirety and the capabilities of partner firms, and the situation of the upgrading of all forms of infrastructure, including transportation—we are developing a variety of business schemes. Regarding Shenyang and Harbin, where we started office organization in 2004, we changed the form from offices to company branch offices, and became able to undertake trade operations domestically and internationally. There was the sense that finally we were able to stand alone, without relying on money from the parent company (headquarters). We had to focus our sights on highly profitable and speedy matters, but we are aware that northeastern China, which is blessed with all kinds of resources, is a treasure trove of business opportunities.

1) Liaoning Province

  • The expansion of the Liaoning Coastal Economic Belt Development Plan and the Shenyang Economic Zone Plan is proceeding steadily. It is China’s leading production base and consumer market, and it outshines the other two provinces in GDP growth also.
  • Itochu has set up: the eco-island project on Changxing Island in the outskirts of Dalian (the treatment of wastewater and recycling business are under development), a metal-processing project via a university-business alliance with Tohoku University, and a transport information system; and a consumer finance business to handle short-term loans to small and medium-sized enterprises and farmers.
* Incidentally, in Shenyang the real estate rush is continuing. For the Shenyang Municipal Government, which expects GDP growth via manufacturing industry expansions, it is a ticklish situation, but just for Japanese-affiliated firms the numbers of Japanese resident workers has been increasing, including from Kajima Corporation, Sekisui House, Mitsubishi Estate and Tokyo Tatemono.

2) Jilin Province

  • Jilin Province, in the Twelfth Five-Year Program, announced the making of 4 million vehicles, tripling the existing automotive industry. The ardent attention of the world is being focused on Jilin Province, which aims at the construction of a large automobile production base eclipsing the current Japanese domestic production volume of Toyota Motor Corporation. Furthermore, in fiscal year 2012, the announcement by Toyota Motor Corporation of setting up a project for increasing production by 100,000 vehicles in Changchun has become a spur and the degree of attention of Japanese-affiliated firms on Changchun has risen rapidly.
  • Itochu has got three companies in automobile-related business in Changchun. The anxiety of Japanese-affiliated firms is also strongly-rooted toward this market, which is redolent of state-ownership, strongly closed, and gives a feeling of having started late in comparison to other countries, yet Itochu, as a good partner for firms planning expansion, is striving for a bridge-building role to the last frontier market for Japanese-affiliated firms, including the introduction of middle partners and the cultivation of new markets.

3) Heilongjiang Province

  • Heilongjiang Province, which is China’s most northerly province, is a treasure trove with the foremost natural mineral resources and agricultural and livestock resources of the entire nation.
  • Itochu is developing a China SIS (Strategic Integrated System) strategy. We are developing a project showing trading company capabilities in full, from upstream to midstream and downstream, that is, from food production to processing and supply. In the upstream sector we have formed a partnership with the General Bureau of Land-Reclamation of Heilongjiang Province, and have focused on the creation of foodstuff resources supply systems, including organic vegetables; in the downstream sector, we have expanded retail capital, including that for supermarkets and convenience stores into which Itochu will put money. In China the interest in food safety is high, more so than in Japan. Through the activities of Itochu there is the feeling that a great contribution to the Chinese people may be possible.

For China’s Northeast the system of the public-sector leading the private-sector is extremely noticeable. The effort of the people in the public sector aiming toward an economic rise is really worthy of admiration. With the cooperation of the public sector, Itochu is selecting good partners, and is continuing its focus aiming at the fruition of projects.

Future Matters of Interest

For the development of northeastern China, the cultivation and putting in place of a distribution network is an urgent task. That will continue to lead to benefits for the Tohoku and Hokkaido regions of Japan. The Ministry of Land, Infrastructure, Transport and Tourism is focusing on the upgrading of Japan Sea hub ports, and the present detour route of the Port of Dalian suffers from a great handicap in terms of transportation distance. Currently, triangular routes linking ports on the Japan Sea coast with the ROK and Russia have commenced, but there is also the lack of reciprocal cargo and the inconvenience of Russian customs clearance, and it appears that it will still take time to show an active situation.

Meanwhile, China’s Dalian Chuangli Group, a Chinese private-sector firm, has begun Japan Sea trade, making a leasing arrangement for Rajin Port in the DPRK, and in addition Jilin Province has also leased Rajin Port, and is sending by sea low-calorie coal from Hunchun for heating use. China is utilizing Rajin Port as a hub for Japan Sea trade, and it appears that Russia and the ROK will also undoubtedly follow. While it would be ideal if Japan utilized the port and were able to open a breathing hole into China’s Northeast, the large wall of the normalization of relations with the DPRK is blocking the way.

[Translated by ERINA]