The Future of Business in China

|China

In my previous two contributions, I wrote that China’s economy and policies for the attraction of foreign investment have reached a major turning-point. In this, the final of my contributions, I would like to consider in what direction business in China—which Japanese firms are hoping for at this historic juncture—will develop in the future.

Concerning trade, in volume terms, certainly, the growth of China’s booming demand is an engine, and it is thought that this increase will continue in the future too. Immediately at hand, there are the matters of contaminated foodstuffs putting a damper on things, and of areas of production, with China’s high production costs, continuing to move to other countries, yet the situation of relying on imports from China of apparel and light industrial products and a considerable portion of foodstuffs, will probably continue. Worthy of note, however, is not the increase in volume, but the shift over to quality. The exports to third countries (in some instances Japan) of Chinese-made automobiles and high-quality household electrical goods, which are increasing in international competitiveness, have a high likelihood of expanding rapidly. Although entering into commercial distribution by Japanese firms is not easy in these areas, on the flip side a trend has begun of Japanese trading firms taking upon themselves Chinese-made electric power generating facilities, steel-manufacturing plants, cement works and the like, and receiving orders in third countries. In the area of the ability to put together projects and finance, because Japanese enterprises have been at it a little longer, this trend will probably go on increasing dynamically. It is a trend of new dealings that aren’t recorded in Japan–China trade statistics.

Next, concerning investment, that by Japanese enterprises into China has already demonstrated a trend toward changing; 1) from a manufacturing industry focus to multilayered investment including finance, services and distribution; and 2) from a value-added trade model to a domestic-consumption-led model targeting the Chinese market. What is further worthy of attention is the fact that there will probably be a great expansion of investment that uses financial methods, including capital participation through mergers and acquisitions and the acquisition of the stocks of Chinese enterprises, and participation in the planning for funds to invest in Chinese enterprises.

Another important point is that the likelihood is high that investment into Japan by Chinese enterprises will rapidly increase. In such sectors as machine tools and solar electric generation facilities, examples of successful purchases of Japanese enterprises by Chinese enterprises have emerged. The Chinese government is also forging an approach, utilizing its superfluous foreign currency reserves, of aiming to employ its reserves actively through investment, and this trend with undoubtedly accelerate. Japan–China investment will probably shift rapidly to have a two-directional configuration from previously being unidirectional (Japan to China).

In this way, business in China has changed from the old model, and is entering an entirely new stage. Generally speaking, how partnerships are formed with high-caliber Chinese enterprises is thought to be crucial to business in China in the future. It is not a case of looking on wistfully at the rise of the Chinese economy and Chinese enterprises, but of applying that dynamism to Japanese enterprises’ own development. There are many points where Chinese enterprises have expectations of Japanese enterprises, and wouldn’t these be the very things that would be, under favorable conditions, opportunities to tie up with them?

Even so, if I had written this paper a mere ten years ago, it would have to have been an illustrated story in a science-fiction-novel style. Change will come increasingly quickly. What on earth will Japan–China business look like five or ten years from now?

[Translated by ERINA]