21 October 2018
Firms which used to boast that their products were made in Japan now write the name and country discreetly. One example is Urara brand from cosmetics maker Shiseido. Photo: Urara
Firms which used to boast that their products were made in Japan now write the name and country discreetly. One example is Urara brand from cosmetics maker Shiseido. Photo: Urara

Japanese firms in China pay heavy price for Tokyo foreign policy

Food giant Meiji announced the closure of its baby food business in China. Retailer Ito Yokado closed two department stores in Beijing. Toyota taxis in Harbin carry a notice telling customers to boycott Japanese products.

Japanese firms in China are paying a heavy price for their government’s foreign policy, especially the nationalization of the Senkaku/Diaoyu islands in the summer of 2012 and Prime Minister Shinzo Abe’s visit to the Yasukuni shrine in December 2013.

In response, the Beijing government and media have turned up the volume of criticism against Japan and its products, stoking public anger that was already strong against the “devils” or “dwarf pirates”, as they are commonly known.

In February, a court in Beijing agreed to accept a class action for compensation by Chinese forced to work for Mitsui Mining and Mitsubishi Mining during World War Two and their descendants.
In May, Mitsui OSK Lines paid China 4 billion yen (US$39 million) for the release of an iron ore carrier seized in Shanghai the month before.

These two cases are the result of a change in policy. In 1972, when it normalized diplomatic relations with Tokyo, Beijing declined to accept compensation for war damage caused by Japan and ordered its courts not to accept such cases. Now the government has decided to allow such private-sector claims.
The impact of the backlash is already evident. In 2013, Japan’s exports to China fell 10.2 percent to US$129.88 billion, the second straight year of double-digit decline.

In 2013, Japanese investment in China fell to US$6.5 billion from US$13.48 billion in 2012. In the first four months of this year, it fell 46.8 percent to US$1.6 billion. By comparison, Japan last year invested US$22.8 billion in Singapore, Thailand, Indonesia, Malaysia, the Philippines and Vietnam.
The products most at risk are those in the retail market and for which consumers have a range of choice.

Firms which used to boast that their products were made in Japan now write the name and country discreetly. Cosmetics maker Shiseido has developed two brands specifically for the China market, Aupres and Urara, which carry the parent company’s name only in small characters; they are selling faster than its premium brand which everyone knows to be Japanese.

The Japanese press reported that, at the height of anti-Japanese demonstrations in September 2012, the Shanghai police forced a branch of Uniqlo to put up on its shop window a poster saying that it supported Chinese sovereignty over the Diaoyu islands. This was then filmed to show that even Japanese firms backed the Chinese position.

Hiraku Takada, a business consultant, said that, since late last year, the number of Japanese firms leaving China or seeing their business shrink has increased. “They face rising costs of labor and rent and intense competition. The hatred of the government and campaigns to boycott Japanese goods have certainly had an impact on them.”

This represents a sea change in China’s post-1978 history. Throughout the reform period, Japan has been one of the most important foreign investors, together with Hong Kong, Taiwan, the US and Europe. Their companies employ millions of people, making goods for the Chinese market and for export.

That decision in 1972 to decline compensation and, until this year, ban private lawsuits reflected the knowledge that such investment, capital and technology were vital for China’s economic recovery.

But now China is one of the largest recipients of foreign investment in the world and a major exporter itself. It no longer offers the preferential tax and land policies needed to attract outside money nor regards Japanese investment as essential, except in certain high-technology sectors.

For their part, Japanese firms have discovered that leaving is harder than arriving. Most never imagined that they would want to retreat, so that their corporate charters are not specific on this point.

“If you want to leave, you have to deal with many issues,” said Akihiro Maekawa, managing director of CAST Consulting. “Once a firm has submitted its layoff plan to the local labor department, the information quickly spreads to workers which can lead to chaos.”

Closing a company requires the approval of local authorities, which have wide-ranging powers in terms of taxes, permits and policies. They can demand millions of dollars in “unpaid taxes”.

“They tend to be uncooperative and make formalities very difficult,” Maekawa said. “The process can drag on, becoming very costly for the company leaving.

“The government is used to attracting foreign investment but lacks experience in divestment. The Chinese joint-venture partner may not accept the proposal for closing,” he added.

The writer is a Hong Kong-based journalist and author

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Hong Kong-based writer, teacher and speaker

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