Honda production line in Zengcheng, Guangdong province. Sales of the popular brand fell by 22 percent in April as parts shortages constrained production and deliveries. [China Daily]
China is likely to see a new wave of Japanese companies transferring their domestic production lines to the country, as a result of the devastating earthquake and tsunami in March. That's according to Dai Hakozaki, the deputy director general of the Japan External Trade Organization Beijing.
Hakozaki told China Daily that, in the light of China's rapidly rising domestic consumption, the country will continue to be the most attractive destination for Japanese outbound direct investment. Moreover, that will play a part in promoting Japan's economic recovery.
The March earthquake brought a halt to the export of some components in the auto, mechanical and electronics industries, causing losses for Japanese manufacturers based in China and also to auto part providers in Japan.
The earthquake will result in "some Japanese manufacturers moving production lines to China or increasing capacity at existing plants in the country", said Hakozaki, without further elaboration.
However, he said the number of relocations will not be large because "local investment is quite important, especially at a time when Japan is undertaking economic recovery from the earthquake".
The World Bank said recently that the Japanese economy will grow by 0.1 percent this year.
Since 1995, Japan has been a major investor in China. In 2010, the country ranked as the fourth-largest overseas investor in China, following the regions of Hong Kong and Taiwan, and Singapore, with investment reaching $4.24 billion, according to the Chinese Ministry of Commerce.
China is also the second-largest destination for Japanese outbound direct investment, after the United States.
According to Zhou Shijian, a senior trade expert from Tsinghua University, there is a high possibility that some Japanese companies will move production lines to China to expand their industrial chains, especially for components in the auto, mechanical and electrical equipment industries. Moreover, sectors such as components for electronic information and precision instruments are also likely to be relocated to avoid the possibility of a cessation of raw materials in the event of another crisis in Japan.
Previously, Japanese companies only transported these technology-based products into China for final assembly, to avoid the risk of revealing trade secrets.
Recent events have ensured that this is no longer the case. "The earthquake and subsequent nuclear crisis caused huge problems for Japan, and even drove some foreign technicians and companies away. Therefore, maintaining sales and profits rather than technology transfer is their (Japanese companies) major concern," Zhou said.
China has long been regarded as an attractive destination for Japanese investment, but interest has surged since 2008, according to a survey by the Japan Bank for International Cooperation.
Between January and September 2010, two sectors made huge investments in China. During that period, the auto industry contributed 17.2 percent of Japan's investment in the country, while the mechanical equipment sector provided 14.6 percent.
Hakozaki said the earthquake has severely damaged Japanese exports of auto parts and food to China.
China is the largest destination for Japanese exports.
"In the short term, those exports will decrease, but over a longer period of time, bilateral trade will recover," Hakozaki said.