China Focus: Reforms offer new opportunities for Japanese businesses

BEIJING, June 30 (Xinhua) -- Although political tension has caused China-Japan trade to suffer recently, China will remain an important destination for investment by Japanese businesses and the country's reforms will offer fresh opportunities for them, analysts have said.

According to the Ministry of Commerce, direct investment from Japan, China's fifth-biggest investor, plunged 42.2 percent year on year during the January-May period.

The drop was partly a result of tense relations between the two countries due to territorial and historical issues, which ministry spokesman Shen Danyang warned would cause further damage to business cooperation if the situation keeps deteriorating.

"The impact on bilateral economic and trade ties is not in the interests of either side," Shen stressed.

Song Zhiyong, an analyst with the Chinese Academy of International Trade and Economic Cooperation, said the current trade volume between China and Japan did not come easily, and the two sides should work together to maintain the momentum.

Other than the impact of political factors, China's ongoing economic restructuring, with the country's growth slowing and production costs rising, is posing new challenges for Japanese businesses.

In the first three months of 2014, China's growth slowed to 7.4 percent, the lowest pace since the third quarter of 2012.

Beneath the headline number are China's painful efforts to gradually shift away from export-driven growth, which brought pressure to bear on foreign manufacturing businesses that once rode on China's cheap labor and land.

"For Japanese businesses, the investment dividends are retreating," noted Zhang Huanli, an analyst with the Xinhua Center for World Affairs Studies.

But along with the new challenges also come fresh opportunities. Song pointed out that China's reform push to expand market scale, open industrial scope and improve the business environment will still make it attractive for Japanese enterprises.

Currently, Japanese investment in China mainly centers on equipment, which leaves huge potential regarding technology transfers that would facilitate China's restructuring efforts.

"As the two countries are both on a track of economic adjustment, we can work together in areas such as the green economy, elderly care, modern agriculture and technology," according to Song.

Wang Taiping, former Chinese Consul General to Osaka of Japan, highlighted the financial and energy efficiency sectors for future cooperation, as investment is set to get easier with the steady progress of the free trade agreement (FTA) between China, Japan and the Republic of Korea (ROK).

In May, the China-Japan-ROK agreement for promotion, facilitation and protection of investment took effect, and this is widely believed to be a prelude to the foundation of the FTA.

Meanwhile, China is piloting a range of special regulations in the Shanghai free trade zone, including liberalizing interest rates and facilitating cross-border use of the Chinese yuan, to foster an international standard business environment that will be a boon for foreign investment.

"China's market is changing fast, and if Japanese businesses do not actively tap the market, they will get crowded out," Song stressed.