ASEAN - Japan Inc. distancing itself from China, looking to India, ASEAN for growth

TOKYO -- Japanese companies no longer see China as a top destination for investment, and are overwhelmingly turning to India and ASEAN for growth, according to a joint survey by Nikkei Inc. and the U.S. think tank Center for Strategic and International Studies.

A combination of China's slower growth and aggressive national security policies has dented the Japanese appetite to invest in the world's most populous nation. Some 80% of respondents believe that China's growth rate will be lower than 3% in 10 years' time, including 34% who said that growth could be in negative territory.

The online survey received responses from roughly 2,800 people over the age of 20, working in the private sector. This is the third time Nikkei/CSIS has surveyed Japan Inc.'s sentiment toward China.

Since its accession to the World Trade Organization in 2001, China has continuously been the No. 1 destination for Japanese foreign direct investment in Asia, except for 2013, when Thailand briefly overtook it. However, when asked which emerging economy their company would invest in today, 50% said India and 38% said ASEAN nations, while only 4% of respondents named China.

Japanese companies have clearly started to look for alternative destinations. While 26% said that China's importance will stay unchanged or increase in the future, another 54% said, "Its importance will decrease, since other emerging markets are growing."

When asked the best strategy for Japanese companies doing business in China, a combined 55% called for either withdrawing or cutting back their China operations.

The lack of faith in the future seems to stem from their opinion of China's leadership. When asked, "How do you evaluate the Xi Jinping administration's Japan policy?" 56% replied "tough and adversarial" while 39% said "hard to define." Only a miniscule 3% called the administration "friendly and moderate."

Japan's corporate players have little enthusiasm toward the new order China is trying to establish in the region. When asked about the China-led Asian Infrastructure Investment Bank, 59% said there is no need to become a member. "See how the bank will be operated by becoming an observing member," said 35% of the respondents. Just 5% said Japan should become a member state as soon as possible.

The chilly relations between the two countries is affecting Japan's stance toward Taiwan, which China considers a province. Some 57% of respondents said Taiwan's independence would be the most desirable scenario for Japan. A similar 59% said that Japan should start free trade negotiations with Taiwan and support its aspiration to become a member of the Trans-Pacific Partnership agreement.

In terms of national security policy, the ratio of people who said, "Japan should strengthen the alliance with the U.S. to better cope with China" dropped to 48% from 54% in the previous survey two years ago. Meanwhile, the ratio of respondents who said, "Japan should strengthen its own defense capability to reduce dependence on the U.S." increased to 26% from the previous 21%.

Shin Kawashima, a professor at the University of Tokyo, said, "It is interesting to see that not only Japan's impression of China but its impression of the U.S. and the Japan-U.S. alliance is also changing."

Ken Moriyasu

nikkei

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