chapter  7
9 Pages

Feelings of insecurity: Japanese reactions to Chinese investments in Japan


China’s FDI and M&A in Japan Data for Chinese FDI and M&A activities abroad are not easy to find because of different statistical systems between China and other countries, inaccuracies of media reports (e.g., differences between annual and cumulative figures) and because money flows may not be recorded as coming from the People’s Republic of China (PRC) with its strict foreign currency controls, but rather from Hong Kong or even the Cayman Islands, where Chinese companies have transferred considerable funds to escape domestic controls. In this overview, only FDI recorded as coming from the PRC will in general be taken into account. Moreover, if possible, M&A activities are being singled out because they have a greater visibility for the general public than FDI and therefore attract the most comment. As it happens, China’s first overseas joint venture after the open policy was introduced in 1978 was concluded in Japan: In November 1979, the Beijing Friendship Commercial Service Corporation and a Japanese trading company (Nihon Tokyo Marunouchi Shoji) set up a joint venture “Jinghe Share Holding Company (Kyowa Kabushikikaisha)” in Tokyo (Tahakashi 2008: 2). However, Chinese FDI and M&A initially developed only slowly. According to Japan’s Ministry of Finance, the cumulative total of Chinese FDI in Japan between 1989 and 2003 amounted to 581 cases (9.15 billion yen), of which only 31 cases were in the manufacturing sector (300.9 million yen), the rest being either in the trade sector (337 cases) or the service sector (151 cases) (Zhu 2005: 28). FDI by Chinese companies in Japan rose sharply in 2007 and 2008 when the cumulative stock was about 20 billion yen ($224.64 million) according to Bank of Japan figures. According to the Japanese M&A consulting company Recof, M&A by Chinese companies amounted to 28.5 billion yen ($311 million) in 2009, a more than fourfold increase from 2008 (Asahi Shinbun March 2, 2010). According to Chinese official statistics, the cumulative total as of 2009 was $186 million, but according to the research by Professor Da Zhigang of the Chinese Academy of Social Sciences in Harbin, the total was around $500 million (Interview May 22, 2009). The latter figure may include Chinese funds channeled through Hong Kong. On an annual basis, Chinese FDI to Japan increased from $12 million in 2006 to $15 million in 2007, reaching $37 million in 2008 (JETRO 2009: 248). According to Thomason Reuters data, Chinese companies completed 11 investments in Japanese firms in 2009 at a total value of $118 million, up from seven deals for a combined $2 million in 2008 and two for $309 million in 2007. By the middle of 2010, the tally of Chinese investment in Japan had already jumped to 14 cases for $95 million.1 All of the M&A activities concerned small or medium-sized companies. These figures must be put into the context of the much higher Chinese FDI and M&A figures elsewhere. Chinese FDI started to pick up only in the 1990s. In 1995, it amounted to $2 billion, reaching a high of $6.9 billion in 2001, then falling again before climbing to $12.3 billion in 2005 (Takahashi 2008: 19). In

the first three quarters of 2009, China saw its annual investment overseas at $32.87 billion, up 0.5 percent year-on-year, according to the Chinese Ministry of Commerce.2 But according to the United Nations Conference on Trade and Development (UNCTAD), China’s FDI outflows are still puny relative to the size of its economy. China’s total FDI stock at the end of 2008 at $148-billion was 3.4 percent of its GDP that year. By comparison, the figure was 14 percent for developing economies and 26.9 percent for the global economy (Davos Special Report 2010). Concerning specifically Chinese global M&A activities, the record is, however, quite impressive: In 2009, Chinese outbound M&A reached $42.6 billion or 298 cases, down 42 percent from the record $73 billion reached in 2008. But despite the drop in value, this accounted for a record 7.5 percent of global cross-border M&A. This means that Chinese companies ranked third among the biggest foreign M&A investor nations after the United States and France – a sharp rise from twelfth position over the last decade. The majority of Chinese M&A investments overseas are within the Asia Pacific region (53 percent for the decade, 52 percent in 2009). China was the top M&A investor in the region in 2009 (up from third over the decade).3 The United States and even Germany ranked much higher as the destination of China’s M&A than Japan. In 2009 alone, Chinese buyers bought $3.9 billion of US assets, nearly four times the level of 2008. By comparison, US buyers invested $3 billion into Chinese entities in 2009, down 80 percent from 2008, according to Dealogic, an M&A consultancy. Chinese buyers represented only 3 percent of the $118.7 billion in US foreign investment last year. Yet China ranked as the ninth-largest foreign investor in the United States, and among the minority that increased its stake that year.4 In 2012, there were 40 M&A deals, valued at $11.1 billion (China Daily April 17, 2013). Chinese FDI in Germany in 2005 was $26 million compared to $15 million in Japan (Takahashi 2008: 19). In comparison, in 2008, there were 900 Japanese companies in Germany with 210,000 employees, and 570 Chinese companies with 7,000 employees (Germany Trade and Invest January 28, 2010: 12). The main reason for the low amounts of FDI flowing into Japan from China is the latter’s much greater preoccupation with securing access to energy and raw material resources, apart from the various difficulties encountered by all foreign investors in Japan.5 China’s reasons for investing in Japan are access to the highly developed Japanese market, technology, brand power and management knowhow. Another context that has not made much of an impact on Japan’s perception of China’s modest flows into the country is the much greater scope of Japanese FDI and M&A activities in China. Japanese FDI in China started after China’s opening in 1978. By the end of April 2009, the cumulative value of Japanese FDI in China had reached $66.68 billion, making Japan the PRC’s second largest source of foreign investment (People’s Daily Online June 3, 2009). The same discrepancy applies to Japanese M&A in China. In 2008 alone, 24 Chinese companies were acquired by Japanese companies, whereas 13 Japanese companies were acquired by China (and 12 by Hong Kong companies).6