China less attractive to Japanese firms - but not because of riots
China’s fading attractions were evident to Japanese companies even before September’s massive anti-Japanese riots, says Shukan Asahi (Nov 30). The riots, sparked by the Japanese government’s purchase of the disputed Senkaku islands in the East China Sea, only highlighted issues that had begun to surface years ago, the magazine finds. The issues are various but boil down to two. One: China’s labor pool is no longer cheap. Two: Chinese officials can be poisonous to deal with.
Cheap labor was the big draw. With Chinese wages so much lower than Japan’s, why not set up factories in China? The high yen was an additional impetus. Today, some 14,000 Japanese companies – most of them small producers of textiles, electronic parts, processed foods and the like – have operations in China. But wages have been rising steadily at a rate above 10% a year. In Shanghai, the average monthly wage is $439, still much less than in Japan but considerably more than other Asian venues: $325 in Manila, $286 in Bangkok, $135 in Ho Chi Minh City, $82 in Phnom Penh, $68 in Myanmar. In short, Japanese companies have plenty of other places to go.
As for Chinese officials, Shukan Asahi hears this story from a small parts manufacturer that had a factory in southern China. “At first,” a company executive explains, “they welcomed us with open arms. Why not? We created jobs and paid taxes.” Whether because of rising wages or some other reason, the company after a certain length of time decided to liquidate its operations. It applied for the pertinent documents. Suddenly the local government officials were inaccessible – or accessible in the wrong way. “Our president would get a phone call from an official: ‘How about drinking tonight?’” The president knew what this meant. He wined and dined the official at an exclusive local Japanese restaurant. The papers? Still not forthcoming. There was more wining and dining, and gifts of expensive tobacco. A year passed – still nothing. “Finally we basically slipped out of the country” – leaving the plant machinery behind.
Even bigger companies are gradually shifting operations elsewhere – the Aoyama menswear chain to Myanmar, Funai Electric to northern Thailand. These moves were underway before the riots and are expected to accelerate in their wake. Where Japanese companies will go when labor costs rise throughout the developing world, as inevitably they eventually will, is a problem that seems incidental in the short term.
Lately a new kind of seminar has been booming in Japan, says Shukan Asahi – seminars on leaving China with a minimum of fuss and bother. The magazine’s reporter, covering one of them, meets the president of a musical instrument maker, who says, “I’ve been thinking lately of starting up operations in China. A market of 1.3 billion people is after all very attractive. But who knows what will happen? So before I go in, I thought it would be a good idea to learn in advance how to get out.”