(Mainichi: January 16, 2015 – p. 4)
The Chinese Commerce Ministry announced on Jan. 15 that the actual cost of direct investment during 2014 by Japan in China was $4.33 billion, down by 38.8% from the previous year. Japan’s direct investment in China dropped for the second consecutive year, following 2013 when it dropped by 4%. The reasons for the drop were the deteriorating Japan-China relations and a sudden jump in labor costs in China. According to the Japan-China Economic Association, the drop exceeded the decrease of 35% marked in 1989 when the Tiananmen incident affected Japan’s investment.
Ever since the Japanese government nationalized the Senkaku Islands in Okinawa Prefecture in 2012, Japanese factories have been attacked by Chinese demonstrators and Japan’s products have been boycotted in China. This has prompted Japanese companies to hold off on entering the market or expanding their operations in China.
In addition to Japan’s investment, U.S. investment in China dropped by 20.6%, while that by the Association of Southeast Asian Nations (ASEAN) fell by 23.8% and the European Union (EU) by 5.3%. On account of wage hikes for factory workers and an increase in rent for retail and office space mainly in urban districts of China, more companies are relocating their production bases to Southeast Asian countries.
Meanwhile, South Korea’s investment increased and overall investment in China was $119.56 billion, up by 1.7%.
As it usually takes more than six months for the actual cost of direct investment to be reflected in figures, the influence of the deteriorating Japan-China relations has become clearer in 2014. Since last summer, the extent of the decline has gradually grown smaller.