China becomes major Japanese investment site

China becomes major Japanese investment site

TOKYO (AFP): China overtook Britain, the Netherlands and Australia last year to become the biggest destination for Japanese direct investment after the United States, according to the latest finance ministry data.

The figures also show that increased investment in Asian countries such as Indonesia, the Philippines and Singapore along with China helped the region surpass Europe as main recipient of Japanese investment after North America.

The ministry said last month that direct investment in Asia jumped to a record US$9.7 billion in the year to March, up 46 percent from a year earlier. Investment in North America grew 16 percent to $17.8 billion but investment in Europe dropped 22 percent to $6.23 billion.

A further breakdown of the data released this week showed that Japanese investment in China alone soared 52 percent to a record $2.57 billion in the same period, accounting for 6.2 percent of global investment.

China's share was second only to the United States where Japanese investment advanced 18 percent to $17.3 billion, some 43 percent of the total.

The latest surge in direct investment in China comes only a year after the country displaced Indonesia as the most popular destination for Japanese companies investing in Asia.

Japanese analysts say the increase reflects the emergence of China as a market for finished goods and not just simply a low- cost production base for exporting cheaply-assembled products to other countries.

Among the three countries more popular than China as an investment destination during the previous year, Britain saw inflows from Japanese companies fall to $2.17 billion, down 14 percent.

Japanese investment also plunged 52 percent to $1.05 billion in the Netherlands and 34 percent to $1.27 billion in Australia.

But these three countries are still among the five biggest recipients of cumulative Japanese investment since 1951. After the United States with 42 percent, Britain is second with 7.3 percent, Australia third with 5.2 percent, Panama fourth with 4.7 percent and the Netherlands fifth with 4.2 percent.

China's share of the cumulative total over the past four-and-a-half decades is still only 1.9 percent, dwarfed by other Asian economies such as Indonesia with 3.7 percent, Hong Kong with three percent and Singapore with 2. 1 percent.

Indonesia

Among other Asian countries helping to boost the region's share of Japanese investment in the latest year was Indonesia, where investment rebounded to $1.76 billion, more than double the previous year's level.

Japanese investment meanwhile soared more than threefold to $668 million in the Philippines, where it has been long restrained by political turmoil and inadequate power supplies.

Investment also jumped 64 percent to $1.05 billion in Singapore, 24 percent to $719 million in Thailand, 63 percent to $400 million in South Korea and almost fourfold to $176 million in Vietnam.

But direct investment dropped eight percent to $1.13 billion in Hong Kong and was also down seven percent at $742 million in Malaysia. Investment in Taiwan dropped five percent to $278 million.

In Europe, the decline in Japanese investment was widespread except for Belgium, which saw a sharp increase reflecting Japanese carmakers setting up regional distribution centers along with research and development subsidiaries.

Japanese investment in Latin America came to $5.2 billion, up 55 percent and including sharply higher investment in Brazil and Mexico. Investment in Africa dropped 36 percent to $346 million but investment in the Middle East rose 34 percent to $290 million.

The finance ministry defines direct invest abroad as including investment by Japanese companies in overseas branches, subsidiaries and affiliates in which they own at least 10 percent of the equity. Direct investment also includes real estate for business but not pleasure.