Japanese Investors Take A Fast Boat To China

Japanese executives have long referred to joint ventures in China as "joint adventures." This sobriquet reveals an old uneasiness about Chinese investments. Despite geographic and cultural proximity to China, Japanese companies have lagged behind their U. S. counterparts. For decades, they have largely been content to export goods to their huge neighbor.

Now, Japanese blue chips from Hitachi to Matsushita are targeting China for major investment (table). Behind renewed interest in China is a combination of financial and political pressures. With production costs rising in such countries as South Korea and Thailand, the Japanese are turning to China. And Beijing's austerity program, designed to replace imports with Chinese-made goods, is forcing the Japanese to shift from trade to investments. Since 1985, Japan has gone from a $6 billion trade surplus with China to a $5.9 billion deficit.

MEMORY FADE. Japan's giants are finding it profitable to produce goods in China for export elsewhere. Hitachi Ltd. recently started a joint venture in Shenzhen to build TV tubes, which are then exported. Matsushita Electric Industrial Co.'s new Beijing venture sells picture tubes to Chinese TV makers, who export most of their sets.

That's not all. During the first nine months of 1990, the Japanese announced plans to spend $375 million on 218 ventures, dwarfing the $210 million for 236 projects by U. S. companies. Isuzu Motors Ltd. is hiking the number of trucks it makes in China. And in mid-February, Sumitomo Heavy Industries Inc. revealed plans to help launch 30 export-oriented joint ventures.

Japanese business is emboldened by the influx of its government's funds into Beijing, as memories of the Tiananmen Square massacre fade. Tokyo agreed in 1988 to a five-year, $6.2 billion loan package for 42 projects, but that was suspended after the killings. Last November, however, Japan announced it would release the first $280 million by this March.

Beijing's awareness of the high quality of workmanship needed to compete globally is also helping to lure the Japanese. "The Chinese have come to understand international standards," says Tadashi Suzuki, an executive vice-president at NEC Corp. For this, the Japanese have the Americans to thank. In the past decade, U. S. companies earmarked $3.3 billion for China projects, while the Japanese pledged $2.1 billion, according to the Chinese government. "Large U. S. investments have sensitized the Chinese to how foreign investors want to be treated," says an American diplomat in Tokyo.

The heaviest concentration of new Japanese investment is in the port city of Dalian, the heart of old Manchuria. Dalian now boasts a 3.5-square-mile industrial park occupied by 100 Japanese companies. Plans are afoot for a much bigger project, to be underwritten by a five-company Japanese consortium with backing from the Ministry of International Trade & Industry. If all goes well, says a Japanese banker involved in the plan, the first $115 million phase could start this year.

The Japanese want to boost technology transfers to China. Until lately, the Chinese could neither afford the technology nor use it effectively. Last fall, Hitachi announced plans to supply VCR technology to three Chinese-owned plants. Now, NEC plans to provide its joint ventures with the most advanced technology that international regulations allow.

But the Japanese haven't gone starry-eyed. Executives swap stories of Chinese inefficiency, including one about a coal shipment that was studded with brooms. "Chinese quality control is very, very bad," says Kenji Hattori, a manager at the Japan-China Association for Economics & Trade. Still, managers such as Kiyoshi Sakamoto, head of Sumitomo Corp.'s China trade, say they are experienced enough now to control the risks.

As economic links multiply, Tokyo wants political relations to keep pace. Washington outpaced Tokyo in repairing relations with Beijing last December, when it hosted the first visit by China's Foreign Minister since Tiananmen. Now, Tokyo hopes to catch up. As early as this spring, Prime Minister Toshiki Kaifu may visit China. A return visit from a top Chinese leader is expected. And the Japanese do not rule out an unprecedented trip to Beijing by Emperor Akihito in 1992. As economic interests merge, the two Asian giants seem ready to cash in on each other's strengths.

      Company        Product              Location      Value*
      MATSUSHITA      Picture tubes       Beijing        $77
      HITACHI         Picture tubes      Shenzhen        35
      MITSUBISHI CORP. Cement             Dalian         28
      NEC              Semiconductors     Beijing        27
                       Telephone switches Tianjin        11
      RICOH            Copiers            Shenzhen       23
      *Japanese share
      DATA: BW
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