Japanese business opinion turns against China

Once a big fan of Chinese operations and a major source of China’s investment inflows, the Japanese business has drifted away. As Beijing struggles to get its economy back on track and faces American and increasingly European hostility, this Japanese turn is unwelcome to say the least. It presents President Xi Jinping and his associates in Beijing with an even more difficult economic and financial challenge.

Japanese business has joined the rest of the developed world in making this turn. Business in the United States and to a lesser extent in the European Union (EU) has already lost faith in China’s former reputation for reliability. Supply chain disruptions during the pandemic and then the following years under the quarantines and lockdowns of Beijing’s zero-Covid policies convinced many that the best option was to diversify sourcing away from China, mainly elsewhere in Asia and, where there is to do with the United States. also in Latin America. These efforts have not only cost China a source of economic dynamism and employment, but also the inflows of investment on which the growth trajectory of the economy has depended.

If this loss of business confidence wasn’t enough, governments in the West have also turned against China. Washington has become openly hostile. Biden, while reflexively reversing everything Donald Trump did, has nevertheless kept in place the tariffs on Chinese imports that Trump had imposed in 2018 and 2019. Biden has even expanded them, recently raising tariffs on parts of manufactured electric vehicles in China (EVs). , and batteries, as well as solar panels, wind generators, medical equipment, steel, aluminum and computer chips. The EU hasn’t gone that far, but in response to what it describes as “dumping” of EVs on its markets, it has also threatened tariffs.

The government in Tokyo has taken a low profile on tariffs or other anti-trade measures. However, it has shown its distrust of China in other ways. Since Beijing tried several years ago to punish Tokyo for its refusal to yield to China over disputed islands in the East China Sea, Beijing cut off shipments of rare earth elements, Tokyo has led an effort to took the world’s developed economies – so – called the G-7 countries of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States – to find and develop rare earth deposits outside China. But it is not the Japanese government that has shown the greatest skepticism towards China. It’s a Japanese business.

A major survey conducted by the Japan Chamber of Commerce and Industry shows that a growing share of its members see China’s economic situation worsening for the remainder of this year and beyond. And the turn in opinion has been unexpected. As recently as last January, only about 39% of its members saw China weakening economically. That’s not a small number, but it pales in comparison to more than half of those who expressed this opinion in the most recent March-April poll. Almost a quarter of respondents said they would reduce their investment flows to China, and another quarter of respondents said they would not make any investment in China. Only 16% of respondents planned to increase their investments.

China certainly has bigger economic and financial problems than the pessimism of the Japanese business community or even the hostility of Western governments. It still faces a massive property crisis, so big in fact that the government’s latest trillion yuan scheme to buy cheap housing falls short of the need. Chinese consumers have lost faith in the future and are reluctant to spend, while private business in China has cut investment and employment. It would help if Japan looked favorably on Chinese trade and investment. That it is not makes the hill Beijing must climb to regain prosperity all the steeper, rockier and higher.