• The rise of China does not necessarily mean a challenge for Japan but actually an opportunity. Currently, the view of China as threats has been shifted to China as a driving force. Japan-China relationship is not the relationship of competition but that of mutual complement, in other words, the win-win relationship. The complementary relationship is where "China's strength is Japan's weakness and Japan's strength is China's weakness." The share of US market, in which Japan competes with China, is about 20%. For Japan, the business opportunities lay where the Japanese products are stronger (such as R&D, major part manufacturing, distribution, brand-image products, and services).
  
• Why Japanese automobile industry relocates its production sites to China? Originally, it will be ideal to manufacture automobiles in Japan and export them to China, but there still exists the barrier of 25% tariff on automobile imports. What Japan needs is to enter FTA with China as soon as possible. This will be useful as a measure to prevent the hollowing of manufacturing industry, as well.
  
• Problems concernings risks include exchange rate adjustment, the possible appreciation of Chinese Yuan (Renminbi), risks due to the cycle of economy, the possibility of inflation originated from China, and the overheating of economy.
• The inflating foreign exchange reserve of China will better be used for building national economy rather than to buy US bonds.
  
• In the 80% of the market, where Japan is not competing with China, the appreciation of Chinese Yuan does not necessarily mean good news, as it is better to have lower prices for Chinese products. Those benefiting from the Yuan appreciation will be only those 20% of the market in competition with Chinese products.
  
• The inflation rate in China is steadily increasing (3%), and the Chinese authorities are shifting toward tighter price policies. In the future, Chinese economy is likely to make a soft-landing.

• [In regards to the argument on the advantages of wage level gap,] It should be noted that the merits of transferring into China do not necessarily rest on the wage differences but also on the "service-link costs" (transportation fee, communication fee, etc) and the "aggregate benefits" (presence or absence of business partners). In case of direct investment into China, one must consider the "aggregate benefits" as well as "scale economy." Before considering relocation, it is necessary to make an earnest review on the distribution of roles between Japan and China.
  
• [In regards to FTA with China] Theoretically, the case of automobile industry is as discussed above, but, the issue is not that simple. Rather than the simple discussion on the tariff reduction, it is necessary to discuss the problem on how to let China improve its domestic policy-making environment. For this, the keys are what contents should be incorporated into FTA, and how to let China work on these contents. It is a tacit agreement between two countries to aim for the economic integration of the East Asia as a whole. Japan's role is to subjectively consider the contents of economic integration. Japan has already started FTA negotiations with Korea, Thailand, Philippines, and Malaysia. The key points are what kind of contents should be incorporated to build more favorable business environment, and how to modify the domestic policies of each country. Japan should develop a prototype of FTA through negotiation with Korea and ASEAN countries, and then envisage the FTA negotiation with China. Hasty decision should be avoided. The partner countries of ongoing FTA negotiation are five nations including Mexico, and a few of them are likely to reach practical agreements within this year. In case of FTA negotiation with China, the timing to review the possibility may arrive about two to three years from now, if not later. At that point, there should be a discussion on whether China would be really ready to follow the steps of forerunners.

• We have indeed entered the era of feeling complimentary relationship with China. Japanese exports to China and Chinese GDP already showed significant increases. Sooner or later, China is likely to surpass Japan in GDP amounts.
  
• As the risks in this rapidly growing China, there are "regional gaps" and "the disparity in wealth," but Chinese authorities have rightly responded to the corrections of these issues, so there seems no need for any anxieties.
  
• One of the defining issues for China's success or failure in the future would be the issue of "population movements." China unified their dual registry system of rural and urban areas. This may provide the merit of securing labor force as hundreds of millions of people flow into urban areas, but substantially affects the environmental issues, employment/unemployment issues, and social environments, etc. The problem is: "Whether China can duly respond to such impacts?"
  
• Another problem is what will happen to the "restrictions on resource, energy and water." As seen in the case of iron ore price hike, how price increases due to Chinese factors influence domestic and international markets? It may end up being useful for the mitigation of the North-South economic issues.
  
• In regards to the Chinese Yuan, Mr. Kang said that there might be differences in viewpoints of politics and economics, but such differences are natural. Whatever the issues are, there will be winners and there will be losers. The problem is how to provide for the victims in the dark. In fact, this may be the major and fundamental issues in FTA.

• I agree that Japan and China are in a win-win relationship, i.e. complimentary relationship rather than competitive relationship. Moreover, I do not believe that there will be any one big event to overturn this complimentary relationship to a competitive relationship overnight.
  
• It seems that China's foreign currency reserve of 400 billion dollars, which is equivalent to about one third of 1.4 trillion dollars GDP, is too big. Their situation closely resembles that of Japan right before the Oil Crisis, which led to the appreciation of Yen. Moreover, to lend such huge foreign currency reserve to the US at lower interest rate of 1-2 % is a great loss for China, which maintains higher economic growth rate of 9%. If China is to invest these funds domestically, they must be able to achieve even higher growth.
  
• I hope that China will not repeat the mistake of Japan in the Yen appreciation. China is likely to make a soft-landing, but they need to study more from the cases of Japan's past mistakes.

• It seems all four panelists agree that Japan and China are on the win-win relationship. Now, we would like to focus our discussion on three issues as the keys for the projection of Chinese economy in the future: "overheated economy"; "Yuan appreciation" and "FTA."

I think that both China and Japan find insufficient understanding among young students. What should we do? Also, at the Special Summit Meeting of Japan and ASEAN, Japan approaches ASEAN countries, but ignores China and Korea. China on the other hand does whatever it wishes with ASEAN. Is this the way to be?

• The management viewpoint is to fill the gap between macro economy and actual works. I would like to introduce to you the thoughts of Japanese company people working hard at the work sites.
  
• The problems in Japanese companies' business activities in China include following three points: (1) no feedback from the work site (importance of work site, location, and actual commodities); (2) no long term strategy; and (3) the lack of a stance to address Chinese market with the full awareness of advantages and disadvantages of own companies.
  
• At present the status of China is rising as a vast market, but their companies lack international competitiveness (industrial competitiveness, export competitiveness, technologies, and brand images). The pillar for China's continuous growth will be to develop and earn independence of private entities, on the assumption that China is to recognize private ownerships and property rights. Economic relationship between Japan and China has entered a new era of "competition and coordination" from the earlier era of "stability". Also we must consider how to respond to their change of values from public-sector-oriented to private-sector oriented.
  
• There will be many business opportunities as the Chinese market continues to expand and become open, but the challenge for private entities is to establish the rights of domestic sales and sales in general, especially the right to trade. Certainly there are many risks arisen in the process of a regime change from controlled economy to market economy and from closed society to an open society.
  
• In the environment of four "nons" (irrational, unfair, insincere, and displeasure" as well as anti-Japan feeling, the localization will be the main pillar for investment strategy toward China. To be specific, the measures will include the training of Chinese managers, transfer of technologies (not the second-rated technologies), fund procurement (important to gather information), and marketing and sales (with distict class distinctions, targetting riches, or selling goods exclusively specialized for a specific region).
  
• Another key point is "greater authority to a local entity". The relationship with a parent company in Japan should be clearly identified. For small to medium size companies, out-sourcing and cross-industry alliance need looking into.
  
• In terms of time, we must invest in China by seriously studying and focusing on everything from people, materials, money, information etc. for the moment, but for longer term put less importance on strategy and resort to optimism, as Mao Zedong said. of "heavy tactics and light strategies."
  
• In larger perspective, Japan and China need to become the central force of East-Asian Economic Community. At individual level, Japan needs to view China in its life-size, from dynamic, three-dimensional, and multi-layer viewpoints, with the spirit of "commerce and money-making first and friendship second."
  
• It is important to tackle Chinese market through own entities as a medium.

• The source of Chinese purchasing power is the uneven distribution of wealth accumulated on value-added base, among regions, people, and professions. (Disparity between the haves and have-nots.)
  
• As the consumption structure develops, the market will further expand in every field.
  

• Even after the Beijing Olympics in 2008 and Shanghai Expo in 2010, China's growth will continue though losing momentum. Important thing is how to grasp the opportunity that exists today. It all depends on the management's attitude.

• Construction machinery market continues its course of expansion. The keywords for business expansion are "speed" and "quality."
  
• The (Komatsu's) sales amount in China is about 6% of the whole company sales. The ratio of Chinese sales in overseas market is less than 10%. Its growth rate is 60-70%.
  
• Japanese shovels are superior products and technologies in the world. Chinese market takes up the used shovels from Japan. Japan and China are in a complimentary relationship in terms of market, production, and used products.

• Business of our company (Unika) is the production of drills for concretes (hole-drilling edged equipment). The industry is matured and started to shrink in Japan. We concluded that advancement into overseas markets is the only way for the company's future growth. Taking advantage of our company's competitive edge on "high quality" and "low price", the company advanced into the Chinese market. What used to be important there 10 years ago when we first entered the Chinese market was "less cost," but now the keywords are "efficiency" and "productivity."
  
• The concept is "if you can win the Chinese market, then you can win any other markets."
  
• The sales in China shares about 5% of the total sales. Those manufactured in China are sold to Japan, and then to Europe and USA. The growth rate of the Chinese market is 70%,

• The quality and technology levels of Japanese products are superior, but they alone may not ensure sales. (Such as the cases of Japanese home appliances, cellular phones, etc.) The development of products and technologies conforming to the needs of consumers and the Chinese market as well as the growth of a market itself can lead to business opportunities.

• Nowadays consumers do not go for low quality inexpensive goods as they used to, but ask for higher quality products. In this sense, the bi-polarization of Chinese markets has begun in both consumption and supply. In other words, Chinese market is increasingly divided into two poles of "good and expensive" and "affordable." In the future, the question will be how to attack this huge market of 1.3 billion people which field to focus on, and whether to select spreading or aggregating.

• Production risks are not too hard to tackle compared with those of domestic sales.
  
• As long as one offers technological cooperation, there always are risks about pirating. Yet they can hardly copy the contents.
  
• Sales risks are actually the risks on "collecting payments." Collection method is not by cash but by "installments." As there is a secure system to collect debts through bank loans, trading is possible if there are information on, and proofs of, ID cards, copies of family register, and the work contents. We expect that there will be the development, transparency, and disclosure of customer and credit information.
  
• Until now, we put efforts to let consumers select Komatsu. In the future, it will become important for us to select consumers.
  
• What is important in debt collection is to manage the frontline of transaction. All the problems we find are localized at the site of transaction, including the moves and behavior of consumers, and the actions of our staff, managers, agencies, business partners etc. In this sense, risk management is equivalent to the frontline management.

• Regarding the issue of production, the management of production site is important in view of quality control. Sometimes even Japanese managers have difficulties. The biggest issues include the "education of local managers" and "training of employees."
  
• Pirating of products is inevitable, as the wants of users have been divided into "good quality products" and "cheaper the better."
  
• In terms of sales, the biggest problem is payment collection. Currently we request cash payment, but plans to shift gradually to credit sales.

• Generally and universally speaking, what is important in addressing risks is to make everything open. Another important thing is to pressure administrative organizations rather than to threaten or to intimidate them.

• The risk issue is not the comparison of risks between Chinese and Japanese markets, but whether you are facing the same risk your competitors are facing.
  The issues of payment collection and technology leakage are alike. Important thing is to self-manage what is valuable to you.
  
• The problem of technology outflow is the problem of job hopping. How a Japanese company manages and controls Chinese or Japanese people in the Chinese market. Are you in the control of what the technologies are and what should be protected?
  
• Need to build systems, regulations, and methods for localization, risk hedging, risk management, and monitoring.

• It is difficult to make general and universally applicable comment, but we need to note that China is still a developing country, and a country of one-party rule by the communist party. We need to address irrational aspects under such conditions as well as the aspects of their wish to develop markets.
  
• Especially the domestic sales issue is a big problem. To be partnered with a Chinese company can be more important than than to start production activities. While it is necessary for Japanese company to ascertain what kind of a company is your partner, Chinese companies are trying to place Japanese companies, too.

• There are three secrets of success in China. One is to well respond to the Chinese market through close observation and evaluation. (Sensitivity in responding and reacting to the market formation.) Two is to have a technology conforming to the consumer needs (for example, not a catalogue sales but technology development conforming to the demands of consumers). Three is the management (basically localization of management).

• We provided Spartan training for the "management education" of the local president, while inspiring employees as a whole to have "motivation."
  
• In terms of alliance, we formed one cross-industry company among small and medium companies to enter the Chinese market. Unika has become a representative company to manage the local company (local name: Rimao). Each Japanese company is organized into each "division" in order to reduce costs, improve management efficiencies, and hedge risks by sharing certain business functions and processing expenditures as common costs.

• The head of the local company is Chinese. He has been trained since his joining the company in Beijing 20 years ago. On top of training such personnel, important thing is that he has sufficient people to follow him. In other words, to develop an excellent individual, and let other local Chinese people motivated to strive on his footsteps.
  
• When we started to enter the Chinese market, the situation there did not allow for us to make alliance with other companies or entities, but today we try to do various efforts in winning the partnerships including the one with a university in Shandong Province.
  
• The basic principle of our company's management is to optimally and fully utilize every resource in China (human resource, funds, know-how etc.) Whether a plan is located in China or not, it is necessary for the production site to do whatever possible for winning a global competition.

What will be the impacts of Yuan appreciation and the countermeasures to mitigate such impact?

• As our company has more imports from China than exports to them, the Yuan appreciation will be a plus. In terms of investment from Japan, also, it is a plus as their values increase.

• We steadfastly make reservation on foreign exchange rates. On another aspect, the Yuan appreciation raises costs for the Japanese company in China, but their asset value will increase. It depends on how they offset each other.

• It is important to view China through the eyes of own company or entity.
  
• Before judging or criticizing China (Chinese companies), it is important to address issues as the issues of own.

• The most important is the localization. Localization does not necessarily mean to use Chinese people but to use people who have a thorough knowledge in the local market, and maintain sales capability. No need to be Chinese. We need to develop a market led by local markets. In such sense it is governance. How Japanese parent companies govern Chinese subsidiary company? How to motivate a local Chief Financial Officer? Current evaluation system may present problems. Make a commitment to the Chinese market, and provide incentive mechanism. Even Japanese can be well adapted to the job if qualified.