Symposiums and Seminars
Report on
The 14th GISPRI Symposium
"How to build a new Japan-China economic relationship"

On February 5, 2004, Thursday, GISPRI held the captioned Symposium at the International Conference Hall (11th Fl. Keidanren Kaikan Ote-Machi, Chiyoda-Ku, Tokyo), with the support of the Ministry of Economy, Trade and Industry, Nippon Keidanren, and Japan-China Economic Association.

Opened with the special lecture given by the Honorable Wu Dawei, Chinese Ambassador to Japan, the Symposium featured two sessions with five panelists each.  Stated below is the outline of the proceedings.

1. Special Lecture: "Current Chinese economy and society and their prospects for the future"
The Honorable Wu Dawei, Chinese Ambassador to Japan
[Summary of the lecture]
Since the policies to reform and opening to the outside world were introduced in 1978, China has achieved outstanding progress in the development of a modernized society, maintained sustainable economic development, and improved social productivity and gross national power. Today, China has completed its initial phase of developing a socialist market economy system, while introducing the various forms of property ownerships, and firmly establishing an economy opening to the outside world. Its economy has seen significant improvement in both the quality and profitability. Its economic growth rate is 9.1 %, GDP is 1.4 trillion dollars (about 150 trillion yen, which is the 6th in the world), gross import/export amount is 851.2 billion dollars (5th in the world), and foreign exchange reserve is 403.3 billion dollars (2nd in the world). China is number one in the world for the production of coal, iron and steel, color TVs, and cement. Three mega-projects (the Western China project: electric power supply to the Eastern China; another Western China project: natural gas supply to the Eastern China, and the Southern China project: water supply to the Northern China) have been fully introduced, and smoothly executed.
The Chinese standard of living has experienced significant leap from the hardship living with clothing and food issues to the lives of greater affordability and affluence. Especially apparent is the improvement in their income level, life expectancy, education quality, material life and cultural life, as the per capita GDP exceeded 1,000 US$. The consumption structure was shifted from the want of clothing and foods to the pursuance of better housing and transport conditions. T
he growths are especially significant in speedway construction, cellular phones, Internet, passenger cars, home ownerships, and oversea travels.
On the other hand, some problems are becoming apparent such as: the stagnant growth of farmers' income adding greater pressure for urban employment; overheated economic development of certain regions and industries making regional development off balance; prominence of paradoxes in resource bottlenecks; and the realization of environmental issues. To solve this problems, China has no choice but to rely on the further progress in reform and development and recently launched the concept of sustainable development to harmonize all aspects of development. The center pillars of this concept are to stabilize, and properly coordinate policies, to integrate plans and programs; and to aim for the balanced development with consideration for all. To be specific, the concept calls for the improvement in the current dual social structure of urban and rural areas, better coordination among the Eastern, Central, and Western China, social progress and full development of human resources, harmonization between economic surroundings and resource environment, and the greater utilization of both domestic and international resources and markets.
The 16th Conference of the Chinese Communist Party adopted the "Grand Blue-print for fully developing an affluent society." The aim is to quadruple the GDP from 2000 level to reach 4 trillion dollars by year 2020 with per capita GDP exceeding 3,000$. Based on the Deng Xiaoping Theory and three representative concepts, China shall resolutely promote the reform and opening policy with a focus on its economic development, sustain its policy on scientific advancement, and develop socialist market economy, socialist democracy, and advanced socialist culture, thereby promoting the overall development of economy, society and people.
In view of how much China achieved for the past 25 years, there is no doubt that it can attain the goal of fully developed prosperous society, in the end. The development of China will not only contribute to the peace and prosperity of the World, but also provide a new platform for international funds to take an active role. The viewpoint that China's ever-continuing development is one of driving forces to move the world economy is correct. The broadening of a market and increase in business opportunities brought by the Chinese economic growth assuredly lead to developmental opportunities and actual benefits for Asia and the World. I fully believe that China can contribute anew for the peace and the development of the World as well as the further development of Asia.
The Yen loans from the Government of Japan played an important role in the modernization of China. The trade amount between two countries reached the highest level last year at 133.5 billion $. For China, Japan has been the largest trade partner for 11 years in a row. It is my sincere hope that the economic cooperation and exchanges between China and Japan will expand further in the future and bring more happiness to the people of both nations.


1st Session "Economic development of China and the future of Japan and Asia"
Issue presenter Dr. C. H. Kwan, Senior Fellow, Research Institute of Economy, Trade
and Industry
Coordinator Mr.Shinji Fukukawa, Senior Advisor, Dentsu Inc.
Panelists Dr. C. H. Kwan, Senior Fellow, Research Institute of Economy, Trade
and Industry
Prof. Fukunari Kimura, Faculty of Economics, Keio University
Dr.Toshiya Tsugami, Senior Fellow, Research Institute of Economy,
Trade and Industry
Mr.Yasushi Harada, Comprehensive Policy Researcher, Economic and
Social Research Institute, Cabinet Office, Government of Japan
Dr. C. H. Kwa Shinji Fukukawa Prof. Fukunari Kimura Toshiya Tsugami Yasushi Harada

[Issues presented by Dr. Kwan]
  • 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.
Upon the above items raised by Mr. Kan, three panelists debated freely.

(Prof. Kimura)
  • [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."

1. Overheated economy

We cannot debate solely on economic indices such as price index, money supply, etc., but the Chinese economy is definitely not overheated.

I believe it was somewhat overheated until the end of last year. Recently, however, they start to have practical tightening policies. The growth rate of 9.1% may actually be higher, so there is really a need to introduce the tightening policy.

The problem is in employment, in other words, the issue related to the population shift between the regions within China. In addition, the bottlenecks in various resources may lead to disorder.

The appreciation of Yuan can be a measure to cool down the overheated economy. What I worry is the fact that the increase in bank loans to reduce the banks' bad debts ratio seem to flow into the real estate markets. Investment is the driving force of Chinese economy now, but they need to shift it to consumption. Their current consumption structure is distorted with only expensive items showing stronger sales, which reflect the uneven distribution of wealth resulted from the privatization of state-owned companies.

2. Yuan appreciation issue

Even if Yuan is to be appreciated, its impact on the balance of international accounts may be less than expected. In terms of Chinese export pattern, we find a shift from textile and clothing to machineries. These commodities have prices fixed on US dollars, so Yuan appreciation will not undermine their export competitiveness. Thorough review will be needed on this issue.

Yuan appreciation is not likely to improve the current balance. It is better to use the foreign exchange reserve to invest domestically rather than to invest on lower return bonds.

Real economy and finance/currency are two sides of the same coin. The issue of their currency should be addressed under the concept of regional integration and linkage along with the integration of real economy.

In a long term, it may be possible to think about one unified currency for Asia, but at present the gaps between Asian countries are wide in their developmental phases and industrial structures, so Asia region as a whole does not certainly come up to the required condition for creating the optimum currency sphere. For the short term, managed currency floatation system and the BBC method (band, basket, and crawling) may be better. Yuan is about 15-20% undervalued now, so it is better to appreciate Yuan gradually in the expanse of several years. China eventually needs to consider the liberalization of capital, but there is no need to hurry.

3. FTA Issue

Order of concluding FTAs can be:
  • With Mexico, the FTA negotiation is in its final stage, and likely to get a breakthrough.
  • In case of Philippines and Malaysia, to reach actual agreement within this year or early next year will be sufficient.
  • With Korea, the negotiation is rather difficult. The current situation calls for the gradual advancement of negotiation and the development of details through mutual consent over the entire year of 2005.
  • The future discussion will involve whether to broaden FTA to the East Asia as a whole, or with ASEAN, and whether to envisage the involvement of China. For the next one or two years, however, Japan and China are not likely to be ready for such discussion.
Contents of the FTAs
  • Removal of tariff is essential. Developing countries need to develop own industry by replacing imports, so cross-border efficiency improvement is wanted. Such are the cases for automobiles, home appliances, petrochemicals, iron and steel, and other industries.
  • On the other hand, East Asia has developed international production/distribution network already, and become more export-oriented, so FTA for tariff removal alone will not be sufficient. The FTAs for this region need to incorporate the facilitation of trade and investment (including rules on investment), development of systems for intellectual property rights and standardization, introduction of dispute settlement procedures (especially for in-depth issues between private companies and states), and economic cooperation.
  • With China, the potential contents of FTA include tariff removal and resolution for agricultural issues to be implemented over the span of ten years or so. As there are various contents and issues to be discussed for FTA with China, it will be desirable to incorporate above to help improve policy-making environment in China.
On the agricultural issue:
  • The protection of domestic agriculture is what every country does. It may be better to resolve the issue by "protecting agriculture by the means of income compensation."
  • If a country is to launch some kind of basic guideline at first by the political leadership, it may facilitate the eventual resolution of this issue, while providing better impression to others.
  • Upon the review of FTA between Japan and China, the main stream of thoughts is certainly the tariff removal, but tariff issue has lost its importance significantly during the past 20 years. In this new era, it is a mistake to focus only on tariff issue. For example, won't there be anything to do for "the migration of population"? For example to change visa policy drastically.
  • In addition, the "issue of capital flow" finds more restrictions than trade. We must consider, for example, investing Japanese welfare funds in China to get better return.
    There may not be sufficient efforts or attitudes to go and get merits in China, rather than to expect and receive some merits from China. For example, Japan needs to exert more efforts to recruit Chinese tourists to Japan. Without serious and disparate efforts to earn as many merits as possible, the balance book as a whole will go into the red.
[Q&A from the floor]
Q-1: Mr. Taniguchi, President of the Comprehensive Research Institute on Modern Chinese Studies, Waseda University

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?

(Dr.Kwan) Shouldn't Japan treat Chinese students studying in Japan better? It is the failure of Japanese diplomatic policy. Many students end up not being able to get employment in Japanese companies, and start work for European and American companies. Such a way will never allow Japan to bring competent human resources together. How to utilize those Chinese students educated in Japan, or the NEC policy (Nippon Educated Chinese) is an important theme for the Japanese companies' advance into China in the future.


Insufficiency in communication may be the root of such problem. It is the same not only between Japan and China but also between Japan and Korea. The key is to have closer communication at various levels. Whether China/ASEAN or Japan/ASEAN, the contents are quite different, and both Japan and China are well aware of what should be done. I am optimistic.


Mr. Ohkawa, Senior Advisor, Toray Industries, Inc.

The issues of Chinese Yuan and FTA are closely related to each other. While Yuan is maintained at the rate undervalued by 15-20%, to let trade liberalization, which is the aim of FTA, precede Yuan appreciation may present a problem. Will it be acceptable to proceed with trade liberalization under the regimes of labor distribution and complementary relationships between two countries, without discussing currency issue?

(Prof.Kimura) Although FTA and currency issue is closely related, it is technically possible to address them separately. Real problem is not the Yuan but the transfer of capitals. Technically it is possible to start trade liberalization while restraining capital transfer. In practice, however, it may certainly be a problem.


I think it is acceptable to consider adapting the two-stage method. In the case of Japan, the so-called Nixon Shock led to the shift toward the currency fluctuation system, while the liberalization of capital flow somewhat lagged behind. People here may be worrying about the issue of remitting profits earned in China to Japan, but such remittance is not the trade of capitals but the transaction of ordinary expenses. As China being the country under IMF Article 8, and a member of WTO, such transactions must have considerable freedom, and rather preferably treated, so there should not be much complaint.


The FTAs of USA/Chile, and USA/Singapore basically prohibit the restriction on capital movement. I understand that there is no talk of incorporating such restriction on the FTAs Japan plans to make.

3. Second Session "New business models for the advancement toward Chinese market"
Issue Presentation: : Prof. Kenji Hattori, Faculty of Modern Chinese Studies, Aichi
Coordinator : Mr.Yasuhiro Goto, Columnist/Editorial Writer, Nihon Keizai
Shimbun Inc.
Panelists : Mr.Taizo Kayata, Executive Officer, President, Overseas
Marketing, Construction & Mining Equipment Marketing
Division, Komatsu Ltd.
Dr. Jian Min Jin, Research Fellow, Economic Research
Center, Fujitsu Research Institute
Prof. Kenji Hattori, Faculty of Modern Chinese Studies, Aichi
Mr.Yoshinori Yasumi, President, CEO, Unika Co., Ltd.
Prof. Kenji Hattori Yasuhiro Goto Taizo Kayata Dr. Jian Min Jin Yoshinori Yasumi

[Presenting issues (Prof.Kenji Hattori)]
  • 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.


1. About Chinese market
  • 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.
2. Introduction of a company and its current status

  • 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%,
3. Issue of qualities

  • 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.

4. Production and sales risks and countermeasures

  • 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.
5.About alliance

  • 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.

[Q&A from the floor]
Q: (Mr. Shimano, Chief of Economic Research Department, Okasan, Economic Institute)

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.

[Final comments]

  • 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.