Column : Woo Japan for FDI

Pradip Shah

The recent tension between Japan and China triggered by the dispute over the Senkaku (or Diaoyu for the Chinese) islands has revived distrust between the two countries and will have far-reaching consequences on trade and investment flows between them. It also offers an opportunity for India to woo Japanese direct investment into India.

Japan was amongst the earliest countries to start investing in China in the 1980s after China liberalised foreign direct investment into the country. Japan had some unhappy experiences initially but accelerated its investment plans after China joined the World Trade Organisation in 2001. Japanese investment went into China with many strategic goals—finding an alternate market for Japanese products, given the trend of ageing and shrinking of Japan’s domestic population; manufacturing products at Chinese costs to address the Chinese buyer with affordable prices; and creating lower-cost production bases to address world markets more competitively with its technology-intensive products.

But the emotional Chinese reaction to the islands dispute, with calls for boycotting Japanese products, has shaken Japanese confidence in China as a growing market for Japanese products. Further, Chinese companies have sought to copy, adopt and improve on Japanese technologies, and can become a competitive threat for Japanese companies in the future. And with China’s workforce expected to shrink from 2017 onwards, its rising wage costs, coupled with a strengthening renminbi, will reduce the competitiveness of Japanese production bases in China.

This is an opportunity for India to warmly welcome

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