Market potential too important for companies to ignore, envoy says

Japanese companies are not pulling out of the Chinese market despite tension over the Diaoyu Islands, a Japanese envoy said.

"Japanese investors will not exit China because of the importance of the Chinese market and Japanese companies will not give up," said Atsuyuki Oike, the economic section minister of the Japanese embassy in Beijing.

Oike said he has not received any information of a Japanese company deciding to withdraw.

Japanese companies are boosting their presence overseas due to sluggish domestic demand.

By the end of 2010, the number of Japanese enterprises in China had reached 22,307, with total registered capital of $94.08 billion.

Tian Xue, a spokeswoman for the Tianjin Economic-Technological Development Area, a major investment destination for Japanese companies in China, said that no Japanese company had left the area.

However, Oike said some Japanese investors had concerns over investment in China following tension between the two countries.

The Japanese government "purchased" the islands in September from so-called Japanese private owners, a move that caused widespread anger in China.

Reuters released a survey illustrating that almost a quarter of Japanese manufacturers are rethinking investment plans in China and some may shift production.

"Japanese investment in China may see a slowdown in the next two months, because of a slump in sales in China," Oike said.

"But in the long term, investment will return to normal levels. Any plans to suspend investment are temporary," he said.

In the first nine months of this year, Japanese investment in China hit $5.62 billion, a year-on-year rise of 17 percent, making it the leading overseas investor, according to the Ministry of Commerce.

Commenting on Japanese companies reportedly increasing investment in Southeast Asian countries, Oike said that it doesn't necessarily mean that Japanese companies are shifting away from China to elsewhere.

"The investment plan in Southeast Asian countries, such as Thailand, only aims to meet demand from the local market through localized production," Oike said.

Yao Haitian, a researcher from the Institute of Japanese Studies at the Chinese Academy of Social Sciences, agreed.

Citing the potential of China's market, Yao said it would be hard for Japanese companies to give up investment plans in this country.

"Compared with the investment environment in Southeast Asian countries, China has its own advantages, including mature infrastructure, workforce and market mechanisms, which tailor to the needs of Japanese companies," Yao said.

But tension over the islands is likely to cast a shadow over economic ties, he said.

The auto sector was worst hit, according to the Japanese embassy.

Toyota said it sold 45,600 vehicles in China in October, the second straight month of falling sales, which are down 44.1 percent from the same period last year.

Honda reported monthly sales of 24,115 cars in October. This represented a drop of 53.5 percent from a year earlier and Nissan sold 64,300 cars in October, down 40.7 percent year-on-year.

Auto sales in China account for nearly a quarter of Japanese global vehicle sales, experts said.

"Although they are suffering big drops, Japanese car giants will get through the difficult times thanks to their strong international competitiveness," Oike said.

Oike said it is the small and medium-sized Japanese car component suppliers that are confronted with the most serious problems.

Japanese retailers in China have seen business recover, he said.

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