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China – High labour costs putting off Japanese businesses

02 December 2013

For the first time in two decades China is no longer the premier destination for investment by Japanese firms due to higher labour costs and increasing political tensions between the two nations, reports channelnewsasia.com.

China tumbled to fourth place, according to the Japan Bank for International Cooperation (JBIC) in its annual survey, after 21 years of being named the most promising destination for overseas expansion.

The JBIC asked companies already operating overseas to choose up to five promising nations and regions for their business in the next three years. Of the nearly 500 companies, 44.9% answered that Indonesia was a good place to do business, while China saw its popularity dive to a lowest-every 37.5% from a high of 62.1%. 

Of the companies that dropped China from their list entirely, 40% cited rising labour costs and difficulty in hiring enough workers as their primary concerns. Other concerns were a slowdown in the Chinese economy, intensifying competition with rivals, and bilateral political relations with Japan and China embroiled in a territorial dispute over islands in the East China Sea.

The JBIC survey showed India maintained its second slot although it was cited by just 43.6% of firms, down from 56.4%, due partly to rising labour costs and poor infrastructure. Thailand came third, up from fourth last year.

Nine of the top 20 slots were held by members of the Association of Southeast Asian Nations (ASEAN).

Shinji Ayuha, of the JBIC research division, commented: "Japanese companies have utilised ASEAN countries as production bases for a very long time. They now recognise these countries are very promising markets as well. The ranking shows [a] re-evaluation of ASEAN."

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