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Vice-Mayor: Japan's Economic Role "Very Special"

Japan has become Beijing's largest export market and the city's No. 2 trading partner.

According to municipal officials who attended the latest business symposium for Japanese companies in Beijing, Japan is playing a "positive role" in Beijing's economic restructuring, particularly the efforts designed to enhance the growth of high-tech industries in the service and manufacturing sectors.

Role "Very Important, Very Special"

In the words of Vice-Mayor Lu Hao, Japan is playing a "very important, very special role" in the development of the local economy.

"This is manifested not only in constantly growing trade and investment volumes but also in priority fields and companies chosen by Japanese investors," said the official, who presided over the First Symposium on Business Expansion by Japanese Companies in Beijing which was held October 20-21.

Japanese investors consider Beijing's service and manufacturing industries equally important. These industries account for 56.1 percent of the investment made in Beijing's service sector from January 1996 to December 2003, and 43.6 percent of the investment made in Beijing's manufacturing industries during the same period.

By the end of 2003, 1,573 Japanese investment companies had won permission to operate in Beijing putting US$3 billion in contractual investment in motion. Of this sum, US$2.78 billion had been realized, accounting for 13 percent of the foreign direct investment (FDI) the city had received since China adopted the opening policy in the early 1980s.

"The figure suggests that Japan is our second greatest FDI provider, following the Hong Kong Special Administrative Region," Lu said.

Though Hong Kong is a part of China, investors from the territory are treated the same way as foreign investors under the "one China, two systems" policy.

About 160 of the world's top 500 transnational corporations are operating in the Chinese capital. Forty-nine, or 30 percent, of them are Japanese, outnumbered only by American companies (59). Beijing now plays host to the headquarters of 25 transnational corporations. Of these, four are Japanese. Foreign companies have set up 167 research and development centres in Beijing.

"Thirty-three of these are Japanese, one more than those set up by the Americans," Lu said.

Good Profits

Japanese companies are profiting from their Beijing operations. Their profit margins are much higher than that of Hong Kong and American companies, and are lower than EU companies only, according to a recent survey of foreign-funded companies in the Chinese capital.

Specifically, profit margins in 2004 averaged 8.94 percent for all companies using Japanese investment, and leasing and other service companies, in particular, reported profit margins averaging 11.7 percent. As the city's second-greatest trade partner, two-way trade volume with Japan reached US$6.3 billion in 2003.

"Japan is our greatest export market and the second greatest provider of foreign goods and services," Lu said.

Opportunities

Beijing is building what calls a "capital economy." It is an economic system based on technology- and capital-intensive industries in the services and manufacturing sectors, which suits its status as a national capital and one of the best-developed administrative regions in the country.

Vice-Mayor Lu urged Japanese companies to "lose no time" in seizing opportunities cropping up in the course of the city's economic restructuring as part of their business expansions in China and the rest of the world.

Economic restructuring effort has paid off. In the first nine months of 2004, the city reported a year-on-year growth of 13 percent in local gross domestic product (GDP). The added value generated by the local service sector increased by 11 percent and FDI, by 50 percent.

"These increases are the greatest for Beijing since 1994," Lu told symposium participants.

The official advised Japanese participants at the symposium to invest more in local high-tech and modern manufacturing industries where they are "highly competitive."

"I'm pleased to note that Japanese companies judge Beijing's economic development trend the same way as we do," he said.

Official statistics seem to justify Lu's remarks. The manufacturing sector claims a 41 percent share of the Japanese investment already made in Beijing, breaking down into 38 percent for manufacture of communications, computer and electronic equipment, 13 percent for the manufacture of general equipment, 6.8 percent for production of pharmaceuticals, 5.4 percent for manufactures of transport equipment, and 4.1 percent for the production of electrical appliances.

Lu listed the priorities in Beijing's economic development plans: Transnational corporations already involved in the supply chain for the manufacture of communications and transport equipment are welcomed to continue expanding their businesses. In developing the electrical and machinery industry, the official said, Beijing has decided to focus on the development of intelligent meters and instruments, automation control systems, new energy sources and equipment for environmental protection. As regards the local pharmaceutical industry, the city is assigning top priority to biotechnology, while striving for a faster development of medical equipment and the drugs of traditional Chinese medicine.

"Japan is highly developed in all these fields," Lu said. "Take the manufacture of medical equipment, for example. China is a vast market for such equipment, and Beijing is already leading the nation in its production. With help from Japanese companies, we will become good enough to showcase the proper way of developing the industry."