Analysis: Japan Inc makes a renewed U.S. push as China fears mount

Renesas Electronics

18/04/2024 01:50

(Repeats for Asia morning readership. No change to text.)
    By Daniel Leussink and David Dolan
       TOKYO, April 17 (Reuters) - Japanese companies are
increasingly hitching their growth plans to the United States,
as concerns about Chinese demand and Beijing's influence over
supply chains prompt a noticeable pivot toward the world's
largest economy.
    Robot maker Yaskawa Electric  6506.T , drinks company Asahi
 2502.T , chipmaker Renesas Electronics  6723.T  and automaker
Honda  7267.T  are just a few of the companies that in recent
months have either expressed interest in expanding in the U.S.
or announced plans to do so.
    While Japan remains tied to China through extensive trade
and manufacturing operations, Tokyo has pledged with other
members of the Group of Seven (G7) nations to "derisk" but not
"decouple" from the world's second-largest economy.
    That trend of limiting supply-chain exposure to China was 
highlighted by Prime Minister Fumio Kishida's trip last week to
the United States. Kishida, who visited North Carolina to tour a
Toyota Motor  7203.T  EV battery facility now under
construction, also emphasised cooperation on supply chains. 
    After years of seeing China as a market of almost endless
opportunities, Japanese companies are now taking a more cautious
view, executives and analysts say. Almost half of Japanese
companies operating in China did not invest there last year or
reduced investment, a survey showed in January. 
    Some of the caution is due to economic security risks -
China last year detained a senior Astellas Pharma  4503.T 
executive on suspicion of spying - while many companies cite
pessimism about Chinese demand and a weakening economy.
    "The illusion about the Chinese economy, the Chinese market,
is disappearing," said Kunihiko Miyake, research director at the
Canon Institute for Global Studies think tank. 
    "I think Japan and the United States started to discover the
merits of each other."
    Miyake said he has been advising companies to bring home
state-of-the-art technology from China.
    The share of Japanese firms planning to expand in China fell
below 30% for the first time, an annual survey from the Japan
External Trade Organisation showed in November. Only Hong Kong
and Russia scored worse.
    Meanwhile, the share looking to expand in North America rose
above 50%. Still, it remains to be seen how the tension around
Nippon Steel's  5401.T  bid for U.S. Steel  X.N  will impact the
outlook.
    
    AUTO INDUSTRY
    For Japanese automakers, the importance of the U.S. market
has been amplified by their decline in China, where they have
steadily ceded ground to electric vehicle giant BYD  1211.HK 
and other local players. 
    "China has turned into very rough going for the Japanese
automakers as sales have declined there a lot, particularly as
consumers have been tilting towards... electric vehicles made by
local brands," said Christopher Richter, senior Japan autos
analyst at brokerage CLSA. 
    "That heightens the importance of the U.S. market," he said,
adding that historically, the United States has been the most
profitable market for Japan's car companies, exceeding even
their home country.
    Toyota late last year said it would boost investment by $8
billion at its EV battery plant in North Carolina, bringing the
total investment to around $13.9 billion. The plant, which is
expected to begin operations in 2025 will be its first
automotive battery plant globally.
    Honda this month said it would invest at least $700 million
in transforming its Ohio plants as it creates an EV hub in the
state.
    The Honda investment showed how Japanese car companies
weren't just investing for next year but for "years down the
line" said Anita Rajan, general director of JAMA USA, a lobby
group that represents the Japanese automakers. 
    Privately, one senior executive at a Japanese automaker said
he was amazed by the dynamism of the U.S. economy. That,
together with the difficulties in China, made him think the U.S.
market offered the better opportunity for growth, he said.
           
    'NIPPON STEEL'      
    Last year Japanese overseas acquisitions totalled 8.1
trillion yen ($53 billion), the most since 2019 and roughly
double from a year earlier, according to LSEG data. More than
half of that was in the United States.
    But the United States is not without its complications.
    Nippon Steel's $15 billion bid for U.S. Steel has riled
politicians, with President Joe Biden saying the manufacturer
must remain domestically owned and operated, while Donald Trump
has pledged to block the deal if he becomes president again.
    And despite the many headwinds in China, Japan Inc remains
heavily reliant on its neighbour, both as a manufacturing base
and a market.
    Last year, mainland China was Japan's largest source of
imports, at $174 billion, and its second-largest export market,
at $126 billion, according to IMF trade statistics.
    The United States was its top export market.
    While some companies may see the U.S. market as a better
long-term option, others don't have that option, said Canon
Institute's Miyake.
    "It's what I call the Hotel California syndrome," he said.
"You can check out any time. You can never leave."  
($1 = 154.2800 yen)

 (Reporting by Daniel Leussink and David Dolan; editing by Miral
Fahmy)
 ((david.dolan@thomsonreuters.com; +81 3 4563 2708;))