Japan leads rush into Southeast Asia

July 31, 2013

Japan leads rush into Southeast Asia

Japanese companies on course to match engagement with region of 1990s, but face strong Chinese competition

Japanese Prime Minister Shinzo Abe has a fondness for airborne imagery when it comes to describing his country’s re-engagement with Southeast Asia.

Shinzo AbeOn a visit to Singapore last week, he likened the 10-nation bloc known as the Association of Southeast Asian Nations (ASEAN) and Japan to the two engines on an aeroplane – the aeroplane being a vast economic area that he sees stretching from the Pacific to the Indian Ocean.

ASEAN, Mr Abe asserted, would also feel the effect of the “three arrows” he had unleashed – a reference to the three-pronged structural reforms that underpin “Abenomics”.

The region, with a population of over 620 million, would be “the 21st century’s champion in fostering the vast middle class consumer market”, he added.There is some justification for the hyperbole. Japanese investment in southeast Asia is resurgent, after almost two decades in the doldrums.

Japanese companies are on course to match the level of their engagement with the region in the early 1990s, before Japan’s deflationary spiral and the Asian currency crisis pared their ambitions.

Last year, they invested $6.4bn into ASEAN – mainly Singapore, Indonesia, Thailand, Malaysia, Vietnam and the Philippines. That was almost 50 per cent more than in 2005, according to the Japan External Trade Organisation (JETRO).

Dealogic says the value of mergers and acquisitions pursued by Japanese companies this year in southeast Asia has hit $8.2bn, surpassing the value of any full-year of M&A in the region by companies from any single country.

Frederic Neumann, co-head of Asia economics at HSBC, sees a “strategic shift by corporate Japan”. Expectations of an ever-weaker yen are making the returns on such outward investment by cash-rich Japanese companies more attractive in local currency terms. The initial thrust into Southeast Asia has been by Japan’s banks buying into insurers, an obvious way to be part of the middle class growth story.

The biggest proposed Japanese deal by value in the region was Mitsubishi UFJ Financial Group’s bid, launched this month, for a majority stake in Thailand’s Bank of Ayudhya. In May, a consortium of Japanese engineering companies won a contract to build a metro system in Jakarta. Only last weekend Suzuki said it would invest Y60bn ($611m) in a new small car plant in Indonesia.

Japanese engagement in southeast Asia is hardly new – trading houses such as Marubeni, Mitsui and Itochu have been building power plants, selling rolling stock and trading foodstuffs in the region for decades. But now small- and medium-sized Japanese companies are part of the trend too, lawyers and consultants say.

All this should be a wake-up call to Europe and the US, which makes much of its geopolitical ‘pivot’ to Asia. And the whole engagement, this time, comes with solid political backing. Before he arrived in Singapore, Mr Abe signed a deal with his Malaysian counterpart, Najib Razak, under which the Japan Bank for International Co-operation would guarantee issuance of “samurai” bonds issued by Malaysia’s 1MDB, a government-controlled fund set up in 2009. 1MDB has yet to issue any yen-denominated bonds, but it is ambitious and has the support of the country’s ruling party.

In Singapore, regional headquarters for companies with an ASEAN footprint, the Bank of Japan and the Monetary Authority of Singapore have just agreed a cross-border collateral arrangement allowing banks to pledge Japanese government securities in return for raising Singapore dollars from the MAS, the central bank. Yet for all such efforts, the Japanese will not always find it easy thanks to a new competitor: China. Its companies are fanning out in search of opportunities. Some have already made inroads into infrastructure – a Japanese strength. This month CSR Corporation, one of China’s largest makers of trains, said it would invest $127m in an “Asean manufacturing centre” in Malaysia.

United Overseas Bank, a Singaporean bank, recently set up a unit offering loans to Chinese companies looking to move into the region, including in renminbi. Use of the Chinese currency in southeast Asia will only increase as the renminbi continues its not-so-long march towards full internationalisation.

All this should be a wake-up call to Europe and the US, which makes much of its geopolitical “pivot” to Asia. While there are big US groups with long histories in Asean – such as General Electric, which installed Manila’s first street lights a century ago – it is time for more companies to understand the region’s opportunities, before it is too late.

Jeremy Grant is the Financial Times’ Asia regional corporate correspondent



9 thoughts on “Japan leads rush into Southeast Asia

  1. In the 1980s, with a strong yen, Japan became the leader of the flying geeses, but in the recessionary decade of the 1990s, Japanese investments in Southeast Asia dwindled. Their return in 2000s is a strategic move by Abe, but Japan no longer has the first-in advantage as China is ahead of the game this time around.–Din Merican

  2. Japs are finito in money and technologies. PERIOD !
    The only thing Japs has against PRC is brand name but PRC brand name is catching up to level 2 and still no threat to Japs……..not yet.

    Also, they have more scrupulous people, who respect ethics better. This aspect the PRC is way off.

    But money talks in real world so the PRC wins hands down, they have more bodies to export also ………. so the many PRC women immigrate and become baby factories in Australia and NZ….soon that two place flood with Chinese. Now many come for Msia 2nd home. ……….. they flooded Spore but that small dot cannot hold so now they have to flood Malacca and Johor……… soon Penang and Kedah………Just wait for the Kra Canal to come on stream….. there will be million PRC in South Thailand…………so Japan still lead in SEA? Sorry lah……Not in Cambodia or Laos bcz they are pro China all the way. In Myanmar, maybe bcz 15 years back the Japs funded Junta in power generation.

  3. I can already feel the “impact” of this Abe move, Dato. I do my business in Indonesia and in the past 3 years, all my mini hydropower plants were taken up by Chinese and Singapore companies… now its mainly Japanese talking with us. Even Marubeni is building the biggest smelter as well as the biggest coal-fired power plant in Kalimantan Timur.

    And may I add, less “kickback money” too in the case of dealing with the Japanese….

  4. I don’t where you get your prophesies from, mattG – but i certainly will prefer a Jap or German ‘device’ – no matter how canggih PRC’s ‘technology’ is. For example, you should visit the quaint museum of failures their largest electrical manufacturer so proudly maintains. Their R&D is equivalent to trial and error.. And their hoard patents are actually quite useless. They can copy, but have no ability to ‘think out of the box’ – besides being very mediocre innovators. What PRC has in abundance is entrepreneurship and ability to bribe.

    Japan, for all her faults, is able to come up with true innovation – like Robotics (forget about that stupid anthromorphic Honda Asimo), Material science (like new ceramics), Miniaturization and even cutting edge physics and medicine. Meanwhile, PRC is still doing basic research on the ‘Philosopher’s Stone’ and ‘Pill of Immortality (based on mercury)’.

    Being The Factory of the World is no Fun.., especially when there is a national dearth or raw materiel’, energy and a confused hybrid authoritarian political system. Don’t forget, the Chinese are basically so homogeneous in PRC, that it’s even difficult to differentiate China-dolls.

  5. Oh btw, this century is about the rise of Pax Pacifica. It doesn’t say Pax Sinensis. Just like the previous 2 centuries were Pax Atlantica. Which countries of prominence actually lie on both Oceans?

    You see, the problem is people who talk about Blue Ocean Strategy, don’t really understanding what it really means. it’s all hype, publicity and celebrity fashions of the day. Witness the gross failure of the Running Lap-Mongrels of BN who subscribed to the idea, without understanding it’s core assumption – Change!

    The real meaning is both visual and literal. The Atlantic Ocean from North to South pole is actually Grayish-green in most places. The Pacific Ocean is mostly Blue. And the South China Sea (or West Philippine Sea or whatever) ain’t Yellow.. Do you guys travel at all?

  6. Beware of Japanese moves: revival of the right-wingers and militarism with US return to Asia and the Nato to expand to Asia to contain the rising China. Think twice, don’t be misled and repeat the mistakes, history is our mirrors!

  7. Thanks for educational post. We are pleased certain this post helps me conserve many hours of surfing around other similar posts simply to find what I became looking for. Just I want to say: Thank you!

  8. Like to share, would you agree with Japan back to be # 1 again in Asia both economically and militarily during the wars?

    Japan unveils new warship ‘Izumo’, a destroyer/copter carrier on atomic bombing anniversary

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