Doing Business in China and Japan

Doing Business in China and Japan

Both China and Japan are Asian countries and are the second and third largest economies of the world respectively. While China has a large market and the availability of cheap labor, Japan specializes in highly skilled labor. Both countries are highly globalized in terms of their business with the outside world. However, the aspects of globalization in each of the two countries differ significantly. Japan has continually filled the world with high tech exports including automobile, electronic products and gadgets to name a few. Moreover, the companies from Japan have huge investments in countries all over the world. However, in comparison to China, Japan is least globalized. One pointer to the relatively lower globalization can be measured through the foreign direct investments that the two countries attract. While China continues to attract high volumes of FDI, Japan has missed out on the same. Even tourism is much lower in Japan at 10% lower than in China (Hilpert & Haak, 2016).

Doing business in China is a bit risky for foreign countries owing to the prevailing political economy. There is a unique form of political risk in the country in that there are two levels of governments that are in constant disagreements. The national government and the provincial governments have different and contradictory laws whose application forms a constant battle. As thus, foreign countries are usually confused as to which of the laws will be applied. Moreover, the country has strict laws that protect industries that are vital to the economy and requiring data disclosure from the foreign countries whenever asked by the government. Japan is less risky in terms of investments in the country. However, this is not to say that foreign companies are guaranteed of smooth business in the country. Japan is at the center of major political risks with its neighbor regarding the sovereignty of several islands including China, Russia, Taiwan and South Korea. In addition, the political tensions between the country and North Korea, in part due to the development of nuclear power in the latter, are a major source of concern.

While both countries share large aspects of their culture owing to having a common ancestry in the Asian continent, they are uniquely different. While Japanese are very reserved, their Chinese counterparts take on an open approach and are therefore very social. Moreover, Japanese love beautiful things and are more likely to learn foreign cultures. They are also renowned for their preference for quality over quantity unlike Chinese people who value quantity more than quality. The Japanese take keen pride in their workmanship and therefore tend to make quality output in the course of their work. They are also less likely to take risky ventures and prefer simplicity (Austin & Harris, 2001). Chinese on the other hand are not afraid of floating opinions even when they have not been solicited and may at times come out as rude and arrogant. In addition, they have little eye for detail and this may render their workmanship problematic.

The Chinese president, Xi Jinping, is the chief of state and is the overall leader of the Peoples Republic of China. His leadership and management style borrows from his long stint in the leadership of the Communist Party of China from an official party member to the current general secretary. Although a son of a former deputy prime minister, Xi Jinping lived in the rural areas because his father had fallen out with the government. In the rural province, he formed a good relationship with peasant farmers and this positively affected his rise in the Communist party of China. After his graduation in 1979, Xi became the secretary to the vice premier who was also the minister for national defense at the time thereby exposing him to management of the country. Later, in 1982, he resigned from the position and became the deputy secretary for the Communist Party in Hebei province from where he was appointed a party committee member in 1985. His rise in rank in the party exposed him to the management of the party thus shaping his ideologies based on those of the party. By the year 1995, Xi had ascended to the post of deputy provincial party secretary. It is such positions that exposed the leader to leadership positions both within and outside the party’s management. Later on, he became the acting governor of Fujian and later on the governor with his main focus being on conservation. In 2003, he became the party secretary in Zhejiang province where he used his management styles to restructure the infrastructure in the province thus promoting sustainable development (Evans, 2014). In 2007, he was appointed to the nine-member standing committee of the CPP and was later elected as the vice president of chine in 2008. In 2013, he was elected the president of China and is also the general secretary of the party.

In Japan, the Prime Minister Shinzo Abe oversees the general running of the government and is also tasked with the appointment of the cabinet. Just like Xi of China, Shinzo Abe sdraws his leadership and management styles from his work as a party official and in other government positions. He is the nephew and grandson to two former prime ministers and is therefore well exposed to the leadership of the country. In addition, he has been a prime minister before between the years of 2006 and 2007. After his graduation in the United States, Shinzo came back home to be an active member of the Liberal Democratic Party. In 1982, he became a secretary to the foreign minister who was also his father therefore exposing himself to leadership styles of the country. It is this exposure that led him to win a parliamentary seat in 1993 and a series of government positions later on. In 2003, he became the secretary general of the Liberal Democratic Party of Japan and later the overall leader of the same party. In 2006, he succeeded Koizumi as the Prime Minister following term limits therefore becoming the youngest Japanese to ever hold that position.

Despite having tensions between the two countries, trade has kept the relations of the two countries close and guaranteed their coexistence. Contrary to common belief, the economic partnership between the two countries is the biggest in the world. In fact, the combined output accounts for more than one fifth of the total global output. Their bilateral trade is the third largest in the world at US$340 billion in 2014 up from US$334 in 2012 (Fuhrmann, 2016). In addition, Japan is the second largest trading partner for China while China is the leading trade partner of Japan. In terms of investments, Japan has highly invested in China through foreign direct investments to the tune of US$100 billion in the year 2014. This figure is larger than that of the United States which has invested about US$70 billion in China.

However, the trade between the two countries continues to be affected by rising tensions of islands claimed by the two countries. In 2012, sale of Japanese vehicles declined owing to anti-Japan protests in mainland China. The large population in China provides a ready market for Japanese products and is therefore a major bargaining power for the Chinese country. In 2011, Japan accounted for 11.2% of all the imports in China while about 7.8% of China’s exports get to Japan (Rose & Teo, 2015). The balance of trade is thus clearly in favor of Japan and the country may be at huge losses if economic ties were to fail. Perhaps the reason for this sway in balance of trade is the difference in population between the two countries thereby creating more demand for imports in China than in Japan. It is however expected that trade between the two countries will grow in future owing to more stability in terms of the island disputes between the two countries. In addition, there is hope from attempts by the two countries to improve their diplomatic ties therefore guaranteeing better trade of Chinese and Japanese businesses in the future.

Although the two countries have one of the largest trade volumes among them, they do not have clear economic integration. In fact, part of the reason for a lack of regional integration is the constant disagreements over the ownership of islands bordering the two countries. However, the countries have recently appreciated the importance of having regional economic integration to boost their trade. This is out of the realization that the countries trade with each other a lot and that external markets cannot guarantee the growth of trade in the Asian region. Essentially, there is evidence of some economic integration in the region albeit in very small volumes. Free Trade Agreements is one powerful trade policy instrument that is increasingly gaining prominence for its ability to spur economic growth in the two countries.

In recent years, the two countries have worked on joint programs aimed at deepening the regional economic integration through the use of Free Trade Agreements to achieve sustainable economic development (Armstrong, 2014). In particular, the two countries together with South Korea have been tied in trilateral negotiations on the establishment of FTAs pointing to economic integration. The main aim of having the regional integration is the boosting of intra-regional trade volume and the stimulation of individual economic growth in each of the countries involved. The existence of FTAs in the past has been lauded for the increased foreign trade and foreign direct investments in the Asian region. The FTAs have been pivotal in removing barriers of trade between the two countries of China and Japan as well as increasing foreign trade with other countries outside the region.

Past success in the application of free trade agreements amongst the two countries as well as with a host of other Asian countries have encouraged policy makers to explore the advantages of economic integration. The advantage of improving the regional economic integration between China and Japan is that it puts them on the global map and exposes the two countries to development. The Asia-Pacific Trade Agreement of 1975 has been attributed to the growth in trade experienced during the 1980s. Perhaps, it is only after the Asian crisis of 1997 that the countries realized the need for deeper economic integration.

The Asian region is less integrated in terms of economic and financial aspects unlike regions such as Europe. As thus, the region doesn’t have a common currency and each country has its own unique currency for use in the local transactions. In China, the country’s currency is the Chinese Yuan (CNY) while Japan uses the Japanese Yen (JPY). The Chinese Yuan is stronger than the Japanese Yen as one Chinese Yuan exchanges at 16.8761 Japanese Yen (Xe Currency Converter, n.d.). In addition, one US dollar is equivalent to 6.5 Chinese Yuan while one US dollar exchanges at 11.14 Japanese Yens (Xe Currency Converter, n.d.).

The world is increasingly aligning itself with China’s growth and dominance at the global level. As thus, trade between China and the United States has been on an increase and totaled 579 billion US dollars in the year 2012. The breakdown of this trade volume was in favor of China with exports to China amounting to US$141 billion while imports from China accounted for $439 billion. Essentially, in the same year, the trade deficit of the United States with China was valued at US$298 billion. The figures represented above portray China as the second largest trading partner of the United States and this is evidenced in the US goods and services deficit with China totaling US$318 billion in the year 2013. In terms of the exports, China has been termed as the third largest market for United States good exports as at the year 2013. Currently, it is second only to Canada in terms of absorbing the exports of the United States.

The goods exported to China from the United States in 2013 were US$122.1 which was an increase of 10.4% from the preceding year’s figures. The increase in trade between the two countries can be traced way back from 2001 when China formally joined the World trade Organization and have increased by up to563% since then. In 2013, US exports to China accounted for more than 7.5% of the total exports from the United States in 2013. In retrospect, China was the largest supplier of goods imports to the United States in the year 2013. In particular, the imports from China amounted to US$440.4 billion in 2013, an increase of 331% from 2001 when China joined the WTO.

Japan is also a leading trade partner of United States and is considered as one of its most important allies. Trade between the two countries can be traced to many centuries ago when Japan was the United State’s largest economic partner. In the 1990, the United States took up 31.5% of the total Japanese exports while supplying 22.3% of its imports (Bebenroth, 2015). However, the figures declined with the entry of China as a major powerhouse. In fact, in 2013, the United States took up only 18% of Japan’s exports while supplying a meager 8.5% of its total imports. In 2015, US exports to Japan totaled US$62.471 billion in 2015, down from US$66.827 in the preceding year. Likewise, imports from Japan stood at US$131.119 billion in 2015 down from 2014 when the value of the imports from Japan was US$134.003 billion.

There exist several barriers to the proliferation of globalization in the two countries. Intra-trade between the two countries faces several challenges and the same challenges form significant barriers to the countries trade with the United States. One of the main barriers to trade between China and Japan culminates from the regular conflicts and tensions regarding the control of several islands that both China and Japan lay claim on (Scoville, 2015). China has the most extensive system of subsidies in the entire world making it block foreign access to the Chinese market. In this manner, companies from other countries including Japan are not welcome in the country as they pose imminent danger to the local Chinese companies. This is a major barrier to trade between the two countries as the country is too protective of its own industries and especially those that it deems vital to the growth of its economy. In addition, China is renowned for having legislative restrictions that act as barriers to entry of pother multinational companies. For instance, the government is at liberty to solicit information from companies at its own volition and is reported to having prosecuted directors of companies that went against the government’s directives for data disclosure. This fact may dissuade companies with patented products and especially manufacturing companies that have a specific formula in fear of their intellectual property being infringed upon.

The existence of import duties and taxes that relate to foreign trade is also a barrier to trade between the two countries and with the United States. Although the tariff rates in China have been on a decline, they are still highly exploitative especially for agricultural products. Moreover, Chinese and in extension Asian countries are known for applying anti dumping duties on imported goods and especially when these good present a potential threat to the local industries. In Japan, the same duties are applied on imported goods thereby reducing the number of imported goods or foreign trade that the country engages in. In addition, licensing control and quotas are regularly applied in the two Asian countries to discourage trade in substances deemed harmful to the countries. Although the application of these is in good faith, it still presents a significant barrier to trade.

Both China and Japan present feasible investment opportunities for multinational companies keen on growth. However, between the two countries, China beats Japan down for a number of reasons. The firs reason why China forms a preferred country of choice is the fact that it has a larger population relative to that of Japan. As thus, it forms a larger immediate market for products produced in the country. This is in contrast to Japan which has a lower market for products owing to its smaller size. As a new company looking for a place to set up, China is again suitable for the availability of cheap labor. It is quite obvious that a new company should focus on reducing its production costs to gain a competitive edge over other dominant companies selling substitute products.

In terms of the political risks, Japan is more risky to invest in than investing in China. The monarchial system of governance in Japan means that they can change the laws at any given time to reflect the will of the ruling class. A change in the legislation in the country could negatively affect operations of new entrants especially when they demand an increase in customs and duties. Moreover, China’s currency is much stronger than that of Japan and is therefore more stable than the latter (Heijmans, 2007). As thus, the assets of a new company are much more secure in a country with a more stable currency. The investment in Japan means that the company is cushioned against market and financial shocks that may rock the region or the globe as a whole.



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