Business opportunity
As aftershocks continue to hit Japan, the impact of the disaster is being felt in China. Panic about radiation caused a run on salt, leaving many Chinese families with enough to last the rest of their lives. Low levels of radioactive substances have been found in vegetables along coastal cities, causing some concern among mainland citizens.
While these incidents make the headlines, the real economic impact on China is worthy of more careful analysis.
With a total trading volume of about US$300 billion, Japan is China's third-largest trading partner behind the United States and European Union. It is China's largest source of imports and the fifth-largest market for exports. However, since the manufacturing sector does not have a big presence in the quake- and tsunami-affected northeastern area of Japan (it represents only about 8 per cent of Japan's gross domestic product), the disaster's impact on Sino-Japanese trade is relatively limited.
There is a distinct line dividing China and Japan with regard to the global manufacturing system, with Japan occupying high-end upstream sectors and exporting parts and components for assembly in China. Its largest export items to China are vehicle components, IT parts and high-end steel products.
In the wake of the disaster, Dongfeng Nissan, a mainland joint venture with Nissan, has had to ration production schedules for the next few months, as it is running low on inventories of engines, automatic transmissions and electronic control units that are manufactured in Japan. Flash memory, digital cameras and some other IT products that use components from Japan are seeing price increases due to low inventories.
Imports of seafood and vegetables from Japan are almost non-existent at this time due to concerns of radioactive contamination. Sushi bars on the mainland and in Hong Kong used to boast of their products' Japanese origin; now they can't curse it fast enough. Yaegiku, a high-end Japanese restaurant at iSquare that served teppanyaki and sushi, closed its doors altogether.
Yet, this might provide an opportunity for mainland food and vegetable exporters in the short term. China's major export items to Japan include textiles, food and vegetables. Exports of construction materials to Japan may also see a major boost in the post-quake reconstruction period.
Over the long term, the mainland may actually benefit from the disaster. Japan has already transferred a large chunk of its manufacturing base in low-tech sectors to the mainland over the past 20 years, while still keeping its core competitive hi-tech manufacturing at home, including semiconductors, liquid display panels, and high-end material sectors. Now some companies are seriously considering relocating these bases to the mainland to minimise exposure to future natural disasters.
The post-quake reconstruction may also give a new breed of indigenous Chinese multinational companies room to flex their muscles. As an example, look no further than Sany Heavy Industry and its 62-metre concrete pump that is playing a vital role in pumping water to help in the cooling of the damaged reactors of the Fukushima nuclear power plant. It is one of five monster pumps working around the clock at the Fukushima site.
Sany Heavy Industry, a private company based in Changsha , is China's largest heavy industrial equipment company, and also one of China's largest private multinational companies operating globally. Sany received an emergency call for help from Tokyo Electric Power Company on the day the tsunami hit and donated this critical piece of equipment worth US$1 million. Since then, it has received 32 orders from Japan for the same equipment.
There might be considerable Sino-Japanese animosity on the internet, highlighting the nationalist sentiments in each country. But it is the actions of global corporate citizens like Sany that will define Sino-Japanese economic relations in the years to come.
John Gong is associate professor at the Beijing-based University of International Business and Economics. johngong@ gmail.com
