Beijing: A hundred and ten Japanese firms went bankrupt in China last year amid mounting labour and production costs besides heightened Sino-Japanese political tensions, a research report said, highlighting challenges in doing business in the second largest economy.
A new report by Tokyo Shoko Research showed that 110 Japanese companies went bankrupt last year citing the challenges of doing business in China, or ‘China risk’, the Hong Kong-based South China Morning Post reported.
A combination of increasing production costs and heightened political tensions, were cited as some of the reasons.
It was an increase from 101 firms the previous year and the highest number since Tokyo Shoko Research began the annual survey in 2014, the report said.
As the Chinese economy slowed down, pressures increased for the foreign investors, specially the Japanese firms which faced a complex political situation since the crisis over the disputed islands in the East China Sea since 2012.
Japan is the one of the largest investor in China for decades and all its top automobile firms are firmly entrenched in the Chinese market.
Bilateral trade accounted for USD 303 billion between the two countries in 2015 despite bilateral tensions.
The Japanese companies that went under left debts amounting to 71.84 billion yen although there was a decline of nearly 67 per cent on the previous year’s losses because only one company failed with debts totalling more than 10 billion yen, the research report said.
The ‘China risk’ bankruptcies also caused the loss of 1,638 jobs, surpassing the 1,000 figure for the first time, the research showed.
By sector, 63 of the failures were wholesale companies and 33 were manufacturing concerns. The hardest-hit industry was apparel, which reported 54 bankruptcies, nearly half of the 110 annual total.
“At the moment, the rise in costs due to soaring labour costs in China is a threat, in particular to Japanese apparel-related companies,” said Mitsuhiro Harada, who authored the report.
“Apparel companies in Japan were previously attracted to China due to the low manufacturing costs, including labour costs, and raised the ratio of the products they produced in China and stepped up procurement there,” Harada told the Post.
“However, this has faded with the subsequent rise of ‘fast fashion’ in Japan inexpensive apparel products with impressive designs distributed outside conventional routes.
Combined with rising costs due to increasing personnel costs in China, this was enough to bring down companies that were already struggling,” he said.
Sino-Japanese ties have been under strain due to China’s view that Japan has not properly atoned for its wartime past after World War-II and because of a territorial maritime dispute in the East China Sea.