Japan’s Trade and Investment Relations with SE Asia

British High Commission Singapore

September 2013

Summary

Japan has long been active in SE Asia. New regional free trade agreements – RCEP and TPP – should further boost trade once completed. Japanese investment is rising sharply. Its substantial aid programme is supporting infrastructure development in the region (as well as Japanese companies). Major opportunities for UK companies willing to engage with Japanese partners in the region.,

Detail

This year marks the 40th anniversary of formal diplomatic relations between Japan and ASEAN, who are now each other’s second largest trading partner, after China.  Japan’s focus on the region as a manufacturing base has intensified in recent years, not least because of difficulties for Japanese business in China which has led to some FDI diversion from China to SE Asia. According to the Japan External Trade Organisation (JETRO), Japanese FDI in SE Asia rose by 55% in the first half of 2013 on a year earlier (320% rise in yen terms), whereas in China it fell by 31%. Japan is now the second largest source of foreign direct investment (FDI) into ASEAN, after the EU. Indonesia and Vietnam are the two main destinations for Japanese FDI in SE Asia, and together received slightly more than China in the first half of 2013. Japan is the largest investor in Thailand and, as of 2012, Malaysia. An increasing number of Japanese firms are basing their regional headquarters in Singapore, though the UK remains a larger investor.

Japanese FDI is increasingly diversified and aimed at serving ASEAN’s 600 million consumers, in addition to the traditional manufacturing and electronics production for export back home or elsewhere.  For example, Bank of Tokyo Mitsubishi plans to buy a 75% stake in Thailand’s Bank of Ayudhya, which would be the first time a Japanese bank has taken control of a SE Asian lender. Japanese investment in the Philippines is diversifying into sectors such as retirement homes and medical equipment.

Rapidly growing ASEAN is also an increasingly important export market for Japanese goods and services. Japan signed an FTA with ASEAN in 2008 and will be working with ASEAN’s 5 other FTA partners to weld these agreements together into an enormous new free trade zone, the Regional Comprehensive Economic Partnership . Japan recently joined the Trans-Pacific Partnership (TPP) as well. These trade deals, if concluded, will help create more efficient supply chains between Japan and ASEAN – especially if Japan joining encourages other SE Asian countries to do the same.

Japan is a major source of development assistance to the region, with infrastructure a key focus. One of the largest of these is a $43bn infrastructure programme with Indonesia, agreed at the end of 2012. Japan supplies 40% of total aid to the Philippines. Japan has also funded feasibility studies for some of ASEAN’s grand regional connectivity projects. Tying of this aid means contracts are awarded to Japanese firms. Many commentators argue the infrastructure plans are aimed at supporting the expansion of Japanese manufacturers in the region. But they will deliver wider benefits to their host economies. Japan also influences the development agenda in the region via its leading role in the Asian Development Bank. Meanwhile in Burma it is a major player in developing the financial sector, including providing capacity building for the Finance Ministry.

Comment

Japan’s deepening presence in SE Asia presents opportunities for UK firms.  UK expertise in legal, financial and business services is likely to offer scope for partnerships with Japanese companies.  Design, architecture, engineering and other supply chain opportunities are also worth pursuing. UKTI teams in ASEAN are working to develop links with local Japanese Chambers of Commerce, JETRO offices and trading companies

Disclaimer

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