| PHNOM PENH
PHNOM PENH Nov 6 Hiroshi Uematsu had a tough
start in Cambodia, where he heads an economic zone that aims to
attract business from his native Japan. He arrived just before
the global financial crisis sent the Asian economic minnow's
exports into a tailspin and dried up investment interest.
Now, though, business is looking up.
About a third of the lots on the 365-hectare (900-acre) site
on the outskirts of the capital Phnom Penh remain vacant and
overgrown, roamed by scrawny cattle. But they are being snapped
up by household Japanese company names such as Yamaha Motor
, food maker Ajinomoto and electronics firm
Next to Uematsu's office, a convenience store sells several
brands of sake, "Tokyo burgers" and a variety of Japanese
savoury treats for homesick executives.
The turnaround in Uematsu's fortunes mirrors a broad trend
of surging Japanese investment in Southeast Asia as China's
appeal is undermined by rising wage costs and spiking tensions
with its neighbour over territorial disputes.
"China used to be the factory of the world," said Uematsu, a
45-year-old from Japan's mountainous Gifu prefecture who says he
gets calls every day from companies interested in the Phnom Penh
Special Economic Zone. "We can't say so anymore."
Almost a quarter of Japanese manufacturers are re-thinking
their China investment plans, according to a Reuters Corporate
Survey carried out after the recent tensions between the nations
over disputed islands.
Japan's tsunami disaster and flooding in Thailand last year
provided another sharp reminder of the need to diversify
operations to avoid another rupture in global supply chains.
Japan's net foreign direct investment (FDI) into the
10-country Association of Southeast Asian Nations (ASEAN) more
than doubled last year to a record 1.55 trillion yen ($19.5
billion), data from Japan's Finance Ministry shows. Japan's net
FDI into China is still rising, jumping 60 percent in 2011 to a
record 1 trillion yen.
But Japanese firms, encouraged to expand abroad by a strong
yen, are increasingly using Southeast Asia as an
alternative manufacturing base to balance their China risks.
Japanese government and business leaders have also been among
the fastest to tap the potential of Myanmar's dramatic opening,
pouring in billions of dollars in infrastructure spending, debt
forgiveness and refinancing.
NOT JUST CHEAP
It's not just about cheap wages. The region of 600 million
people also offers a growing source of demand for Japanese cars,
electronics and services as robust growth expands the middle
class. Malaysia and the Philippines, where wages are higher than
Vietnam or Cambodia, have also seen rising Japanese interest.
Infrastructure investment in railways and roads is booming
and ASEAN is working towards establishing a European Union style
single market by the end of 2015, making it easier for
multinationals to link up their cross-border operations. The
region's economies have been resilient this year to weak growth
in the United States, Europe and China.
Japan's net investment in ASEAN came to 418 billion yen in
January-August, finance ministry data show, but those figures
may not reflect many pledged deals. In the April-June quarter,
net FDI in ASEAN rose 37 percent from a year ago.
ASEAN countries' latest FDI data also suggest the trend of
strong Japanese investment is intact.
In Vietnam, for example, Japanese pledged investments jumped
to $4.9 billion in January-October, double the total for all of
last year, government data show.
"In 2011, Japanese companies were given a lesson from two
disasters," said Hirokazu Yamaoka, Hanoi chief representative
for Japan's JETRO trade promotion agency. "This year, the risk
of China has been recognized and they study more about risk
sharing for manufacturing."
Approved Japanese investments in Thailand nearly tripled in
January-September to around $8.1 billion, data from the Board of
Investment of Thailand show. Nissan Motor Co, which
aims to more than triple its ASEAN sales to 500,000 vehicles by
2017, said on Friday it will build a second assembly plant in
Thailand for $358 million.
"The reason we're investing in Thailand more is because we
trust in the growth in the ASEAN region and Thailand," Nissan
Executive Vice President Hiroto Saikawa said. "China's economy
is Slowing down, but is still growing and is a very important
market for us."
In Indonesia, Southeast Asia's largest economy, Japan's net
direct investment is on course for a record year after surging
to 288 billion yen in 2011 from 41 billion yen in 2010. In the
first eight months of this year, net Japanese investment already
totalled 237 billion yen, according to Japan's Finance Ministry.
Japan said last month it plans to provide $13 billion in
funding for infrastructure projects in Indonesia, where the
growing wealth of the 220 million population makes for a huge
domestic consumer market.
Car makers Honda Motor Co and Suzuki Motor Corp
have announced major expansion plans in Indonesia this
year, and Toyota Motor Corp is considering building a
third car plant as it aims to triple annual output there to
300,000 vehicles, according to Japanese media reports.
THAI FLOOD WARNING
Japanese companies are also diversifying within Southeast
Asia, prompted by last year's severe floods in Thailand, which
has long been their favoured regional manufacturing hub.
Malaysia's northern Penang state, which aims to become a
regional logistics hub, and surrounding areas near the Thai
border have seen an influx of Japanese firms in recent years.
The Philippines is winning higher-tech Japanese investments
in areas such as laser printers and advanced lenses for digital
cameras. Japan's net FDI flows there doubled in 2011 to 81
The Thai floods also gave a shot in the arm to Cambodia's
burgeoning manufacturing industry, where wages can be up to a
quarter of those in China, although the country remains focused
on relatively low-tech assembly work for now.
Minebea, for example, trucks components from Thailand to be
assembled at the Phnom Penh economic zone before transporting
them back to Thailand for higher-end work. The company, which
makes tiny motors used in electronic gadgets, recently bought up
a second factory lot to expand its capacity in Cambodia, and
expects to have 8,000 workers by the end of next year.
"Japanese investors are hard to convince, but once they are
they move very fast," said Peter Brimble, the Asian Development
Bank's senior country economist for Cambodia.
On Cambodia, he said, they have "made the decision," despite
concerns over a lack of qualified labour and weak transport
infrastructure in one of the region's poorest countries.
Japanese investment in Cambodia is already at $300 million this
year, up from $75 million in 2011, Cambodian figures show.
Uematsu said interest among Japanese firms in producing in
Cambodia picked up in 2010, rose after anti-Japan protests in
China that year and surged again after a fresh wave of protests
in September. China, Uematsu said, has also become a "headache"
for Japanese firms because of sharply rising wages and sometimes
testy labour relations.
"Young Chinese people don't want to work in a factory any
more. There are many other opportunities," he said.
Japanese companies increasingly see Thailand, Cambodia and
Vietnam as a single production corridor, he said, comparing the
Mekong region to the main industrial cities in his home country.
"It's getting to be nonsense to divide it into three
countries. It's one region," he said. "Bangkok is Tokyo, Phnom
Penh is Nagoya and Ho Chi Minh is Osaka."
(Additional reporting by Kaori Kaneko and Yoko Kubota in TOKYO,
Prak Chan Thul in PHNOM PENH, Rosemarie Francisco in MANILA, Ngo
Chau in HANOI, Neil Chatterjee in Jakarta, Jason Szep and
Sinsiri Tiwutanond in BANGKOK; Editing by Ian Geoghegan)