Japan has always had an ambivalent attitude to China, traditionally regarding it as a source of higher culture – Buddhism and the Japanese writing system came to Japan through the China conduit – but also as a source of raw materials and cheap labour. Manchuria and northern China were occupied for those reasons in the early stages of Japan’s expansionism before World War II. Japan-China relations seem to be eternally dogged by issues such as whether the rape of Nanking actually occurred – some Japanese politicians pander to conservative interests by claiming that it didn’t. In the technology field, too, there appears to be ambivalence about investment in and business with China. On one hand the advanced skills of Chinese researchers – for example for software development – are attractive at low pay rates, while the enormous mass market purchasing power – or at least potential power – of China beckons but has yet to be realised. This year the pace of announcements of increased investment by Japanese electronics companies in China, both directly and through joint ventures, has quickened. Such investment has two thrusts – manufacturing in China for sale in China, and use of China as low-cost base for export to Japan and the rest of Asia. A major focus of activity is the telecommunications industry. With the rate of telephone ownership in China still low, at one per 30 people, the central government is heavily promoting the installation of telecommunications infrastructure, and the Japanese companies are enthusiastic participants.
Diplomatic relations
Competition in both the central switch and PABX market is heavy. In the PABX field, imports are prohibited by the Chinese government and only local companies appointed by the government are permitted to manufacture. However the growth forecasts for the market are attractive – currently there are around 2m lines installed per year, with the market expected to grow to 4m lines annual installation by 1998. In August NEC Corp announced that it had established Benxi NEC Communications, a joint venture with Benxi Communication & Electrical Appliance Industry Corp, a company with whom it signed a technology transfer agreement for the manufacture of NEC’s small PABXs in 1988. The joint venture has a capital of $4.2m, with NEC having a 40% stake, and will focus on manufacturing and sale of NEC’s NEAX models 2400 and 7400. Sales are expected to be $5m in the first year, growing to $60m in 1999. With the new company, NEC hopes to expand its current 4% market share to 10% within three years. NEC claims it has already su pplied more than 10m lines of telephone exchanges and microwave and satellite communications systems, transmission systems, PABX, mobile terminal since it resumed business in China on the resumption of diplomatic relations in 1972. Other joint ventures in the telecommunications field include Tianjin NEC Telecom Engineering, established in December 1989 in a joint venture with the Tianjin Posts & Telecommunications Facilities Co and Sumitomo Corp (NEC has a 39% stake); Tianjin NEC Electronics & Communications Industry, established in 1992 in a JV with Tianjin Zhong Wuan Computer Company, for the production and sales of switching systems (NEC has a 35% stake); Wuhan NEC Fibre Optic Communications Industry, established in 1992 for the manufacture and sale of fibre optical systems, a joint venture with Yangtze Industry Group for Optical Fibre Communications (again a 35% stake); and two joint ventures for the manufacture and sales of pagers, TCL Mobile Communications Equipment Co, (25% share) and Wuhan NEC Zhongyuan Mobile Communication Co, for mobile phones (NEC has a 55% share). Total investment in the capital of the new companies has been calculated at $22.8m. Fujitsu Ltd’s relationship with China dates from 1982 when it supplied China’s first digital switching system. In 1987 it established the first of its joint ventures, Fujian Fujitsu Communications Software, and it has had a digital switching system manufacturing presence in Shanghai through a technol
ogy transfer agreement with Shanghai Telecom Equipment since 1992. Nanjing Fujitsu Telecommunication Equipment Co Ltd was established in March 1992 as a joint venture for the manufacture and sale of optical transmission equipment.
By Anita Byrnes
Last year Fujitsu set up Nanjing Fujitsu Computer Products Ltd, its fifth joint venture, for dot-matrix and laser printer manufacture. Fujitsu and its subsidiary Fujitsu Isotech have a 56% share of the company. Matsushita Electric Industrial Co likes to see itself as a pioneer among Japanese companies in the Chinese market. This was due to a personal commitment to doing business in China by the company’s founder, Matsushita Konosuke, who first visited the country in 1979. The period between 1979 and 1987 was marked by the export of plant and technology transfer. 1987 saw the establishment of the first Matsushita joint venture, for production of cathode ray tubes for colour televisions. The Tiananmen Square massacre occurred at a critical point in the joint venture plant’s start-up and while personnel of other companies were withdrawn to emphasise widespread disapproval of China, Matsushita felt unable to do the same; as a result, it won approval from the Chinese authorities but suffered criticism from the West, according to Yukio Shohtoku, director and head of the Corporate Management Division for China at Matsushita. Matsushita has invested $491m in the Chinese market in 21 joint ventures, most of these concerned with consumer electronics and their components and white goods, including video, car audio, and air conditioners. However it has a joint venture for pager manufacture in Peking. In 1994 it set up a wholly-owned subsidiary for support of Matsushita activities. The functions of this company include management, and the protection of intellectual property and litigation activities – a very important function according to Mr Shutoku, who says that spurious claims of product liability and information about illegal imports and manufacture of copy products come thick and fast and require quick action. Typical problem situations include judges who side with the complainant and illegal factories that disappear without trace on investigation. Similarly Toshiba Corp this year set up its own wholly-owned subsidiary for co-ordination of its subsidiary and joint ventures. Toshiba has four manufacturing sites in China, with three more scheduled to start soon. Cumulative investment in China totals $170m. High-tech-related activities include Shanghai Jinzhi Electronics, a joint venture to manufacture cable television set-top boxes, and Wuxi Huazhi Semiconductor, established in 1994 to manufacture and market semiconductors. Computers and software development Japanese electronics companies have been relatively slow starters in the personal computer business in China, although they have been active longer in software development ventures. In the bubble days, many Japanese computer and software companies saw China as a source of cheap labour for large software development projects. Today however the number of such projects has fallen as a result of the downsizing trend as well as the prolonged slump in Japan. Other activities come more under the heading of advanced research and development: Fujitsu for example has joint development projects with Tsinghua University in the fields of language processing and Chinese-Japanese machine translation; and East China Normal University for conversion of floating point data, among others. The personal computer market in China is still underdeveloped but growing fast from a low base. Last year total sales of personal computers were around 720,000, with Compaq Computer Corp, AST Legend, Great Wall, Digital Equipment Corp and other iAPX-86 machines accounting for 65% of sales. The past four years have seen an annual growth rate of 79.5% average in per unit sales, and the Ministry of Electronic Industry expects the annual growth rate to exceed 20% over the next few years. 1995 is expected to see the market grow to 1m units. In May thi
s year NEC set up a joint venture with the largest computer manufacturer in Shanghai, Chianggiang Computer Union Corp. Named NEC Shanghai Computers Co, the company is to begin producing personal computers at a rate of 20,000 per year, and increase output to 150,000 units by the year 2000. Because many of the customers have purchased personal computers to use as word processors, NEC expects the market to develop like the Japanese market, into one with a significant niche for specialist word processors. On September 22, NEC announced that it will contract manufacture of its Japanese word processor to Shinwa Industries in Huizhou, Guangdong, with two purposes: firstly to reduce the production costs, and therefore the street price in Japan, of its Bungo-mini series of Japanese word processors – a cut of 15% is expected due to the lower cost of labour and access to low-priced components; and secondly to start the manufacture of Chinese word processors, aiming for sales to begin this autumn. By comparison, Hewlett-Packard Co also announced in May an investment of $20m to manufacture personal computers, to start in 1996. It already has a plant manufacturing workChinese market to date.
Automatic teller machines
However it did announce in June an expanded investment of $1.2m in an existing joininroads in or commitment to the Chinese market to date. vers and automatic teller machines in China. The company previously focused on software development. The automatic teller machine market is growing at 20% per year in China, says Hitachi, and the company plans to increase its currently small share to around 20% of the market. Since China joined the World Intellectual Property Organisation, the situation regarding protection of intellectual property rights has improved considerably in theory, though not necessarily in practice, according to Zhang Yue-Jiao, an official of the Chinese Ministry of Foreign Trade & Economic Co-operation, speaking at the China Market Forum sponsored by Apple Computer Inc earlier this year. She emphasised that there is a 50-year protection for software through a low-priced registration system administered by the Bureau of Copyright, and a judicial and mediation system for dealing with infringement. Still, the Japanese may be at a disadvantage in doing business in China. According to an Australian executive developing telecommunications business in China, despite all the politics surrounding the US-China relationship, the Chinese dislike of Japanese stemming from the war gives Americans some advantage – if only they realised it!
