According to the findings of a new report, around 110 Japanese businesses have gone bankrupt in China last year. The Tokyo Shoko Research says most of these firms failed because the country is increasingly becoming very difficult to do business in, something that is being referred to as the “China Risk”.
Why has the world’s second-largest economy suddenly become such a difficult place for business? The Tokyo-based research agency says this is because of a combination of different reasons, including political tensions, and increasing cost of production. The Chinese economy has slowed down in recent times, and this has resulted in additional pressure for the foreign businesses, particularly Japanese investors because of the complicated political situation after the East China Sea crisis.
Japan is disputing China’s claim over a few islands in the East China Sea. The controversy has been raging since 2012 and has involved a few other countries of the region too.
It Is Not Good News for China Too
The report also says, even China is disturbed with so many Japanese businesses going bankrupt in the country, and the increased tensions. That’s because Japan has been one of the biggest investors in China for several decades. All top Japanese car makers have their plants here. Bilateral trade between the two countries was worth $303 billion in 2015, in spite of the tensions.
The 110 Japanese bankruptcies in China have cost 1638 jobs, more than any other year. In fact, this is the first time the 1,000 figure was crossed. 63 of the failed businesses are in the wholesale sector, while 33 are in manufacturing. The industry that was hit the most is apparel, reporting 54 bankruptcies.
Rising Production Costs in China
Mitsuhiro Harada, author of the report says, “At the moment, the rise in costs due to soaring labor costs in China is a threat, in particular to Japanese apparel-related companies”. Many Japanese firms have been making apparel in China because of low costs, including labor payments. Productions were stepped up.
However, in recent years, “fast fashion” has become popular in Japan, where impressive designs are offered through unconventional channels at an affordable price. Meanwhile, labor costs and other manufacturing expenses have also increased in China.
These two factors together have put so much pressure on the Japanese businesses that many of them are not able to cope with it. Those that have survived are relocating their factories to Vietnam, and Myanmar.