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Financing Activities of Japanese Companies in Asia

Summary of Discussions from the "Research Group on Financing Activities of Japanese Companies in Asia"

November 24, 2006
Akira Kodama*1
Bank of Japan

Click on ron0611a.pdf to download the full text.

Introduction

After experiencing the hardships of the Asian Financial Crisis of 1997 and 1998, Asian countries have regained their economic vigor. While they still have many issues to address, they have continued dynamically down the path of development. These waves of dynamism have gone beyond the East Asian region (namely China, the newly industrializing economies, or NIEs (i.e., Korea, Taiwan, Hong Kong, Singapore) and the countries of the Association of Southeast Asian Nations, or ASEAN). There is also growing momentum in India. Indeed, the presence of Asian countries in the global economy continues to grow and strengthen.

The factors contributing to this dynamic economic development in Asia have been discussed numerous times in the past. Asian countries have actively recruited foreign direct investment1 from overseas, including Japanese companies. These investments have served as the driving force for the creation of production centers in Asia, enabling them to emerge as "the world's factory." Another major factor has been the substantial expansion in Asian countries' domestic markets. This shows through the growing motorization resulting from steadily improving income levels. These trends have enabled substantial increases in the trade of goods and services throughout the Asian region, including Japan, and are steadily deepening the region's economic interdependence.2

As part of these trends, Japanese companies have traditionally been important players in Asian economic activities, and today it is more important than ever for Japanese companies to use Asia's economic vigor for their own development. Japanese companies are also involved in more regions within Asia. This broadening started with Vietnam as "China + 1," and more recently with India as well.3  The relationship between Japanese companies and Asia is therefore broadening and deepening.

However, when considering the corporate finance aspects supporting these vigorous activities, there are many issues remaining which could halt the smooth economic and business activity in Asia. Having learned from the experiences of the Asian financial crisis of 1997-1998, Asian countries have taken steps to enhance their financial and capital markets. However, it is nonetheless worth identifying the remaining financial sector issues facing Asia from the perspective of Japanese companies as major players in the region and important users of the financial infrastructure. This will be important not only for the further development of Japanese business within Asia, but also as a contribution to sustainable growth for Asian countries themselves.

With this in mind, last April, the Center for Monetary Cooperation in Asia (CeMCoA), a unit of the International Department of the Bank of Japan, organized a Research Group4  by bringing together the financial officers of leading Japanese companies doing business in Asia. The research group identified corporate finance issues facing Japanese companies in their Asian activities and discussed potential solutions. Fundrasing, fund management, foreign exchange risk management and other points were highlighted. The CeMCoA continues its research and analysis to capture accurately the nature of these issues and to contribute to the efforts for better functioning of Asian financial markets through the network of central bank cooperation in the region.

Reference
Members of the "Research Group on Financing Activities of Japanese Companies in Asia"
(Japanese phonetic order)
Takehiko Ikushima
General Manager, Treasury Department, Nissan Motor Co., Ltd.
Teruyuki Usugaya
Manager, Finance Division, Mitsui & Co.
Tsuyoshi Endo
Deputy General Manager, Finance and Accounting Department,Mitsubishi Chemical Corp.
Tsutomu Kariyazaki
Manager, Finance Sec., Controller Dept., JFE Steel Corp.
Toshiaki Tanaka
General Manager, Finance Department, Mitsuboshi Belting, Ltd.
Hiroshi Maeda
Manager, Corporate Finance Division, Mitsubishi Electric Corp.
Akira Kodama*1
Research Fellow, Center for Monetary Cooperation in Asia, International Department, Bank of Japan
  1.  1  Cumulative direct investments in Asian countries (China, Indonesia, Malaysia, Philippines, Singapore, Thailand, and India) from Japan between 1980 and 2003 totaled 103.4 billion dollars, followed by the United States with 85.4 billion dollars and the UK with 23.3 billion dollars.
    (Toward "Sustained Potential for Growth" , White Paper on International Economy and Trade 2006)
  2.  2  The ratio of trade within the Asian region (export based) has increased from roughly 30% in the early 1980s to nearly 50% in more recent years.
  3.  3  According to the Japan Bank for International Cooperation's (JBIC) FY2005 Survey Report on Overseas Business Operations by Japanese Manufacturing Companies, Japanese manufacturing companies consider Vietnam and India to be the most promising countries for future expansion.
Table :
Rank Promising locations over the
medium term (Next 3 years)
Promising locations over the long
term (Next 10 years)
1 China China
2 India India
3 Thailand Vietnam
4 Vietnam Russia
  1.  4  The "Research Group on Financing Activities of Japanese Companies in Asia" met 10 times between April and September.
  • *1Rapporteur. Research Fellow, Center for Monetary Cooperation in Asia (akira.kodama@boj.or.jp)