Japanese Investments in Southeast Asia
What Risks to Expect in 2019
Commercial relations between Japan and Southeast Asia continue to expand, though Japanese firms still face persistent issues, together with emerging risks as they invest in the region. Pervasive corruption, regulatory uncertainty, poor corporate governance and opaque supply chains are some of the problems Japanese investors should expect to deal with in Southeast Asia.
Japanese Push Across Southeast Asia
According to the Japan External Trade Organization, direct investment in Southeast Asia by Japanese companies totaled USD$22 billion in 2017, twice as much as in 2012. By contrast, Japanese investment in China decreased by 30 percent over the same period, to USD$9.6 billion.
Japanese manufacturers have long been setting up parts of their supply chains in Southeast Asia to complement facilities in mainland China. This so-called “China Plus One” strategy appears set to continue to expand in 2019 in the context of trade tensions between the U.S. and China.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that entered into force in December 2018 further contributes to the location of Japanese investments in Southeast Asia. The CPTPP includes Japan, Vietnam, Malaysia, Singapore and Brunei with Thailand considering joining. The treaty provides mutual trade and investment benefits to its members through the reduction of tariff and non-tariff trade barriers, which incentivises Japanese corporations to expand their supply chains in CPTPP member countries.
A November 2018 report by Mizuho highlights not only the expansion but also the sectoral and geographic diversification of Japanese investments across the ten countries that belong to the Association of Southeast Asian Nations (ASEAN). In 2017 and 2018, Thailand and Indonesia saw significant increase in Japanese investments in the automotive sector; Vietnam in machinery and retail; Malaysia in chemicals and pharmaceuticals; and the Philippines in semiconductor manufacturing.