Editorial – Mitsui O.S.K. Lines pays China to settle the claim

As became known today Japanese company Mitsui O.S.K. Lines paid 4bil. yen in order to settle the claim from China and release its ship “Baosteel Emotion”.

It is said that the company considered that the losses from the inability to use the ship would be higher down the road and decided to pay the amount requested by the Chinese court plus the interest. The ship has already been released and left China.

Japanese government was not involved in the settlement, and it is said that the company did not request any help from the Japanese authorities in order to settle the matter.

However, the precedent is created now. And it is expected that further similar claims from China against the Japanese companies in China are to appear in the nearest future. And our companies will have to take such risks into account seriously. This will in turn make the production in China more expensive and Japanese companies will have even less incentive to expand their presence there. It is just not worth it.

Production in the South-East Asia is much cheaper now than it is in China. The Chinese market might still be important, so it is worthwhile to just keep the sales facilities there. No production lines, no fixed assets, no employment for the local Chinese staff. China started this and should pay for its insolence.

by naokawa


Editorial – Consumption tax rise, what is in it

Today (Apr 1) the consumption tax was raised in Japan from 5% to 8%. There is another rise planned for Oct 2015. Speaking about the rise today PM Abe stated: “This is needed in order to cover the social security expenses that are rising year by year. The raised difference will be applied to the social security, and also to child-raising support. We are also planning strong counter-measures to counter any adverse effects.”

Yes, the number of people in the local supermarket was considerably smaller today. The real question is what is to become of the economic situation. Will businesses get over the raise or will they cut their spending and turn to the saving money strategy that was before the abenomics. The second tax raise in Oct 2015 would largely depend on this.

But thinking about it, if the country would guarantee the social security even at the existing level, people may think – hey, if we have this social security we don’t have to worry about our future when we get old as we would most likely have enough money to cover the expenses until we die. Why would we be interested in having children…?

This is a big question actually. It is very important to guarantee the elderly people who live of their pension and savings now all the help and treatment they need, but it is equally important to make the young people understand that they must not count on the social security to take care of them in the future, but they should count on their kids to help them out. Otherwise there is no way to tackle the falling birth rate in Japan.

I would put most of the money to child-upbringing support, and even the child-birth support because the child-birth is not covered by the social insurance in Japan. It is quite expensive even to give a birth to a child. And I would make the message very clear for the young people that the country will most likely not be able to give them the level of support that was given to their grandparents.

by naokawa

Do Japanese companies in China have a business continuity plan for emergencies?

China continues its hard-line anti-Japan stance be it on the pretext of Senkaku Islands (pref. Okinawa, Ishigaki) nationalization or PM Shinzo Abe’s visit to the Yasukuni shrine. It is not that improbable if an accidental skirmish would occur in the vicinity of Senkaku. Capt. James Fanell, director of intelligence and information operations for the U.S. Pacific Fleet during his speech on Feb 13 said that the background of large-scale military exercises of the Chinese People’s Liberation Army last year was “a strategy to assault and capture the Senkaku Islands.”

200,000 Japanese nationals in China
China’s defense budget 2014 grew by 12.2% in comparison to the previous year. Four years straight it is a two-digit increase and the increase is even larger than a year before (10.7%).

On Mar 5 China’s PM Li Keqiang during “government activity report” said meaning Japan-China relationships: “We have been firmly protecting our sovereignty on land and sea. We will reinforce the defense of state borders, territorial waters and airspace to prepare for a war conflict”. Satoshi Tachibana of ERIS Consulting Shanghai Ltd. points out that even in this harsh reality “only a few Japanese companies in China have a business continuity plan (BCP) for cases of emergency.”

The “emergency” mentioned by Mr Tachibana is not only direct military conflict, but also large-scale anti-Japan demonstrations and conflicts between Japanese management and Chinese workers that often make use of the anti-Japan sentiment. Also into the same category falls terrorist activities within China and anti-government riots. Basically any social disorder of a large-scale. Let’s take a look at the task of “protecting Japanese nationals”. It is considered over 200,000 Japanese nationals (short-term stay included) their families, exchange students, et al. are residing in China. It is not realistic to evacuate into safety all Japanese who would want to leave should an emergency occur.

Mr Tachibana emphasizes: “Only the companies they are working for can protect Japanese nationals in China.”. It is common sense for Japanese companies that first common workers should be evacuated and the managers should stay for as long as possible and be in command. But Mr Tachibana says: “It should be exactly the opposite.”

The one in charge should flee first
Even if the real emergency would not occur it is very easy for China to make up a civil lawsuit case to prevent Japanese managers from leaving China and arrest them. For a company incorporated abroad the first one to be targeted is local CEO. Mr Tachibana says in Japanese companies all responsibility lies with the local management. In China it would be the local management team under the Chief operating officer (COO). Mr Tachibana suggests that a BCP where the evacuation of COO comes firsthand should be created. Regular employees can hardly be of any value to the local officials.

It is vital for the Japanese companies to take the following measures: (1) Appoint a person who would make the final decision about evacuation, (2) Decide the order in which the large number of Japanese nationals and their families are to be evacuated, (3) Research the routes of evacuation from China
In 2012 during the anti-Japan demonstrations there were many cases in cities like Shanghai when Japanese were attacked on the streets and in the restaurants. Also in a course of labor-management disputes Japanese nationals were often locked up and held captive inside the factory buildings.

Most of the Japanese companies in China leave the most of the personnel risk management up to the local management. Should a crisis occur the headquarters would usually try to take control of the situation giving out orders like “Report the situation!”, “Evacuate immediately”, that do not really reflect the local situation.

In addition to protecting the Japanese nationals companies should think how to deal with their Chinese personnel should the situation escalate. Company should understand their emotional state, how they would react and help them into safety. All this must be immediately included into the BCP.

Aside from personnel safety it is important to understand how a Japanese company would protect their financial assets, factories, offices, equipment in China.

Make it look “less Japanese”
Japan-China relations will not improve in short-term, but if a Japanese company has to expand its business in China they should do it differently. “Instead of making a direct investment from Japan they should create an intermediary company in such a place as Hong Kong and thus make the investment look ‘less Japanese’, hire a Chinese, Malaysian, or a person of a Chinese descent living abroad as a top-level executive for the local company. There is no other way than try to be a ‘non-Japanese’ company as much as possible.”

Mr Tachibana classifies BCP risks in China for Japanese business into five levels: (level 1, call for attention) – danger is recognized, (level 2, high alert) – limited problems and social unrest will likely to be on the rise, (level 3, outbreak of crisis) – sporadic clashes and large-scale demonstrations, (level 4, serious crisis) – military conflict, social unrest, Chinese authorities are out to pacify the riots all over the country, (level 5, great crisis) – military conflict builds up, strife all over the country, civil war, coup. Mr Tachibana mentions that it is needed to work out detailed countermeasures for each level of risk.

Should there be businesses which would laugh and say that such situation is very improbable, they do not have any right to send personnel from Japan to work in China. If a company is not willing and all prepared to protect its business and people in China in any possible situation, it must pull back from there. It is as bad as this.

by Masami Kawasaki (Shanghai bureau)