Why Japanese Companies Want To Pull Out Of China, And Why It's Not Always So Easy

The dispute over the Diaoyu islands, which Japan calls the Senkaku islands, is prompting some Japanese firms to consider closing Chinese operations. They quickly run into roadblocks.

Why Japanese Companies Want To Pull Out Of China, And Why It's Not Always So Easy
Lu Bingyang

BEIJING - Not least among the victims of the Diaoyu Islands dispute between China and Japan are Japanese firms operating in China.

Because of anti-Japanese sentiment in China, coupled with the economic slowdown, increasing labor costs, strikes and other risks, many Japanese firms have begun to consider closing down their Chinese operations. But it's not always so easy.

"Japanese companies should learn how to leave from China as soon as they enter it. They should review corporate charters just in case,” warned Akihiro Maekawa, the Managing Director of CAST Consulting, a Japanese firm that provides services to Japanese companies in China.

As Maekawa explained, now that China has become the world’s second biggest economy, it is phasing out the preferential taxes it used to offer foreign businesses. Foreign enterprises have had to engage in fierce competition for survival.

Foreign-run factories often experience strikes and the business environment is becoming increasingly tight. But when Japanese firms want to withdraw from the Chinese market, they find it is even harder than it was to enter. They have to deal with a lot of problems when they decide to leave China, the hardest being labor relations.

Maekawa says once a Japanese firm has submitted its layoff plan to the local labor department, the information quickly spreads to the workers, which can quickly lead to chaos. If the situation deteriorates, it is difficult to hold redundancy negotiations.

Dealing with the local government, required in any closing plan, is also a major issue. These authorities are worried about the consequential reduction in tax revenue and increase in unemployment, and tend to be uncooperative and make formalities very difficult. The process can drag on, becoming very costly for the exiting company. “The Chinese government is used to attracting foreign investment, but lacks experience in divestment,” Maekawa said.

A difficult and time-consuming process

As for the companies that have a joint venture with Chinese firms, dissolving the partnership can be very time-consuming for other reasons. Maekawa said that although a few Japanese firms do specify in their corporate charters that “in the case of a loss for three consecutive years, dissolution of the company is to be discussed,” most Japanese companies don’t think that they will want to retreat from China and so their corporate charters are not very clear regarding dissolution of partnerships. In the case where the Chinese partner does not accept the proposal to close the joint venture, pulling out turns into an extremely lengthy and costly process.

One Japanese businessman said: “Over the last ten years, our company’s profit has been on the rise. But due to overproduction by Chinese firms, the commodity price has declined. It has gradually been more and more difficult to balance our books. Quite a number of Japanese enterprises are now studying how to re-integrate their subsidiaries.”

Another manager said the Diaoyu Islands dispute and the consequent anti-Japan demonstrations reminded him of the risks and the necessity of having an exit strategy.

CAST has, in the past 10 years, assisted more than a hundred Japanese firms wishing to enter the Chinese market. But in the past two years it has also helped a dozen of them to leave China.

However, despite CAST’s warning, Japanese car companies operating in China have all indicated that they were not planning to leave China any time soon. “We will continue to develop our business in China steadily,” the President and CEO of Toyota Motor Corporation, Akio Toyoda, told Beijing News.

The Chairman and CEO of Nissan, Carlos Ghosn, also declared that “the Chinese market is irreplaceable.” Seiji Kuraishi of Honda China, also said that China is Honda’s most important market. After keeping a relatively low profile following the rampant anti-Japanese demonstrations a few months ago, Japanese car manufacturers such as Toyota and Nissan in Guangzhou, in the southeastern Guangdong province, have restarted using large billboards and wall advertising from last December.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

How Thailand's Lèse-Majesté Law Is Used To Stifle All Protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

Pro-Democracy protest at The Criminal Court in Bangkok, Thailand

"We need to reform the institution of the monarchy in Thailand. It is the root of the problem." Those words, from Thai student activist Juthatip Sirikan, are a clear expression of the growing youth-led movement that is challenging the legitimacy of the government and demanding deep political changes in the Southeast Asian nation. Yet those very same words could also send Sirikan to jail.

Thailand's Criminal Code 'Lèse-Majesté' Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family.

But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

The recent report 'Second Wave: The Return of Lèse-Majesté in Thailand', documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations."

Criticism of any 'royal project'

The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. Nineteen of them served jail time. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

Juthatip Sirikan explains that the law is now being applied in such a broad way that people are not allowed to question government budgets and expenditure if they have any relationship with the royal family, which stifles criticism of the most basic government decision-making since there are an estimated 5,000 ongoing "royal" projects. "Article 112 of lèse-majesté could be the key (factor) in Thailand's political problems" the young activist argues.

In 2020 the Move Forward opposition party questioned royal spending paid by government departments, including nearly 3 billion baht (89,874,174 USD) from the Defense Ministry and Thai police for royal security, and 7 billion baht budgeted for royal development projects, as well as 38 planes and helicopters for the monarchy. Previously, on June 16, 2018, it was revealed that Thailand's Crown Property Bureau transferred its entire portfolio to the new King Maha Vajiralongkorn.

photo of graffiti of 112 crossed out on sidewalk

Protestors In Bangkok Call For Political Prisoner Release

Peerapon Boonyakiat/SOPA Images via ZUMA Wire

Freedom of speech at stake

"Article 112 shuts down all freedom of speech in this country", says Sirikan. "Even the political parties fear to touch the subject, so it blocks most things. This country cannot move anywhere if we still have this law."

The student activist herself was charged with lèse-majesté in September 2020, after simply citing a list of public documents that refer to royal family expenditure. Sirikan comes from a family that has faced the consequences of decades of political repression. Her grandfather, Tiang Sirikhan was a journalist and politician who openly protested against Thailand's involvement in World War II. He was accused of being a Communist and abducted in 1952. According to Sirikhan's family, he was killed by the state.

The new report was conducted by The International Federation for Human Rights (FIDH), Thai Lawyer for Human Rights (TLHR), and Internet Law Reform Dialogue (iLaw). It accuses Thai authorities of an increasingly broad interpretation of Article 112, to the point of "absurdity," including charges against people for criticizing the government's COVID-19 vaccine management, wearing crop tops, insulting the previous monarch, or quoting a United Nations statement about Article 112.

Activist in front of democracy monument in Thailand.

Shift to social media

While in the past the Article was only used against people who spoke about the royals, it's now being used as an alibi for more general political repression — which has also spurred more open campaigning to abolish it. Sirikan recounts recent cases of police charging people for spreading paint near the picture of the king during a protest, or even just for having a picture of the king as phone wallpaper.

The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them.

Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind. In October 2020, Twitter took down 926 accounts, linked to the army and the government, which promoted themselves and attacked political opposition, and this June, Google removed two Maps with pictures, names, and addresses, of more than 400 people who were accused of insulting the Thai monarchy. "They are trying to control the internet as well," Sirikan says. "They are trying to censor every content that they find a threat".

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!