Japanese have an affiinity for their former colony Dalian, in China's Liaoning Province, as is illustrated by this photo taken at Kitakyushu Airport in Japan's Fukuoka Prefecture February 13. Referring to a renewed outbreak around then of Covid-19 in China, a slogan affixed to a stairway reads, 'Hang in there, China, hang in there Dalian.' Photo: AFP / The Yomiuri Shimbun

While media and political attention focuses on Hong Kong, Japanese companies show renewed interest in the northern Chinese city of Dalian. 

Ruled by the Japanese Empire from 1905 to 1945, Dalian in the 1980s became a preferred destination for Japanese industry seeking cheap labor. But after peaking at about 1,700 in 2014, the number of Japanese enterprises in the city declined by more than 10% over four years as rising wages caused many to relocate to Southeast Asia. 

Now Japanese investment is on the rebound. That’s due to factors including the increasing sophistication of the Chinese economy, Dalian’s cost competitiveness vis-à-vis Shanghai and Shenzhen and government assistance provided in the context of economic conflict between China and the United States. Widespread knowledge of the Japanese language remains one of the key selling points of the city of 6.7 million people.

In March, electric motor maker Nidec began construction of a factory in Dalian’s New Japanese Industrial Park. Likely to begin operations in 2021, it will be the company’s second electric vehicle motor factory in China. The first big project in the park, it will be supported by more than 30 smaller enterprises.

In June, it was reported that Nidec also plans to establish an R&D center inside the new factory. The center will concentrate on the development of electric vehicle drive motors but also work on motors for personal care robots and home appliances. Eventually employing about 1,000 people, it will complement Nidec’s R&D efforts in Japan. 

The decision to add the R&D center seems to have been motivated both by the potential of the Chinese market and by competition from German auto parts makers Bosch and Continental, which are also expanding their operations in China.

Also in June, Honda Motor (China) Investment announced the establishment in Dalian of a joint venture with Neusoft Reach Automotive Technology (Shanghai). Neusoft Reach is itself a joint venture between China’s Neusoft Group, Alpine Electronics (China) Ltd and other companies. 

Neusoft Group is a large, diversified software and IT solutions company headquartered in Shenyang. Alpine China is a subsidiary of Japanese electronic component and car audio manufacturer AlpsAlpine. 

Named Hynex Mobility Service, the new venture aims to develop upgradable connected-car services utilizing Honda’s CONNECT infotainment system, which includes car audio, navigation, internet and other functions. Owned 51% by Honda and 49% by Neusoft Reach, it starts operations with about 50 employees.

A wide range of other Japanese businesses represented in Dalian includes e-commerce (Rakuten), financial services (Orix, Mizuho Bank), trading (Sojitz), power tools (Ryobi), home appliances (Lixil) and cement (Onoda). 

There are no signs that these companies – let alone Nidec and Honda – are planning to close their businesses in China and take advantage of recently announced Japanese government support to return operations to Japan. In Dalian, Japanese investment is on the upswing.

Scott Foster is an analyst with LightStream Research, Tokyo.

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