Japan's heated investment in China has begun to cool due to the country's increasing labor costs and the adjustment of preferential policies for foreigners.

Japanese enterprises are shifting to a "China+1" investment pattern, which means that when they invest in China, they also invest in Vietnam, Thailand and other Asian countries in order to reduce the investment risk.

According to Japan External Trade Organization (JETRO), Japan's investment in China has boomed three times. The third boom began in 2001 and hit a record high in 2005, accounting for 14 percent of total external investment. In 2006 investment began to decline, decreasing 29.6 percent from 2005.

A survey conducted by the Japan Bank for International Cooperation (JBIC) also shows the ratings for China dropped gradually (2004, 91.1 percent; 2005. 82.2 percent; and 2006, 77 percent) when Japanese enterprises were asked "the best places to invest in the next three years". Meanwhile, the ratings for India, Vietnam and Thailand grew year on year.

The cooling of investment is the result of two other factors as well. The first is that Japanese enterprises have begun to change their views on China's investment environment. SARS, electricity shortages, rising labor costs and the appreciation of the RMB have forced them to be more prudent. The second reason is that Japan is trying to prevent its domestic industries from being excessively dependent on China.

Nevertheless, China remains Japan's investment country of choice in Asia.

Japanese enterprises have focused on China's cheap labor and raw materials. But now they attach more importance to the country's focus on high added value and research and development.

US sociologist Immanuel Wallerstein has said that some countries are at the edge and the bottom of the economic circulation mechanism due to divisions in the world economy. Japan's adjustment of its investment structure in China will help improve China's status in the world economy.

By People's Daily Online