With two nationalistic leaders at their helm, China and Japan periodically stand off against each other on the political front. Clashes over uninhabited islands such as the Senkaku (if you're Japanese) and the Diaoyu Islands (if you're Chinese) periodically raise hackles, particularly now that it seems they are in oil-rich waters.
But we should regard whatever Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe may say on stage as posturing. The world's second-largest and third-largest economies are inextricably linked in economic terms and the clear superpowers of Asia's trade and business.
Japanese companies have long exported factories to cheaper-labor nations such as China, as well as the fast-growing populations of Southeast Asia. Electronics manufacturers and car-component makers made much of the early headway.
But they have now encountered problems over their own businesses, even in their home markets, and are being undercut by cheaper Korean and now Chinese rivals. The acquisition at the end of March of Sharp (TYO: 6753) by the Taiwanese manufacturer Hon Hai Precision Industry (TPE: 2317), better known as Foxconn, is a case in point. The on-then-off-then-on-again deal saw Foxconn snap it up for a bargain-basement 389 billion yen (US$3.6 billion).
Jones Lang LaSalle (JLL), at the start of this year, launched a Japan desk in Jakarta to lure Japanese investment. Shin Furuhata, previously with the conglomerate Mitsui (TYO: 8031) in Indonesia, has taken up a full-time post with the real-estate brokerage and consulting company.
"I believe the potential for more Japanese investment is still good," Furuhata said.
But rising labor costs even in Indonesia have been making it hard for many Japanese manufacturers to fend off South Korea rivals such as LG Electronics (KRX: 066570) and Samsung Electronics (KRX: 005930). Chinese rivals with even cheaper products are now vying to underbid the Koreans.
Companies like Sharp are in the process of selling off properties around Asia, including their headquarters in Osaka, which they sold off in September 2015 in what must have seemed a humiliating move.
"I have never been in contact with Sharp in Indonesia," Furuhata said. But they may be willing sellers there, too. "Maybe next week, or next month I will try to contact them and see how is the situation in Indonesia."
Who are the winners of this kind of shakeout? One of the most-successful Japanese companies expanding into Indonesia is AEON (TYO: 8267), the mall operator. It opened one mall last year in Tangerang, just west of Jakarta, that booked around 12 million customers, not bad for its first 12 months of operation. It plans to build three more by 2018 and are also expanding in Vietnam, Cambodia and looking to enter Myanmar.
Uniqlo, the Fast Retailing (TYO: 9983) subsidiary, is also expanding aggressively. One issue is that Indonesia requires retailers to take up at least 2,000 square meters of space. The government is mumbling about changing that law in the near future, which would allow smaller retailers to expand.
A flurry of real-estate developers are also making inroads, with new projects announced in 2014 and 2015 from Mitsui, Mitsui Fudosan (TYO: 8801), Mitsubishi Estate (TYO: 8802) and Sanko Soflan (TYO: 1729). Look for more activity from them in this space, too.
