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BusinessWeek on the low numbers of Japanese headed to Beijing Olympics

BusinessWeek correspondent Hiroko Tashiro has a new piece on why Japanese tourists are not heading to the Beijing Olympics in droves. Tashiro makes the point that negative media coverage of China has been the norm over the past year, especially following the poisoned gyoza scandal. Of course, the manner in which the protests in Tibet and the Olympic flame relay were dealt with also weigh in as factors.

But, we have to expect there to be some mismanagement on the business end as well. Tashiro gives an interesting, though brief, look into how the ticket situation has been bungled by the combination of the IOC, JOC and Japanese travel agencies. Here’s one illustration:

In the case of judo, for instance, [ANA Sales] has 50 tickets for the preliminary rounds but 10 for the finals. “You can’t tell a customer to watch only the early rounds and then go back to the hotel to see the finals,” says Sawaki. “It’s a hard sell.”

One factor not mentioned in the article, however, is that overseas travel in general (not just to China) is down this year. This points to economic troubles amongst those who would usually be saving up to make such a special trip. Higher travel prices and stagnant wages are taking their toll as overseas trips are being put off. Domestic travel destinations may benefit as a result, but electronics firms had probably counted on selling a lot more digital cameras to people heading off to the Olympics.

Most likely there is a balance of factors. China’s image has taken a battering in the Japanese media and people have less disposable income. Perhaps other residents figure they just might be able to wait until 2016 to see the games in Tokyo, as the city is now offering what Reuters calls a “blueprint” for large cities planning to host the Olympics in the 21st century.

Greg Lane’s 2008 Predictions in Japan Inc: The Olympics in China

The new edition of Japan Inc magazine is out, and it contains a nifty set of five predictions by contributor Greg Lane. The one I find the most intriguing concerns China and the Olympics. Here’s Greg’s take:

Don’t expect a wave of ‘Cool China’ in the same way that the ‘02 Football World Cup triggered a wave of interest in all things South Korean. China will however loom ever larger in the Japanese consciousness as the world’s media turns its glare on the slick, shiny showcase taking place in Beijing throughout August. Despite the Games happening in Japan’s backyard and large numbers of enthusiastic supporters making the short trip over, don’t expect too much of the Japanese Olympians. Dismal results in recent athletics and judo world championships as well as fired-up Chinese athletes mean that Japan could take home its lowest medal haul since the paltry three golds won at the Atlanta Olympics in 1996.

I completely agree on the first part. There will be nothing at all like a “Cool China” wave. No 中流　(churyuu), if you will. There’s bound to be at least one athlete blaming poor performance on bad food. This time, though, they might not even be lying.

I expect to see the media provide a weird Jekyll/Hyde type of coverage on the games in China: When Dr Jekyll gets the camera, food will be featured. There will be close-up shots and oishiis galore. B-list talents will eat Peking Duck, and proclaim it scrumptious. Someone from SMAP will suddenly be an expert on Chinese cuisine, though he’ll probably be missing the ramen back home. Dr Jekyll will also have a few features on ‘cute’ Chinese athletes, and the tall guy who tends to dominate the 110m hurdles (sorry, if an athlete’s not on the Red Sox or Patriots, I have a hard time remembering their names).

Other than that, I expect to hear Mr Hyde in the background, grumbling about pollution, traffic, rudeness, people spitting in the streets, people peeing in the streets, people pooping in (or near) the streets, getting ripped off, double hotel charges, etc, etc. There’s bound to be a negative undercurrent in some media coverage of the games. Then again, one can easily argue that there legitimately should be.

Anyway, go read Greg’s full article.

Disclaimer: This author is also in the same issue.

Oil prices hit $100 per barrel for first time ever

It has finally happened: During Wednesday trading in New York, crude oil prices exceeded $100 per barrel for the first time ever. A host of factors seem to have combined in order to push prices beyond the century mark: Unrest in Nigeria, increased demand from China, a potential halt in oil exports from Mexico, an expected drop in the US crude oil supply, and fears that the Fed will cut interest rates.

How is this relevant to the Japanese economy? Well, as we know, the current inflation in consumer prices is being driven by high oil and energy-related production costs. Luckily, Japan’s financial markets won’t be open tomorrow, or else there could be some bloodshed. Then again, we have to wonder how much oil prices might “recover” before markets open on Friday.

Expect the Nikkei to follow tomorrow’s Dow and Nasdaq…

Japanese firms in China hoping to retain talent better in 2008

This quote appeared in the December 31 edition of the Nikkei in a piece entitled Japan Firms Eye Changes To Keep China Workers On Longer:

Until now, Japanese companies in China have provided workers few opportunities for pay raises, except when being promoted to management. As a result, Japanese companies have become less popular places to work than their European and U.S. counterparts with operations in China.

By introducing Western-style structures to reward employees for their capabilities and performance, the Japanese companies aim to encourage talented personnel to stay.

Hopefully their reputations aren’t already damaged beyond the point of “no return for at least a few years.” I also think the quote should stand on its own, without too much comment from us; it pretty much speaks for itself. It will also be interesting to see what kind of follow-up information we get on this issue in the coming months…

Former Sony CEO Idei Making Big Moves

On the train this afternoon I was reading a Japan Times article focusing on Nobuyuki Idei, the former CEO of Sony. The piece came via Kyodo News, and the original reporter had spoken with Idei on Monday of this week. Idei had much to say concerning the current state of innovation in Japan’s technology sectors. Here are some bits:

Sadly, Japan was unable to lead the information technology industry…At present, there is no world-class brand from Japan that does Net business. There is no new Sony on the Net…By using IT more and more, I hope one day there will be a new world-class company from Japan.

We’ve lamented this situation before, as have many others. But that’s not what we’re here to dwell on. What he said next in the interview struck me: According to Idei, Japanese Internet companies have not shown enough innovation and remain “localized” because they are overly dependent on imitating US-style business models. He then asserted that he has seen more promising innovation amongst Internet firms happening in China and other parts of Asia.

In 2006, in order to provide a “value creation catalyst” for young Internet workers in Japan, Idei set up a consultancy called Quantum Leaps.

Then, when I got home tonight, this headline was waiting for me: Aiming For Japan, Baidu Names Ex-Sony CEO To Board

The first two paragraphs:

Chinese Web search leader Baidu.com Inc., which is seeking to expand into the Japanese Web search market, said Tuesday it had named ex-Sony Chief Executive Nobuyuki Idei as a company director.

Idei, one of Japan’s most famous corporate executives, is widely blamed for missteps at Sony, the world’s largest consumer electronics company, where he was forced out as leader in 2005. He is the founder and chief executive of Quantum Leaps Corp., a technology consulting practice he currently runs.

I’m not sure how I missed the story before, but I’m glad I got them in reverse order, since the Japan Times/Kyodo piece makes no mention of Idei’s new post at Baidu. Isn’t context refreshing?

Total value of shares traded on China’s stock exchanges exceeds that of Japan for first time ever in April

As the OECD issued a warning on Thursday that China’s stock markets face the risk of “a marked correction,” the World Federation of Exchanges released their statistics on global stock market activity for April 2007. Looking at the “Value of Share Trading” data, one thing becomes clear: in April, the total value of shares traded on the Shanghai and Shenzen stock exchanges exceeded the total value of shares traded in Tokyo and Osaka for the first time ever.

In April, the combined value of shares traded on the Shanghai and Shenzhen Stock Exchanges added up to $645.3 billion, surpassing the $512.4 billion total traded on the Tokyo Stock Exchange and Osaka Securities Exchange.

Click on the graphic to see a comparison of Japan and China’s markets, in millions of dollars, from January to April of 2007 (exchange rates are calculated on the average rate for each month).

The OECD warns of a severe correction, and Andy Xie warns of collapse. We’re here to warn of lessons unlearned.

Andy Xie: China about to go bust

Former star Morgan Stanley economist Andy Xie has described his fear of an imminent stock market crash in China in a recent interview with Reuters, saying:

I think it’s going to be bust very soon…People will be surprised. When the end comes, it’s going to be pretty bad.

But how bad is it now? In an article published at the South China Morning Post on April 18, Xie wrote:

College students are putting their tuition money into the market…stroke-stricken retirees get wheeled into branches of securities firms to trade.

As Matt as the Discursive Monologue points out, “When the Average Joes begin trading stocks, the mania is approaching a danger level.”

I couldn’t agree more. While Xie says that Chinese government may not be trying to slow down markets due to a fear of political backlash, Discursive Monologue writes, “I would suggest that a small, anticipated political backlash is insignificant compared to the ineluctable bust and suffering that follows a fiery mania like this.”

This is very true. However, I’m not sure exactly what the Chinese government could do to slow down the overheating in its equity markets. Governments in general seem very bad at easing out of these situations, though one is tempted to think that looking at the damage caused by the burst of Japan’s asset bubble would have been warning enough.

Might the world be in need of a bigger warning?

Japan has fewer children; China is Australia’s largest trading partner

Two seemingly unrelated news events hit yesterday:

Japan child numbers at record low from the BBC.

China overtakes Japan in trade with Australia from ABC News Online.

In 2006, Japan experienced its 26th year in a row with the number of young people declining as a percentage of the population. Amidst much hand-wringing over what to do, the government of Japan has steadfastly done nothing about what has become a serious demographic crunch. As the BBC puts it:

The Japanese government has pledged to bring in policies to make it easier for women to have children, by improving child care and maternity rights for working women.

I seem to have been reading that quote for the past 5 years. So, who’s set to fill the gap that Japan seems determined to create? According to Commsec chief economist Craig James:

Japan became the manufacturer to the world, particularly of electrical and electronic items, but has now passed that baton to China. Japan still draws our iron ore and coal but China has also taken over that principal role from Japan.

That would be a natural progression for the Japanese economy as it moves into a services-based economy, but that is not going smoothly either. With labor productivity in Japan’s service sector at 60% of US levels, is Japan effectively making the transition? And more importantly, will there even be a next generation to take the baton?

And, if they are there to take the baton, what are we to make of the statement about to be issued by the Education Rebuilding Council:

“Please turn off the TV when the infants are breastfeeding or eating meals,” says a draft of the proposal, seen by The Asahi Shimbun.

In particular, parents should instill in their children the old-fashioned notion of the “beautiful Japanese mind”, which is manifested in polite behaviour, deference to elders, telling the truth and devotion to the nation.

G7 lets Japan off hook; ECB’s Trichet: Carry trade poses risk

On Friday, US Treasury Secretary Henry Paulson said that Japanese Finance Minister Koji Omi provided other G7 finance ministers and central bankers with a ‘favourable’ report on the Japanese economy.� Paulson essentially said that the yen’s value is in line with Japan’s economic fundamentals, dissipating any possibility that Japan would be pressured to take measures that would help boost the value of the yen against the dollar and euro.

Paulson expressed the opinion that it would be more prudent at this time to keep an eye on China, and to continue urging it to allow its currency to float freely. Mr Paulson summarized the main items that were discussed at the meeting by saying:

over the last two days, we discussed ways to keep the global economy growing in a balanced way, including stimulating domestic demand in Japan and Europe and pressing for greater exchange-rate flexibility in China.

Hedge funds, of course, are the main culprits behind the practice of ‘carry trade,’ which involves assuming debt in a currency such as yen with a low interest rate, and using that debt-bearing capital to buy assets in more lucrative markets with higher returns. European Central Bank President Jean-Claude Trichet said, “We want the market to be aware of the risk in one-way bets, in particular on the foreign-exchange markets.”

Does this mean that hedge funds really should be careful, on the lookout for a rise in the yen and a raise in interest rates in Japan? This observer still doesn’t think they have much to worry about.

Japanese automakers dominant in China

We’ve reported on the continuing decline in Japan’s domestic auto sales, but one place where Japan’s automakers are turning a pretty penny is China. Since 2001, Japanese automakers have increased their market share in China from about 15% to 25.7% in 2006. Last year, Japan’s automobile manufacturers moved 983,000 units in China.

This has been mainly at the expense of European automakers, whose market share has dipped from 53.8% five years ago to 24.4% last year. Why the shift in fortunes? According to a report released by the China Automotive Technology and Research Center:

The booming sales of Japanese brands are also attributed to their positive image associated with energy savings and high performance. Japanese brands have gained market share by tuning in to the needs and aesthetic preferences of Chinese buyers.

3.8 million sedans were sold in China last year; that number is projected to rise considerable in the next decade, should China be able to maintain anything resembling its current pace of economic growth.

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