China-India-Japan

sept 9th

someone asked me for data about increased japanese investment in india after they got pissed off by china. here it is, courtesy brahma.

there was a pause in japanese investment after the attack on honda, but that has not lasted.


---------- Forwarded message ----------
From: Brahma Chellaney <chellaney@gmail.com>
Date: Sep 10, 2005 7:12 AM
Subject: China-India-Japan


Japan Looks At India

By Brahma Chellaney

Wall Street Journal September 8, 2005


NEW DELHI--China is driving Japan and India closer together. Tokyo, as
if to make up for decades of neglect, is enthusiastically recognizing
India's potential as an investment destination and strategic partner.
Reversing a long-standing pattern, Tokyo now provides more development
loans to India than to China.

Japan's increased interest in India has much to do with China's
anti-Japanese protests last spring, which reminded Japanese businesses
of the risks they face in China. The protests have psychologically
rattled Japanese portfolio investors in particular.

To help hedge their risks in China, Japanese institutional investors
have begun to plough funds into the Indian stock markets in a major
way. Such has been the inflow of Japanese funds that the Bombay Stock
Exchange benchmark index has reached new highs almost every week in
the past four-and-a-half months, raising concern over a foreign-funded
bubble in Indian equities. In the period since after the anti-Japanese
street protests in China in April, the benchmark index has risen more
than 25%, making it Asia's best performer, as Japanese funds seriously
look to India as an alternative to China.

The bountiful liquidity resulting from the Japanese-led global
institutional inflows has had a two-fold effect. India's
foreign-exchange reserves, according to its central bank, have swelled
by nearly $8 billion between early April and mid-August to a total of
$139 billion. And the frenzied buying has blunted the attraction of
Indian equity valuations, despite sporadic but feeble attempts at
market correction since last month. Foreign institutional buying has
driven Indian stocks to a 12-month forward price-to-earnings ratio
(PE) of nearly 15, as measured by a Morgan Stanley Capital
International benchmark used by foreign investors. This compares with
a PE ratio of 11.5 in the Hang Seng China Enterprises Index, which
tracks 37 mainland Chinese companies, or H shares, and 14 in Shanghai
Index 50, which tracks 50 Shanghai-listed companies with the highest
dividend payments.

While already instilling caution and reappraisal in Japan, the effects
of China's anti-Japanese protests are likely to linger, especially if
Beijing gives further vent to its nationalist fury. The gush of
Japanese institutional funds entering the Indian stock markets could
presage a similar pattern in Japanese direct investment, if India is
widely seen as a safer choice than China for new investments. Shifts
in foreign direct investment patterns become visible, however, only
over an extended period.

The rethink under way in Tokyo vis-à-vis China raises the possibility
of Japanese FDI following the same shifting pattern as Japan's
official development assistance (ODA), or concessionary aid to
developing countries. After having provided China with nearly $30
billion in ODA over a quarter-century, Japan under Prime Minister
Junichiro Koizumi has cut development aid to China in half, and now
intends to phase it out entirely by fiscal 2008. The biggest
beneficiary has been India, which now tops the list of ODA recipients.

Foreign institutional investment flows to India from Japan reflect a
Japanese disenchantment with China. By the end of July, the assets of
China-dedicated funds in Japan fell to 568 billion yen ($5.17 billion)
from a peak of 740 billion yen ($6.72 billion) last September as a
number of investors responded to the anti-Japanese protests by selling
off their stock holdings.

Not only has new Japanese buying of Chinese stocks slowed, India has
also emerged as Japan's new investment pick. This is evident from the
array of new India retail funds in Japan, which by the end of July
were worth 445.3 billion yen ($4.05 billion). In fact, the Nomura
Asset Management Co. Ltd. in Tokyo had to close its India dedicated
fund just a day after its launch on June 22 because it collected more
money than it could invest without artificially shooting up Indian
stock prices. Such has been the growth in Japanese investment in India
that much of the $1.9 billion foreign institutional investment inflow
in July came from Japan alone, according to India's Financial Express
newspaper.

Clearly, China's loss has been India's gain. In the coming years,
India is likely to increasingly benefit from closer ties with Japan,
which many forget remains the world's second largest economy, far
ahead of China. Indeed, Japan alone represents 60% of Asia's GDP
today. In addition, Japan, a high defense spender maintaining Asia's
most powerful conventional navy,could very well eventually reemerge as
a "normal," or even a great, military power.

An India-Japan strategic partnership, involving naval cooperation to
protect vital sea-lanes of communications, will help shift the
balance-of-power equation in Asia. Given the current Japanese
reassessment of China, India should aggressively woo Japanese
businesses to move some of their investments to its secure location.
India needs Japanese technology and investment to accelerate its
current 7% GDP growth rate.

In media comments just before departing from India last April, Chinese
Premier Wen Jiabao bluntly laid out what lower-level Chinese diplomats
had hinted at for weeks earlier: China will not allow Japan to assume
a Security Council permanent seat until it "faces up to history
squarely."  It didn't occur to Mr. Wen that before asking Japan for
yet another apology for its atrocities during World War II, Beijing
should face up to its own historical misdeeds. Nor did it occur to him
that his verbal assault on Japan would set in motion events
disadvantageous to China but favorable to his host India.

Mr. Chellaney is professor of strategic studies at the privately
funded Center for Policy Research in New Delhi.