Media  Global Economy  2021.09.09

Managers are often blamed by the head office of Japanese businesses, “You’ve been a panda hugger!”

The article was originally posted on JBpress on August 19, 2021 


1. Discrepancy between America’s policy administration goals and their realities

In the United States, about seven months have passed since the establishment of the Joe Biden administration, and its policy administration framework has become clearer.

The most important goal for the Biden administration for the immediate future is to win a majority in both the Senate and the House of Representatives in the midterm elections in the autumn of next year, thus preparing a suitable environment that enables it to continue to execute its policy smoothly during the second half of its first term.

To that end, the top priority issue is to stamp out COVID-19 early and recover the economy quickly – the greatest concern of the people – and repair the divided American politics and society for unification.

In order to achieve this goal, it is necessary to obtain the cooperation of Congress so that bills needed for policy implementation are passed.

Supported by Congress through bipartisan agreement is hard-line diplomacy toward China based on strong anti-Chinese sentiment. This makes it difficult for the administration to revise its policy toward China in the immediate future if it considers relations of cooperation with Congress as important.

Many China experts evaluated the Donald Trump administration as failing to implement appropriate policy due to wrong understandings of China because it lacked those who were familiar with the real state of affairs in Chinese politics, economy, and society as well as U.S.-China relationships in its key positions.

Typical examples of inappropriate policy included the raising of tariffs in the trade with China and technology frictions in a wide range of product categories, including those for general use.

Many of those experts expected that such unreasonable policies would gradually be improved under the Biden administration.

Seven months into the administration, however, such expectations are giving way to disappointment.

As the Biden administration aimed at bringing the COVID-19 pandemic to an end, the number of new confirmed cases fell below 10,000 on some days from June to early July with the seven-day average dropping to the 10,000 level, but it started to rise in subsequent weeks.

The number exceeded 200,000 on some days in mid-August, and even the seven-day average went up sharply, ranging from 100,000 to 150,000. If this situation continues, it will unavoidably have adverse effects on the economy again.

Behind this is the serious division of politics and society.

Many of the supporters of the former president Trump refuse to wear a mask and get vaccinated, mainly in Mississippi, Louisiana, Alabama, Arkansas, and other Southern states where income levels are low, prompting the more transmittable Delta variant to spread infection rapidly.

Politically, the Republicans object to two important bills, one to create employment and the other to reduce taxes for low- and medium-income earners and support child-rearing and education, which the Biden administration needs to mend the economy, and this delays congressional deliberations, forcing policy implementation to stagnate.

2. Restrictions on the Biden administration’s policy administration toward China

The minimum improvements many China experts in the U.S. had expected in the policy toward China since prior to the establishment of the Biden administration were to hold more dialogue with the Chinese government and correct the unreasonable tariff policy adopted by, and the technology frictions in general-use products caused under, the former Trump administration.

On the other hand, the Biden administration had been expected to accuse China severely about security-related technology frictions, readiness to prepare favorable conditions for the international market economy and free trade as well as investment environments, and human rights issues using more sophisticated and elaborate methods.

If there are factors that enable the two countries to make mutual concessions, they can serve as incentives for further dialogue, and certain results can be anticipated.

If the current political situation in the U.S. is taken into consideration, however, it is quite plain that the Biden administration will harshly be criticized by Congress if it shows even a small sign of reconciliatory attitude toward China.

This domestic political situation provides a restrictive condition, making dialogue premised on mutual concessions between the two countries impossible.

In particular, the U.S. has recently taken actions disregarding the “One China” agreement, the prerequisite for the establishment of diplomatic relations between the two countries, and this is further aggravating the bilateral relations.

Under these circumstances, if the U.S. seeks concessions from China unilaterally, it is obvious that substantial dialogue cannot be held as there are tenacious hard-liners toward the U.S. in China, too.

Given the restrictive conditions described above, improving U.S.-China relations through dialogue between the two and promoting practical cooperation cannot easily be anticipated.

This also applies to the difficulty in correcting the unreasonable technology frictions in a wide range of product categories, including products for general use.

It also seems to be difficult to correct the unreasonable trade tariffs as expected during the past months before the midterm elections.

In Ohio, Michigan, and Pennsylvania, three typical swing states in which the Democrats and Republicans fiercely fight each other in every election, a majority of voters firmly believe that the decline in iron and steel, automobile, and other local heavy industries was caused by the expansion of free trade, objecting furiously to the lowering of tariffs, a policy leaning toward free trade.

For this reason, for the time being, it is difficult even to bring up the lowering of tariffs for China as a topic for discussion.

As mentioned above, the Biden administration has practically been able to achieve none of the policies it aimed at implementing after it was established.

The original scenario was to make a firm projection for victory in the midterm elections by achieving certain results in bringing the pandemic to an end and restoring the economy early and gradually solve pending issues between the U.S. and China based on these results.

Actually addressing important policy challenges are currently delayed. Under these circumstances, if the fact that Congress is dominated by strong anti-China sentiment across party lines is taken into account, the Biden administration is not in a situation to set about the task of correcting the unreasonable policy related to U.S.-China relations

3. Effects of U.S. policy toward China on Japanese businesses

If products, components, technologies, and software produced in the U.S. are exported to a certain country (for example, Japan) from the U.S. and then exported again to a third country (for example, China), they are regulated by American law depending on factors such as the third country, users of such products, etc., the types of cargo exported and technologies provided, and the percentage of U.S. products and technologies used in the exported product items (for example, 25%).

This measure is called the extraterritorial application of re-export control based on the U.S. Export Administration Regulations (EAR).

The U.S. is the only country to apply this type of control to the activities of enterprises and individuals overseas in accordance with its domestic law, and it is pointed out that it violates international law.

As the conflict between the U.S. and China has become increasingly serious since the establishment of the Biden administration, many Japanese businesses operating in China are concerned about whether their products are subject to the extraterritorial application of re-export control.

Initially, the Japanese government regarded this measure of America as an issue that should be solved by individual businesses on their own by consulting with law offices and other professionals in the U.S.

But considering the recent escalation of regulations under the Biden administration, the Japanese government is preparing a system to support Japanese businesses for protection.

This control does not present a major obstacle to American businesses because they can obtain a reply in a day or so if they inquire to a relevant agency of the U.S. government about whether their products are subject to export regulations.

Partly because the Japanese government is currently preparing such a system, meanwhile, Japanese businesses have a strong tendency to take action cautiously for the time being as they do not know how to judge whether their products are subject to the application of the U.S. government’s re-export control.

As a result, there is a growing risk of Japanese enterprises losing business opportunities to European and North American enterprises as they are delayed in making decisions on dealings with Chinese businesses.

4. Fundamental issue on which Japanese businesses should make improvements

At first glance, this issue seems to be caused by the poor response of the Japanese government, but the fundamental issue lies in the response of the head office of Japanese businesses.

The essential prerequisite for overseas business development is to obtain a correct understanding of various regulations that affect the investment environment and the conditions of competition in overseas markets, the policy administration of local governments, and so forth.

Since foreign laws and regulations are applied, and policy administered, in accordance with system designs and business customs different from those in Japan, what passes for common practice in Japan usually does not work in foreign countries.

However, many Japanese businesses often interpret the letter of the laws and regulations mentioned above in Japanese style and make decisions.

They lack in efforts to go as far as to investigate the actual application of individual rules in each country, confirm it through negotiations with local governments, and flexibly take actions different from those in Japan based on the results of such investigation and confirmation.

In the first place, there are few personnel familiar with China in administrative departments of the head office such as legal affairs, managerial planning, and finance.

For this reason, when local managers in China explain about business administration in the country for understanding and cooperation, they often receive such an emotional reply as “You’ve been a panda hugger!” from head-office personnel who wouldn’t recognize their own lack of understanding of China.

The fundamental defect lies in the absence of personnel with a global perspective in the administration and review departments of the head office.

To begin with, these personnel cannot understand the necessity of taking flexible actions from a global perspective because they basically lack the understanding of differences between Japan and overseas countries owing to insufficient experience in working abroad.

At global corporations in Europe and North America, related departments at the head office work closely with local managers to fully understand the actual condition of regions where they operate and negotiate actively with governments there.

These corporations strive to solve problems while approaching the government of their home country to obtain assistance if necessary.

In this process, the government of their home country enhances its ability to support them by holding repeated negotiations with the government of host countries.

As the COVID-19 pandemic has spread since 2020, the Chinese government has effectively taken measures to cope with the infectious disease, thus ensuring a steady recovery of the Chinese economy.

As a result, there are many cases in which first-rate Japanese and Western corporations see China post the highest profitability among all their bases worldwide.

This has prompted European and U.S. businesses to take an even more active stance in investing in China since the beginning of this year.

Clearly, this runs counter to what the U.S. government aims at, but none of the governments in the U.S. and European countries, including the European Union, intend to restrain active business development in China by enterprises from their territories.

Basically, Japanese businesses operating in China go in the same direction as their European and U.S. counterparts but are not as active.

Pointed out as one of the reasons for this is the nervousness of related departments at the head office about the extraterritorial application of re-export control by the U.S. government.

The head office is just nervous. With related departments at their head office failing to make efforts to gather relevant information for problem-solving, many Japanese businesses wait for the Japanese government’s actions to see what will happen.

If they take such a stance, they cannot win in the harsh competition with first-rate European and U.S. businesses in the Chinese market.

It is unavoidable that the U.S.-China confrontation will be prolonged in the future. In order to survive in the competition with European and U.S. businesses in the global market, on the other hand, Japanese businesses must win through in the Chinese market where they can generate enormous profits.

The major challenge for Japanese businesses is to drastically step up their efforts to gather information globally and establish a managerial organization that enables them to make flexible and reasonable decisions based on accurate information amidst the confrontation between the U.S. and China.