Japan’s 2018 China-risk bankruptcies drop but may rebound: research firm

16, Jan. 2019

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TOKYO, NNA – Bankruptcies of Japanese affiliates in China dropped for the second straight year in 2018 as companies coped better with rising labor and production costs, but the number could rise this year amid the lingering U.S. trade row and economic slowdown, a Japanese research firm said.

Business failures fell 11.1 percent from a year earlier to 48, with total liabilities shrinking 40.4 percent to 23.2 billion yen ($214 million), according to data released Tuesday by Tokyo Shoko Research Ltd., a credit research firm.

The research company began compiling data on “China-risk”-related bankruptcies in 2014 as many Japanese firms faced common issues, including how to maintain production quality, counter the spread of counterfeit goods and deal with boycotts of Japanese products amid heightened diplomatic tensions over Japan’s war-time atrocities.

Rising labor and manufacturing costs had been the top reason for bankruptcies since Tokyo Shoko Research started tracking them, but last year, the number of failures attributed to that plunged 38.8 percent to 11, topped by price competition at 18, up 63.6 percent, the data showed. Price competition led the list of reasons for the first time.

Japanese companies in China have taken measures to “absorb soaring labor, manufacturing and procurement costs,” the research firm said in a statement.

But Tokyo Shoko warned that the number of China-risk bankruptcies may rebound this year amid the uncertainty over the trade dispute between Beijing and Washington.

The U.S.-China trade war is likely to weigh on sales of finished products, which in turn would hurt Japanese suppliers as well as small companies that do business with those suppliers, it added.

The number of China-risk business failures peaked at 110 in 2016. Monthly bankruptcy figures have declined for 25 consecutive months since December 2016.