TOKYO: The value of Japan’s highly diverse direct investment in Australia, now worth $86 billion, has surged past Britain’s to become the second highest after the US. China’s investment has increased as well, with the nation stepping over Singapore to become the fifth-biggest direct investor in Australia, with investments worth $35bn.
Manuel Panagiotopoulos, the founder of the leading business think-tank on the Japan relationship, Australian and Japanese Economic Intelligence, told The Australian that the impact of intensified fiscal and monetary stimulus — indicated by government announcements made on Wednesday night in Tokyo — would help support Japanese demand for Australian exports.
Japanese Prime Minister Shinzo Abe announced that he would postpone a rise in value-added tax from 8 per cent to 10 per cent that had been planned for next year, due to the fragile state of the nation’s consumer markets.
Mr Panagiotopoulos said that since more than 60 per cent of Japan’s imports were from Asia, renewed economic stimulus in Japan would help support flagging Asian production, and therefore also Australia’s exports to the rest of Asia.
And since Japanese corporations were continuing to amass enormous amounts of retained earnings while finding fewer investment opportunities in Japan, the recent pattern of direct overseas investment, both through mergers and acquisitions and through greenfield developments, would continue — ensuring that Australia would continue to be a beneficiary of Japanese capital and of technology transfer.
At the end of 2015, the US stock of direct investments in Australia had reached $174bn, Britain $76bn, The Netherlands $44bn and Singapore $29bn. During 2015, Japan was the biggest source of foreign direct investment (FDI) flows, with $14.7bn, ahead of the US with $10.2bn, The Netherlands with $5.4bn and China with $3.3bn.
Mr Panagiotopoulos said he had predicted that Japan would overtake Britain in the next few years, “but this is sooner than expected”. He said that “what distinguishes Japanese FDI into Australia is its diversity. It does not flow into just real estate, coal and agriculture”.
“In the past few of years Japanese companies have made investments into IT services, manufacturing, recruitment, advertising, financial services, insurance, logistics, construction, distribution, the establishment of retail chains such as Uniqlo and Muji, and the expansion of housing construction firms Sekisui House and Daiwa House.” Mr Panagiotopoulos said: “The injection of capital, the transfer of technology and know-how and the connection with regional and global value chains makes these investments invaluable to the Australian economy.”
The economic fundamentals that have supported investment from Japan will continue. “Australia’s economy continues to grow at a good pace, Australia’s population continues to grow, the regulatory system is transparent and stable. Australia is linked to the long-term growth opportunities of Asia,” he said.
An important new development resulting from the investment, to which Mr Panagiotopoulos pointed, is the synergy that this has created for building growth in Asian markets — such as through the now-merged efforts of Lion and Kirin in the beverage sector and Toll Group and Japan Post in the logistics sector. He said that figures released last month showed a surprising strength in Japanese gross domestic product growth, based on solid growth in wages and employment, coupled with a modest contribution from exports. “However, business and consumer confidence is a bit fragile now,” he said. “And Mr Abe’s decision to postpone the VAT increase was widely expected by markets and based on the realisation that monetary policy cannot do all the lifting — a view shared by the International Monetary Fund and other institutions.”
Postponing the VAT rise effectively equated to looser fiscal policy, and would be accompanied by a supplementary budget in the next few months that would focus on infrastructure spending, childcare and agedcare facilities, and possibly household subsidies.
