Nihonjin (Japanese for “A Japanese person”) have always worn their hearts on respective sleeves. As such, the “Tankan Summary* is not only a solid economic survey of Japanese enterprises, but also of their general feelings toward economic/political/social conditions of the time. So given the apparent U-turn of sentiment (which has been widely shared by the JP. Manufacturing Sector) many leading economists have raised an eyebrow.
In line with “Abenomics” (Or the economic policies pushed by Shinzō Abe in his second term as Prime Minister of Japan) the Japanese economy was widely considered to be “on the right path” and “with a lot of room for growth” despite weakening consumption numbers. The Tankan Summary, is however, a direct attack on this notion.
The Bank of Japan quarterly polls 10,000+ companies to collect the data used for the Tankan, the main brunt of which, is an index of company views on current economic conditions. The index lists positivity and negativity held by the companies surveyed, these data points are then broken down into plus ( + ) and negative ( – ) ratings which represent optimistic and pessimistic feelings respectively.
As such, a drop from the rather optimistic +17 held last quarter, to the current +12 has been seen by some, as a one way ticket to pessimism town (population: the manufacturing sector). That said, the data doesn’t automatically mean that A. economic recovery in Japan has slowed to a crawl and B. that the so called “3rd arrow” of Abenomics has missed.
But the summary did however, bring to light brighter news from the larger manufacturers who, despite the scaling back of projections are aiming to increase investment by 12.7%, over economist forecasting to reach the highest point since June 2006. Given the fact that Tokyo has long held strong ties to London, and the current preception of the Pound Sterling as “safe and stable” and it becomes fairly easy to see where that investment might be heading.
All Roads lead to the UK
The UK’s business culture is starting to look more and more like a buffet. Simply pay your (lower than average) corporate tax bill, then sit down and enjoy your fill of strategically placed start up’s, SME’s, highly skilled Freelancers/contractors and all the London Stock Exchange Derivatives you could ever want.
However, Japan isn’t the only Asian country considering heavy investment in the UK. The world’s second largest economy, China – has been taking steps since the start of the year to Increase growth. By lowering taxes (especially on small firms) and increasing the amount of lending to agricultural-related businesses. The Chinese central bank stated it will also encourage the banking sector to lend more to export-related businesses, with the aims of permanently increasing shipment growth.
In addition to increased financial support, businesses will also enjoy the benefits of vastly improved infrastructure. The Chinese government has announced large scale plans for the “upgrade and modernisation” of existing rail links, roads and a number of airports, these upgrades will go hand in hand with existing plans for all new infrastructure links along the Yangtze River.
China is already making moves to capitalise on the rapid modernisation of its industry and the expected increase in exports. The UK has already become the most popular destination for Chinese goods/investment in the EU, but now China has taken a very large step in the UK’s direction. Bilateral trade between China and the UK has reached a record smashing high (being up 8% already over 2013 in total) thanks in part to the UK having doubled its exports to China since 2009.
Speaking at the press conference for the UK-China summit Prime Minister David Cameron stated:
“Today we have signed deals worth more than £14 billion, securing jobs and long term economic growth for the British and Chinese people. Ours is truly a partnership for growth, reform and innovation.”
Business Secretary Vince Cable added:
“There has been more investment into the UK from China in the last 18 months than in the previous 30 years. Our country’s brand is recognised around the world and the Chinese have an appetite for high quality British goods and services.”
“I led a business delegation of ambitious UK companies to China just a few weeks ago, opening doors for British business and helping to lay the groundwork for deals to be signed today.”
Worth its weight in gold
The £14 billion (yes billion) worth of investment The Prime Minister was talking about, contains a number of large scale and long term agreements between China and the UK. Two such large scale examples are:
BP and the China National Offshore Oil Company (CNOOC) signed an agreement worth £12 billion on the supply of liquefied natural gas. The deal will see BP supply CNOOC with 1.5 million tonnes of gas per year over the next 20 years, starting in 2019.
China Minsheng Investment Corporation (CMI), China’s largest private sector investment group – with capital of $8 billion – announced today that it will open its European HQ in London with an investment of around £1.5 billion. Investments will cover a range of sectors including financial services, advanced technology, offshore engineering, new energy, and environmental protection.
A more complete list can found on the gov.uk press release page here
It seems more and more, Asia is eyeing the UK as the best gate way for trade with the EU (along with the US, Iceland and Norway) this increase in demand to, and from the UK – is causing UK manufacturing and the sterling itself to surge.
Rob Dobson, senior economist at Markit stated:
“With levels of production surging higher, and order books swollen by a further upswing in demand from both domestic and overseas clients, job creation accelerated to its highest for over three years.”
The latest GDP figures have confirmed the suspected 0.8% first quarter growth and as an added bonus, showcased the fastest business investment expansion in the last 18 months. Rising on the back of increased expectations of a rates rise, the pound surged to $1.7145, while the manufacturing sectors job creation rate has increased at its fastest rate for three years.
Aber wir mögen England
Many see “growth across all sectors“ preferable to “Interest rates on hold” understandable? Indeed, cause for concern for the Eurozone? Perhaps. You could argue that the ECB’s decision to keep interest rates “on hold” has come at the worst possible time, with more and more foreign investment coming to the UK instead of the mainland, this attempt at stimulating growth in the Eurozone is being seen by some investors as “desperate”.
In contrast to the UK’s all round surge, Both Germany and France have seen businesses activity slow (French activity is shrinking at its fastest rate in four months) this is, perhaps the most important point to China. With investments exceeding $18 billion, the UK is currently the second largest European investor in China, but with no signs of slowing down, in fact given the new focus on China – UK Bilateral trade that $18 billion is only set to rise.
Trade Minister Lord Livingston stated:
“UK exports to China are growing faster than our French and German competitors with exports almost doubling since 2009 – reaching more than £1 billion per month”
It’s a win-win for both sides, China continues to enjoy British investment (money it’s using for rapid modernization) while the UK is enjoying increased Chinese interest (which is adding to the ongoing growth and job creation) with Lord Livingston noting “The UK is also the most popular European destination for Chinese investment. Inward investment is running at record levels, creating thousands of jobs for British workers” As it stands then, both Japan and China have found common ground in the potential now being perceived in the UK.
Scott Umstattd wrote an article for Fairtradewire.com , in which he stated that “In a world where your purchases have more influence than your political vote, it is imperative that you take all factors into consideration before pulling out your wallet” So then, Asia has weighed its options, and then voted with a pretty big collective wallet for the UK.
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