FUKUOKA GOVERNOR DISMISSES "CHINA THREAT," BUT ALSO

UNCLAS SECTION 01 OF 02 FUKUOKA 000017

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EIND PREL TNGD CH JA
SUBJECT: FUKUOKA GOVERNOR DISMISSES "CHINA THREAT," BUT ALSO
ADVOCATES "BEYOND CHINA" ECONOMIC STRATEGY

Sensitive But Unclassified - please protect accordingly.

SUMMARY


1. (U) Local perceptions of China as an economic threat have
diminished as Japan's economy successfully adjusts to new global
market realities, according to Fukuoka Prefecture Governor
Wataru Aso. The emergence of China and other big developing
countries as major markets, and renewed emphasis by Japanese
businesses on hi-tech, value-added production are the key
factors, Aso said. Still, last year's anti-Japan demonstrations
in China served as a wake-up call for the need to diversify Asia
business links beyond China, a strategy Aso is aggressively
pursuing with visits to India, Thailand, and Vietnam. In the
current, chilly Japan-China political environment, Aso is a
vocal advocate for local initiatives to strengthen bilateral
ties. End summary.

IN FUKUOKA, LITTLE PERCEPTION OF "CHINA THREAT"


2. (U) Speaking recently at a Fukuoka business forum, Fukuoka
Governor Wataru Aso outlined the prefecture's current strategy
toward business with Asia. Looking at China, Aso said that over
the last couple of years the local perception of China as an
economic threat to Japan has greatly diminished. (NOTE: Aso
did not comment on the related issue of whether China is
perceived as a strategic/military threat. END NOTE.) This
changed view of China has paralleled Japan's emergence from its
decade-long economic slump into a new phase of development. Aso
cited three main reasons for the transition: 1) an expanded
global market and renewed corporate focus on "core
competencies;" 2) technology development; and 3) introduction of
new production processes.

JAPAN'S "CORE COMPETENCE": TECHNOLOGY DEVELOPMENT


3. (U) According to Aso, Japan's new-found business confidence
vis-a-vis China stems first of all from firms discarding the
"diversification" model to devote creative energies and
resources to "core competence." This has meant a return to
high-value services and technology-intensive manufacturing,
instead of branching out into multiple lines of unrelated
business as many did in the 1980s and 90s. Having spent the
last decade shedding unprofitable bubble-era baggage and
restoring healthy balance sheets, corporate Japan is now focused
on building global market share through core competitiveness,
sustained by strong R&D and capital investment. This has
coincided with the emergence of China and other developing
countries (such as India, Russia, and Brazil) as bigger,
wealthier markets for Japanese goods and services. Japanese
firms are successfully selling in these markets rather than
simply worrying about them as export competitors, Aso explained.


4. (U) With Japanese technological prowess now at the heart of
the "core competence" strategy, Aso believes Japan is
successfully reforming its technology development structure.
Government-industry-university collaboration is improving,
backed by a steady flow of government research funding and
corporate investment. (Aso noted that, despite greater budget
austerity, the GOJ has never cut S&T funding.) Japanese firms
steadily apply these innovations to production, replacing more
labor-intensive tasks with a "shell production system" whereby
one worker supervises multiple tasks performed by
high-technology equipment. Firms are no longer obsessed with
the notion that they must move production offshore to remain
competitive. Instead, they are retooling Kyushu plants to keep
more core production at home. Aso observed that this renewed
technological acumen is a key factor in dispelling the "China
threat."

ADVOCATING A "BEYOND CHINA" STRATEGY


5. (U) Despite China's continued prominence in regional
business thinking, Governor Aso believes attitudes are changing.
Until last year, "Asia business" was virtually synonymous in
Japanese minds with China, and everyone was clamoring to get on
the China bandwagon. This is particularly true in Fukuoka,
where the slogan "Japan's gateway to Asia" has had a very
China-centric bent. However, Aso says local perceptions were
impacted strongly by the big anti-Japan demonstrations in China
in spring 2005, triggered by Japan's push to become a permanent
U.N. Security Council member and fueled by perceptions that
Japan has not sufficiently atoned for its past military

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aggressions. Kyushu business people now realize the need to
mitigate potential risks by putting China in a broader Asian
perspective and by expanding ties throughout the region.



6. (U) Fukuoka has led the way among Kyushu prefectures in
pursuing a "beyond China" strategy, forging political and
business ties with other Asian countries. A large Fukuoka City
trade mission visited India in November 2005, and Governor Aso
followed in February 2006. The prefecture aims to conclude a
partnership agreement with the government of National Capital
Territory (NCT) of Delhi by the end of this year, covering
technology development, environmental policy, and personnel
exchanges, among other issues. It would be the first such
agreement between the NCT of Delhi and a Japanese local
government.


7. (U) Fukuoka has similar partnerships with the State of
Hawaii, Jiangsu Province, China, and (most recently) Bangkok,
Thailand, which Governor Aso visited in February to conclude the
agreement. Aso also plans to visit Vietnam to discuss trade
issues. To promote local relations with Korea, Fukuoka and
three other prefectures in the region since 1992 have held an
annual governors' meeting with counterparts from Pusan and
surrounding areas.

COMMENT


8. (SBU) First elected in 1995 and now in his third term,
Governor Aso is a former METI (then MITI) bureaucrat with an
ambitious promotion agenda for Fukuoka. His reputation as an
advocate for greater local autonomy, and for more aggressive
foreign outreach by local governments, factored in his 2005
election as Chairman of the National Governors' Association of
Japan. While sometimes long on rhetoric, Aso has nevertheless
presided over a boom in hi-tech manufacturing and increased
trade with Asia that make Fukuoka the envy of other prefectures
in Kyushu. Despite the current diplomatic chill, Aso is
cautiously optimistic about the future of Japan-China relations.
While careful at the recent seminar not to comment directly
about PM Koizumi's Yasukuni Shrine visits, Aso observed that the
deterioration in relations is a liability not just for Japan,
but for China too. There is impetus for both sides to find
common ground, he said, starting with strong trade and other
links at the local level. End comment.
KETTNER