JAKARTA-Manufacturers and other domestic companies are shifting foreign investment from China to member states of the Association of Southeast Asian Nations, hoping to avoid problems such as anti-Japan riots and develop new markets.

Although Thailand has so far been the primary recipient of ASEAN-directed investment, Indonesia, with its potentially huge domestic market, is seeing more capital every year.

Indonesia has the world's fourth-largest population at about 240 million people, and with a domestic auto market in which more than 1 million vehicles are sold per year, it is seen as perfect for "local production for local consumption."

A Mitsubishi Motors Corp. consignment factory in Jakarta is running at full capacity churning out trucks and the popular Outlander Sport, which is called RVR in Japan. The plant last year put together a record of about 120,000 vehicles, and is predicted to produce at least 135,000 units this year.

"We're bullish about growth in automobile sales," said a smiling Kunitoshi Akimoto, vice president of the Mitsubishi subsidiary that manages the plant.

Toyota Motor Corp. has announced plans to build a new engine factory in Indonesia, and Daihatsu Motor Co. intends to expand its existing production capacity.

Indonesia's importance is also rising among food makers. Mitsubishi Corp., which recently acquired seasoning giant Kirin Kyowa Foods Co. for about ¥30 billion, plans to make its factory in Lampung Province its core Asian plant to capitalize on the growing demand for food products.

Tadashi Kinoshita, president of Kirin Kyowa's local subsidiary, said the company is even looking to export products to the Middle East.

According to Finance Ministry data on the international balance of payments, direct investment in ASEAN countries in January-June 2013 was ¥999 billion, about four times the number from the same period last year.

This was 2.1 times the level of investment in China, which declined 18 percent to ¥470 billion amid troubles over anti-Japan riots and rising wages.

Investment growth was particularly strong in Thailand, where it rose 80 percent to ¥178 billion in the well-established manufacturing base for many Japanese firms, and in Indonesia, which saw a jump of 40 percent to ¥224 billion.

An increasing number of companies have expanded their businesses in Indonesia to avoid overconcentration in Thailand, which has been plagued by floods and other problems in recent years.

A major issue when doing business in Indonesia is its poor infrastructure. Road maintenance is often slow and traffic jams are constant, which hinders the transport of parts and products. Wages have also risen sharply recently.

A spokesman for the Japan External Trade Organization said: "The infrastructure [in Indonesia] is far behind that of Thailand. Success won't come easy for companies that move there just for the low wages."

By the-japan-news.com

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