Asia Becomes Japan’s Investment Darling : Commerce: Growth rates are higher than in the West, and there are fewer problems with control.

When Japan was swamped with cheap capital in the 1980s, surplus yen overflowed lavishly to America, Europe and Asia alike. Many nations were wooing Tokyo for investment, and all were winning its favors.

Today, chastened by a prolonged economic slowdown, Japanese businessmen are taking a harder look at investment prospects. And the favored suitor in the competition for scarcer capital is Asia.

A report issued this month by the Finance Ministry showed a 26.9% drop in direct investment overseas in fiscal 1991--to $41.6 billion. The decline to both the United States and Europe was even more dramatic, exceeding 30%.

Investment in Asia, however, dropped just 15.8%.

Analysts say the fact that the United States and Europe lost ground to Asia is an accelerating trend, one encouraged by the huge consumer market emerging in south China and the “new dragons” of Southeast Asia.

“Until the 1980s the Japanese discriminated against Asia; it was seen as a waste of time,” said Paul Heaton, a senior analyst for Smith New Court Securities. “By the end of the ‘80s, they saw that as of now the long-term strategic outpost would be Asia. That’s where growth is perceived to be.

“By contrast, they’re not going to Europe, where they increasingly fear the fortress (of unification), and they’re not going to America, where they increasingly fear the protectionist backlash.”

An official of the Ministry of Finance agreed. “Japanese businessmen feel a lot safer in Asia now than in the U.S. or Europe,” he said, speaking on condition of anonymity.

More than comfort is at stake, however. “Japan is moving into strategic control of what will be the world’s biggest mega-market in the next decade,” said Kenneth S. Courtis, senior economist at Deutsche Bank in Tokyo.

Japan’s influential Ministry of International Trade and Industry pointed to a similar conclusion on June 14 when, for the first time, its annual white paper on economic cooperation focused on a single region: Asia.

The report, titled “Asia’s Challenge and Japan’s Economic Aid,” portrayed Asia as the world’s engine of economic development. It noted that the combined growth in gross domestic product of the most vibrant Asian economies accounted for half the 2.2% GDP growth of the entire world in 1990.

For newly cost-conscious companies, that is key. Japan, with a near-record trade surplus last year, has to recycle its money somewhere. Businesses prefer to invest in 6% to 8% annual growth in Thailand, Indonesia or Taiwan rather than 1% to 2%--if that much--in the recessionary West.

There is also the question of control, analysts say. In America in particular, Japanese companies must endure balky unions, lawsuits over patents, licensing and alleged job discrimination--not to mention trade pressure from both Washington and their own government to contain their drive for market share.

By contrast, Japanese firms have more autonomy in their own back yard. While the government remains opposed to joining a Southeast Asian trade bloc, big players such as Toyota, Suzuki and Mitsubishi Motors have been helping to build one.

When the Assn. of Southeast Asian Nations agreed beginning in 1988 to lower mutual tariffs and import barriers, the auto companies were in position to benefit because they had already built parts plants in several ASEAN countries.

“The structure of the industry is being designed to mimic Japan,” said Ron Carwardine, planning director of General Motors in Japan. “The Japanese tend to be the first in. They tend to make the rules.”

But large Japanese firms can’t afford to abandon investment in North America or Europe, the world’s largest and richest markets. Billions in plant and equipment have already been sunk there, while the Asian market is still developing.

Some smaller companies, however, may abandon America as Daihatsu Motor Co. did in February.

“Competition in the U.S. market is really vicious,” said Fumiaki Furuka, a spokesman for the mini-car maker.

Daihatsu found it relatively easy to shift sales of its 10,000 units or so in North America to Asia, where it already has plants, Furuka said.

The swerve to Asia may be generational as well, some analysts say.

“The generation that went into the U.S. in a big way was brought up under the U.S. Occupation. They’re more Westernized,” said Richard Staubitz, a consultant based in Hong Kong and Tokyo. “A whole new generation is out there that is a lot more comfortable working in Asia.”