Chrysanthemum and Dragon: JAFCO Asia in China

In the autumn of 2002, JAFCO Asia, a subsidiary of JAFCO Co., Ltd., became the first foreign private equity firm to open an office in Beijing's Haidian Science Park. JAFCO was the only Japanese private equity firm operating in China. As such, Managing Director Vincent Chan observed, "JAFCO is the bridge between Japan and China." Yet, under that bridge the waters appeared increasingly choppy. While the economic relationship between Japan and China had grown increasingly close, their political relations had not and some Japanese firms had begun to reassess their commitment to China. Would capital-rich Japan and capital-poor China find a way to transcend their troubled history? Could JAFCO Asia be a catalyst for cooperation, or would its managers find their own operations affected by rivalry between Asia's two most important countries? The mix of formal rules and informal practices that governed foreign private equity firms in China was complex. Opening an office in Beijing signified a renewal of JAFCO Asia's efforts to master these challenges and coincided with an acceleration of the firm's investments. But JAFCO's first years of engagement with China had not been notably successful, and without some fundamental changes, there was little reason to believe that the addition of a physical presence there would yield better results now.