China sovereign wealth fund targets Japan's lesser-known brands

SHENZHEN -- State-run China Investment Corp. is setting its sights on undervalued small and midsize Japanese businesses with the potential to blossom in China's massive market.

The $1.24 trillion sovereign wealth fund's portfolio includes Factory Japan Group, which runs Japanese body therapy salons. The company touts its quality, requiring around 100 hours of training for staff.

A Shenzhen outpost of the company's Karada Factory chain said weekend appointments with Japanese therapists are fully booked for three weeks. At 688 yuan ($95) for an hourlong session, the price is 70% higher here than in Japan. Around 60% of its appointments are taken by regular customers, and the site is popular among visitors from Hong Kong as well.

Factory Japan was acquired in 2022 by Japan-China Capital Partners No. 1 Investment, a fund set up by CIC with partners including Nomura Holdings and Daiwa Securities Group to invest in Japanese businesses.

"CIC introduced us to potential locations and corporate customers in Shenzhen," said Hideki Haruna, a senior managing director at Factory Japan.

The company plans to expand in China through a franchise model, leveraging CIC's enormous presence in the country as it aims to grow from the current three locations in mainland China to 53 by 2026.

CIC's Japanese targets are mainly small and midsize unlisted companies that could increase their value by doing business in China.

The fund bought into a Japanese-language educational institution last month. CIC did not disclose the name but said it is a leading institution that "teaches mainly Japanese to students seeking to study at Japanese universities or graduate schools."

Since 2017, CIC has formed similar funds for foreign investment in partnership with