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Overzealous reform to protect national security

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Overzealous reform to protect national security

Governments around the world are adopting new tools to help them monitor and control the ownership of industries critical to national security. This summer, new rules were passed in Japan that expanded the national security designation to high-technology industries, adding 20 sectors in the information and communications industries to the list of businesses for which foreign ownership of Japanese firms is restricted. The Cabinet on Friday approved draft legislation designed to further tighten rules, but while stricter scrutiny of foreign investments is warranted, the proposal goes too far. The proposed legislation would lower the threshold at which overseas investors must report their intention to acquire a stake in a company in the industries of weapons manufacturing, power generation and communications. The current trigger is a 10 percent stake; the bill lowers it to 1 percent. That is too low. Akira Kiyota, head of the Tokyo Stock Exchange, called the proposal “absolutely idiotic.” That characterization makes plain the concern that has been created. A hallmark of Japanese economic reform over the past two decades and since the return of Shinzo Abe to the Prime Minister’s Office has been the opening of the country’s economy to foreign investors. Abe declared that Japan was open for business after taking office in 2013, calling on foreign investors to “buy my Abenomics.” The world responded positively to the invitation. It is estimated that foreign investors now own about a third of the Tokyo stock market by value, and generate about 65 percent of daily trade volume. The new rule threatens to eviscerate that trend; analysts at Goldman Sachs warned that the new regulations could “undermine seven years of positive momentum in market reforms.” They also highlighted the “significant risk that Japan’s inward FDI (foreign direct investment) could decline,” which “could impede firms’ ability to raise capital.” The severity of these restrictions resuscitates fears that Japan is becoming hostile once again to a foreign presence in the economy. That is difficult to square with the many changes that have been introduced in recent years to accommodate foreign workers and foreign capital. Nevertheless, concern persists and critics are eager to prove that their fears are justified. That the list of new industries where investment is to be scrutinized includes agriculture, forestry, fisheries, leather and marine transport bolsters the skeptics’ case. ---Japan Times

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