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Japan from the inside out

Archive for the ‘Business, finance and the economy’ Category

Ichigen koji (267)

Posted by ampontan on Saturday, December 22, 2012

一言居士
– A person who has something to say about everything

Those people opposed to participation in the TPP negotiations do so on the premise that Japan will absolutely lose. In that case, can we win with in a free trade agreement with China and South Korea, the EPA/EIA with the EU, or the RCEP with ASEAN? We won’t know unless we try. The key is what happens when the treaty provisions are written into national law at the end of the process. It would be pointless to sign a treaty without the attendant domestic law.

- Takahashi Yoichi, economic advisor to the Japan Restoration Party, Your Party, and others

Posted in Business, finance and the economy, China, Government, International relations, Quotations, South Korea | Tagged: , | Leave a Comment »

Ichigen koji  (265)

Posted by ampontan on Thursday, December 20, 2012

一言居士
– A person who has something to say about everything

From the global perspective, both the Democratic Party and the Liberal Democratic Party are “big government”. The problem is the mid-range welfare benefits with a small taxpayer burden. That makes us an advanced “fiscal child abuse” country which forces excessive burdens on the younger generations and future generations.

- Oguro Kazumasa

Posted in Business, finance and the economy, Government, Quotations | Tagged: | Leave a Comment »

Ichigen koji (262)

Posted by ampontan on Monday, December 17, 2012

一言居士
– A person who has something to say about everything

If I were to write that “orthodox economists tell Mr. Abe (Shinzo) to stop his dangerous gamble”, some people would get angry and ask what orthodox is supposed to mean. What should I write then? The reaction would be even fiercer if I wrote “mainstream”. “Of sound mind” is also probably out of the question. People might get angry even if I wrote “economists who have received proper academic training”.

- Ushioda Michio

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Ichigen koji (250)

Posted by ampontan on Wednesday, December 5, 2012

一言居士
– A person who has something to say about everything

On 25 November 2002, Prime Minister Koizumi Jun’ichiro said during Question Time in the Diet, “The honorable member has just said there will be no structural reform without conquering deflation. But without structural reform, there will be no conquering deflation. There must be no mistake about this.”

- The Tweeter known as Hongokucho

Posted in Business, finance and the economy, Politics, Quotations | Tagged: , | Leave a Comment »

All you have to do is look (126)

Posted by ampontan on Monday, December 3, 2012

Handling and bidding on the potentially fatal fugu (blowfish) at the Haedomari Market in Shimonoseki, Yamagata. The market handles more fugu than any other in Japan. The auction is conducted by pulling the broker’s fingers in the black cuff. The highest price this day was JPY 11,000 per kilogram.

Posted in Business, finance and the economy, Food, Photographs and videos | Tagged: , , | Leave a Comment »

The end of analysis as we know it

Posted by ampontan on Friday, November 30, 2012

DO editors have any real standards to determine whom they will select to write articles about Japan? Field-specific expertise certainly isn’t a requirement. If anything, field-specific expertise about Japan seems to be a negative attribute in the selection process.

Here we go again: Someone calling himself Chan Akya wrote an article titled The End of Japan as We Know it for the peculiar Asia Times website. (That site offers columns by the excellent David Goldman, AKA Spengler, regular pieces from a North Korean propagandist, and nothing of value about Japan.) The author’s noisy parade of ignorance is amplified by an infatuation with his prose and inner dialogue. That makes this analysis particularly difficult to wade through.

He even presents us with the intellectual’s version of “some of my best friends are Japanese”:

At many levels, I have a deep admiration for the Japanese people; their work ethic, aesthetic values and personal discipline all set them apart from the globalized mainstream.

That deep admiration unfortunately did not inspire him to learn anything about the country.

He begins with a discussion of Keynesian economics and the series of budget deficits the country has run since the late 90s. While that is true enough, there is no mention of the collapse of the bubble economy in the early 90s, the resultant problem with the non-performing debt held by financial institutions, and the role of the five-year Koizumi administration, particularly Takenaka Heizo, to prevent the problems from overwhelming the financial industry, and to drastically reduce the annual budget deficit. While the Japanese political class since then has failed to uphold its fiduciary responsibility, the economy has not been the unending dismal swamp that most people outside the country think it is.

Exacerbating the current situation in Japan is the collapse in the political system where, yet again, a coalition government is set to fail and new elections announced in December. Alternatively one could argue that political paralysis, much like in the case of the US and Europe’s lame duck governments, is merely the populist rendition of a sclerotic economy. The reason for the linkage of course is that the Japan is the living (ahem, some may argue that point) embodiment of the situation where the turkeys not only outvoted thanksgiving, they also allocated all the gravy to themselves.

Every word in that paragraph is wrong, including the a’s, an’s, and the’s. (Ahem yourself; don’t even think about going there on this with me.) An earlier unquoted passage, by the way, makes it clear he’s referring to the voters as turkeys.

Here’s what he doesn’t know:

* The Japanese political system is not collapsing. It would be easy to make the case that it is healthier than the political system in the United States. People who rely on the usual inadequate Anglosphere sources and who think the national legislature constitutes the entire political system cannot be expected to understand this. How unfortunate that they cannot be expected to refrain from writing about it.

* The voters have been expressing for years exactly what they want, and what they have wanted is massive central government reform. That is not easy to achieve in any system with its encrusted vested interests, nor is their fault that they haven’t received it. This election will be just the latest in a series of monumental exercises in throwing the bums out. That line about “the turkeys outvoting Thanksgiving” (of course!)? It is tantamount to a public declaration of a functional illiteracy of matters Japanese in general, and trends among the electorate, sub-national politics, and the perpetual battle with the bureaucracy in particular.

* This was a coalition government in only the most technical sense of the term — the remaining party in the coalition has fewer than 10 Diet members. The coalition was formed with two mini-parties solely to pass legislation in the upper house. It was a Democratic Party of Japan government. Period.

The Liberal Democratic Party (LDP) has done all the usual gimmicks – promises of more subsidies, the vaguely worded reforms and of course obligatory visits to the Yasukuni shrine designed to get geriatric Samurai warrior votes on its side…

Isn’t he the clever wordsmith? Yasukuni shrine visits didn’t hurt Mr. Koizumi with the non-geriatric non-samurai independent voters, but what he doesn’t know about this issue would fill several books. Included in that lack of knowledge is that none of the LDP successors of Mr. Koizumi made any of the “of course obligatory” visits to Yasukuni. Incidentally, since the LDP promises have yet to be translated into English, he can’t be expected to know their content, either.

…with the active support of the farming and construction lobbies it appears that the LDP is headed back to power albeit in a coalition framework.

Were the author able to read Japanese, I could recommend several books and articles about how these special interest groups no longer have the electoral strength they once did. He would need to read at least one article on how the farming lobby supported the DPJ in the last lower house election, but all of that would be chanting sutras into a horse’s ear.

We do not know yet how the incumbent Democratic Party of Japan is likely to fare…

Yes we do. The possibilities range from bad to near extinction.

…so convoluted are the fortunes of the party when examined against the popularity of its individual politicians.

Apart from its incoherence, the full sentence is an astonishing display of ignorance. The unpopularity of all three individual DPJ prime ministers is remarkable for its depth and the intensity of emotion it generates. It aligns almost perfectly with the unpopularity of the party as a group.

After trying various approaches, the party has now settled itself on the bandwagon of expanding the middle classes – presumably through more tax breaks and other ideas that run counter to the current orthodoxy around value-added taxes; however the party led by the outgoing prime minister has also embarked on a controversial policy to secure funding for grandiose construction projects with the issue of bonds to which it would like the Bank of Japan to directly subscribe.

The party that is making news and causing controversy because it wants the BOJ to subscribe to construction bonds is the LDP — the opposition party. While it is true the DPJ can’t provide a full accounting of the funds for Tohoku relief and reconstruction, that is due to their incompetence and inability to say no to the bureaucracy.

“Presumably through tax breaks”? The DPJ was the engine that drove the increase in the consumption tax increase from 5-10%, and they’re also engineering increases in income and inheritance taxes. One who presumes to have the knowledge required to write an op-ed about Japan should know that.

Or that Japan doesn’t have a value-added tax, assuming that’s what that reference is all about.

At long last he gets down and dirty:

At the other end of the spectrum, the right wing has become more active with the triumvirate of Shintaro Ishihara and Takeo Hiranuma’s the Sunrise Party and Toru Hashimoto’s Resurrection Party. All the politicians in the triumvirate have a somewhat unfortunate history of egging on xenophobic tendencies; the triumphalism of Ishihara in the late ’80s with his call for Japan to become more assertive against the US; and the unfortunate racial stereotypes he espoused which brought to mind the propaganda of Goebbels have not been forgotten yet anywhere in Asia or the US.

Get used to this. You’re going to be seeing so much of this bologna in the future, it won’t be possible to slice it all — even the small end that isn’t past its sell-by date. Notice how he dodges the commitment to call them Nazis or fascists: it “brings to mind the propaganda of Goebbels”.

Having spent some time studying the content of German propaganda, and much more time studying Japanese politics and politicians, I can say this comparison would occur only to those people whose minds are bent into a distinctive warp. This calls for the invocation of Godwin’s Law. He loses.

* Messrs. Ishihara and Hiranuma have had “a somewhat unfortunate” (sic) history of egging on xenophobic tendencies, but neither of them will be pinning yellow and pink identification badges on non-Japanese or stuffing them into ovens. Mr. Ishihara’s electoral success over the years originates in the name recognition value of being the first prominent celebrity politician in Japan. That success is by no means automatic; the party both these men formed for the 2010 upper house elections flopped badly. Their alliance with Mr. Hashimoto has nothing to do with xenophobia and everything to do with domestic considerations. The people who vote for them will not be driven to do so for xenophobic reasons.

Incidentally, the author also refers in another section to “a horrifying collapse in exports” without mentioning that it was attributable almost entirely to a byproduct of Chinese xenophobia and ethnocentrism.

* Hashimoto Toru’s party has an official English name: Japan Restoration Party. Evidently he can’t be bothered to spend 10 seconds to visit their website and get it right.

I would be curious to learn more of Mr. Hashimoto’s history of xenophobia that the author alleges. The Osaka mayor is a one-man political content provider. He’s written several books and is the world’s leading political Tweeter (95+% of which is related to political discussions and debates), so it’s difficult to keep up, but I can’t remember seeing anything overtly xenophobic. That includes the content of a website of a virulent “it’s positive to be negative” leftist Brit who slapped together a collection of unpleasant Hashimoto statements.

* As for the call for Japan to become more assertive against the US, that has little to with either the right wing or xenophobia. Japanese throughout the political spectrum have been growing weary of that shotgun wedding of convenience, and that trend is accelerating as the people who were children in the early postwar years head into retirement.

It is also worthy of note there is no mention of the fact that a large share of the incumbent Democratic Party of Japan membership consists of global governance types who think the nation-state is an anachronism. If that’s the context, perhaps what most people would consider normal patriotism would be seen as xenophobia.

Take stock for a moment: an ancient political party that seems hopelessly anachronistic, an incumbent political party that appears altogether confused, a right-wing organization that is built on idolizing an extinct past; does anyone hear the faint echoes from the future of other democracies in Europe and perhaps the US?

Yes, let’s take stock. The ancient political party is all of 57 years old. The name of the “right-wing organization” whose name he can’t get right is not built on idolizing an extinct past. Their original motivation is the decentralization of government and the regional devolution of authority. That none of them “idolize an extinct past” demonstrates the author is either making stuff up or listening to people who are making stuff up. In a Japanese context that party’s core domestic reform agenda is fresher and more forward-looking than any major political party in the US or Western Europe. (It is also a full-fledged party, not an “organization.”)

Again, the only people hearing “echoes from the future” are those whose minds are bent into a distinctive warp, anxious to seem perceptive by blindly setting up a comparison with anti-immigrant parties in Europe that the media mistakenly refers to as “right wing”. (Most of them are really Big Statists, from what I can see.)

It cannot be emphasized too strongly:

Conditions in Japan do not and will not resemble those in any European country, nor conform to the illusions of drive-by Western commentators.

But enough of this; the rest of his analysis is based on conjecture just as foamy. (He too quickly accepts the idea that Japan has renounced nuclear energy; I wouldn’t be too cocksure about that. It doesn’t bode well for the movement that Hashimoto Toru has left it and Kamei Shizuka and Ozawa Ichiro have joined it.)

My thinking is quite simply that Japan has reached an economic point of no-return; this will be now played out politically to provide a dignified burial of the country’s ambitions.

Through a stroke of synchronicity, the following article appeared on the same day as this op-ed:

The first of a new generation of high-speed, magnetic levitation trains has been unveiled in Japan, designed to operate at speeds of more than 310 mph…

Designed by Central Japan Railway Co. (JR Tokai), the state-of-the-art trains are scheduled to go into use in 2027 and link Shinagawa Station, in central Tokyo, with Nagoya.

At present, it takes 90 minutes for a conventional “shinkansen” bullet train to complete the journey between the two stations, but the new technology will cut the trip to 40 minutes.

The vehicle has no wheels – doing away with friction and, hence, providing a smoother and quieter ride at a faster speed – and is propelled along a track through electromagnetic pull.

That’s just 15 years away.

Japan will be the first nation to build a large-scale maglev route and hopes to be able to export the technology once it has been perfected.

And I expect they will be successful.

Had Chan Akya or the media’s editorial class known the ABCs of political conditions in Japan, the electorate’s intense interest in reform and readiness to punish politicians who lack that interest, and indeed, the capacity for innovation and survival of actors in the free market system in general and the Japanese in particular, this article would never have been written, much less been published.

How unlucky for us.

My thinking is that chances are very good Japan will survive the coming Dark Ages better than either the United States or most of the EU. That round red sun is more likely to be rising than setting.

Posted in Business, finance and the economy, Government, Mass media, Politics, Social trends | Tagged: , | 4 Comments »

Ichigen koji (238)

Posted by ampontan on Friday, November 23, 2012

一言居士
– A person who has something to say about everything

The most important thing for economic growth is strengthening competition. Enhanced competition policies. All people tend to want to take it easy. They don’t want to compete. The strength of people such as those is put in the service of politics through elections, and government then uses regulations to create vested interests. Japan today is caught in a straitjacket of regulation and vested interests.

- Hashimoto Toru, Mayor of Osaka

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All you have to do is look (113)

Posted by ampontan on Tuesday, November 20, 2012

By retail investors, they mean (usually) private citizens rather than institutional investors. Japan Post has a 20% share of government bonds by itself.

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Making money

Posted by ampontan on Wednesday, November 14, 2012

JAPAN is now in the business of making money for other countries. The Finance Ministry and Japan Mint announced they have accepted an order for manufacturing 500 million coins in the Bangladesh currency. The Mint had received overseas orders for commemorative coins, including those for New Zealand and Sri Lanka, but this is the first time since the end of World War II they have received an order for a country’s currency in general circulation. Demand for bills in Japan is declining due to the growing use of e-money, and the Mint wants to promote this business a way to utilize its idled equipment and maintain its technological capabilities. It is not unusual for developing countries to outsource the production of its currency.

Bangladesh has eight types of currency, and this order is for the two taka coin. It is made of stainless steel and has a value corresponding to two yen in Japan. (One taka is subdivided into 100 poisha.) The Bangladesh Central Bank conducted an international bidding process, and they accepted a bid for JPY 520 million. Manufacturing will begin at the main office in Osaka early next year, and they will send 100 million coins every month to Bangladesh starting in April.

The spread of e-money and the slumping economy has spurred the Finance Ministry and the Mint to find ways to receive more of these orders. Among the losers in the bidding were Slovakia, the Netherlands, Germany, Great Britain, and Spain.

Since 2003, Japan Mint has been an “incorporated administrative agency” headquartered in Osaka. That means it is still affiliated with the national government.

One way the Abe Shinzo government of 2006-2007 wanted to continue the Koizumi reform policies was to privatize the Mint. This was stopped by the then-opposition DPJ working with the Finance Ministry. The ministry, one of the primary political power centers in Japan, always fights any measure that would diminish its power and authority. It often fights dirty, sometimes manipulating events to bring down governments. Exhibit A for that charge is the downfall of the Hashimoto Ryutaro government when it tried to split the oversight of the financial services industry from the Finance Ministry. (It eventually happened a few years later.)

The slogan for the Koizumi reforms was to remove from the government and entrust to the private sector anything the private sector could do. The principle is that the private sector always does everything better than the public sector except the mass extermination of people in warfare.

Had the Abe administration successively privatized the Mint, they most likely would have been involved in this business for several years already and creating new capital without using any from the public sector.

The people in the Finance Ministry probably know that as well, but it is not in the interest of people to understand anything that puts their interests at risk.

*****
Let’s boogie!

Posted in Business, finance and the economy, Government | Tagged: , | 2 Comments »

A timeline

Posted by ampontan on Wednesday, November 7, 2012

THE following is the timeline of a sequence of events that has begun to attract the attention of some people in the Japanese news media.

■ In early October, the Foreign Ministry and the Defense Ministry provided an explanation at the Kantei on the joint Japanese-American drills for island defense to be conducted starting 15 November. One of those drills was to simulate the retaking of an island occupied by an enemy. Deputy Prime Minister Okada Katsuya was present and agreed.

Okada Katsuya and Xi Jinping

■ On 9 October, Prime Minister Noda received the same explanation and also agreed. The Ministry of Defense informed the Department of Defense in the U.S. that approval had been granted for the exercise.

■ On 12 October, Aeon President Okada Motoya, Okada Katsuya’s brother, announced, “We are not concerned about our China operations”. He was speaking about the rioting that had resulted in the trashing and looting of his company’s Jusco outlet in Tsingtao, Shandong Province, during the government-manufactured riots on 15 September. He emphasized there would be no change in his company’s plans to further expand their outlets in China.

One question being asked is why he was already so certain there would be no more problems with Jusco outlets in China.

■ In mid-October, Mr. Okada’s attitude toward the official approval of the joint drills as explained by the foreign and defense ministries changed. When both ministries again went to the Kantei to provide any explanations required before the official approval was announced, he declared that the decision was wrong.

■ On 16 October Chinese Foreign Ministry spokesman Hong Leibao addressed the subject of the joint American and Chinese drills. He said:

Increasing tension in the region is not beneficial for promoting security or mutual trust.

And:

We hope that Japan strives for the creation of progress in the Diaoyutai issue (Senkakus) with sincerity and actual deeds.

■ On 19 October Chinese patrol boats conducted a large-scale “drill to maintain maritime sovereignty” in the East China Sea. The Kyodo news agency reported, “The objective is to oppose the purchase of the Senkakus by the national government and the consideration of the joint Japanese-American military drill for retaking an occupied island on an uninhabited island in the Okinawa chain.”

■ On 21 October, during a speech in Wakayama City, Mr. Okada said the reason for the national government’s purchase of the Senkaku islets was to prevent Tokyo Metro District Gov. Ishihara Shintaro from purchasing them. He criticized the government’s purchase because “the result was an extremely harsh response from China”. He added:

There is no territorial dispute over the Senkakus, but it is a fact that there is debate. We must calm the present situation through dialogue.

This statement was immediately reported by the Chinese media as recognition by the Japanese government that a territorial dispute existed.

■ On 22 October, the Peoples Daily and Xinhua distributed op-eds with the title, “Japan should assume the onerous burden for betrayal”. It included this passage:

As long as Japan does not reflect on its errors, correct its mistakes, and establish a new consensus with China about the Diaoyutai issue, it will not be possible to return to a sound course of development for Sino-Japanese relations.

Note the recurrence of the passage, “correct mistakes” — a hallmark of Sinocentric culturalism, in which the Chinese position is the correct one, and opposing positions are errors.

■ On 22 October, the decision was announced to cancel the joint drill for retaking an occupied island. According to a high government official (speaking on the condition of anonymity), Mr. Okada made the final decision rather than Prime Minister Noda. His reason was to avoid upsetting China. Mr. Noda accepted it.

■ On 22 October, Aeon announced the opening of a new store in Tsingtao, Shandong Province, the same city where one of their stores was ransacked.

■ On 25 October, the new store opened. At the same time, Aeon said it would continue to be involved with building shopping malls in China.

■ On 25 October, during a visit to Japan, U.S. Assistant Secretary of State Kurt Campbell expressed strong dissatisfaction to senior members of the Foreign Ministry with the decision. That has been reported only in Japanese. Translated, he is quoted as having said, “Reversing a decision on a joint exercise is strange.” It was reportedly viewed by the Prime Minister’s Office as being a warning.

Today, when asked to explain the reason for the cancellation of the drill, Defense Minister Morimoto Satoshi said,

There were various circumstances. I will refrain from giving a detailed explanation of the reasons.

It seems as if we might be able to draw some conclusions:

■ For Prime Minister Noda Yoshihiko, the interests of his party take priority over the national interest.

But we already knew that.

■ For Deputy Prime Minister Okada Katsuya, the interests of his family business take priority over the national interest.

■ And the Democratic Party of Japan government is veering once again into Neville Chamberlain territory.

Posted in Business, finance and the economy, China, Government, International relations, Politics | Tagged: | 2 Comments »

Kan non-power

Posted by ampontan on Tuesday, November 6, 2012

When Kan was out of control, his anger was frightening…One prime minister destroying Japan…In terms of the monetary of damage they caused, the prime ministers would rank in this order: Konoe Fumimaro, Tojo Hideki, and Kan (Naoto).
- Ishii Takaaki, freelance journalist covering science and technology issues

THE following news report speaks for itself:

The nation’s 10 electric power companies released their interim reports for the term ended September 2012. The sharp increase in fuel costs for thermal power generation (i.e., oil and coal) to replace the idled nuclear power plants resulted in eight utility companies recording net losses of JPY 670 billion, or about $US 8.4 billion. (The exceptions were Hokuriku and Okinawa.) Kansai Electric and Kyushu Electric have already announced they will raise rates, and Tohoku Electric, Shikoku Electric, and Hokkaido Electric said they were considering it.

The aggregate fuel costs for the 10 companies totaled JPY 3.5 trillion, 1.4 times greater than the year-before period.

In other words, the losses average out to one billion dollars per utility over the past six months.

This insert is from another source about Kyushu Electric Power:

The utility posted its worst performance ever on the interim report for September 2012 when it showed a final loss of JPY 165 billion yen. Kyushu Electric will probably not pay dividends, the first time that will have happened since its founding in 1951.

Back to the conclusion of the original report, which is difficult to read without choking:

The rate increases will have a serious impact on household budgets and corporate operations. If the companies apply to raise rates, the stance of the government will be to strongly urge them to cut personnel expenses and other costs.

How about if the government allows them to conduct their business of generating power and gets out of the way?

The slogan of Kan Naoto’s Democratic Party of Japan is “Putting People First”. The words might change, but the sentiment is the same for left-of-center parties everywhere. So are the results when they are allowed to try their ideas in the real world: Putting it to the People First.

That slogan and others like it are the ultimate in spin doctoring. The message is only the medium for seizing power. The motivating spirit is vindictiveness, and you can see it in their eyes: Kan Naoto, Fukushima Mizuho, and the other people for whom voting is an act of revenge.

They’re the people who don’t know who built what because they’ve never built anything themselves and wouldn’t know where to start. Their instincts run to tearing things down.

A clean, bright, healthy future for our children?

Not if you replace the rose-colored glasses with a green eyeshade and do the arithmetic.

Some people actually prefer the Dark Ages:

Who are the politicians that these people support, and who are the politicians that would speak for them?

Who are the real enemies of the people, comrades?

All you have to do is look.

*****
Moriya Hideo wrote and performs on this piece called Kan-Non Power. Twenty years down the road, only the hyphen has moved.

Posted in Business, finance and the economy, Science and technology | Tagged: , | Leave a Comment »

All you have to do is look (95)

Posted by ampontan on Friday, November 2, 2012

Two miko advertise the start of a morning market on the second and fourth Sundays of the month on Shinbaba-dori in front of the Matsubara Shinto shrine in Saga. It was a bustling shopping district before the war. It’s a 10-minute walk from my house.

Photo from Saga Shimbun

Posted in Business, finance and the economy, Photographs and videos, Traditions | Tagged: , | 4 Comments »

ichigen koji (208)

Posted by ampontan on Thursday, October 25, 2012

一言居士
– A person who has something to say about everything

I went to a consumer electronics store today to buy earphones, and counted more than 50 different products. Does this represent an exceptional effort on the part of companies, or a wasteful use of resources? Perhaps Japanese consumer electronics companies should take a tip from Apple and focus on just a few mainstay products.

- Ishi Taka’aki

Posted in Business, finance and the economy, Quotations | Tagged: | 3 Comments »

Ichigen koji (202)

Posted by ampontan on Friday, October 19, 2012

一言居士
– A person who has something to say about everything

We human beings always seek happiness. Now there are two ways. You make yourself happy by making other people unhappy—I call that the logic of robbery. The other way, you make yourself happy by making other people happy—that’s the logic of the market. Which way do you prefer?

- Zang Weiying, a Chinese Hayekian

Posted in Business, finance and the economy, China, Quotations | Leave a Comment »

Less leverage than they think?

Posted by ampontan on Wednesday, October 17, 2012

Baotou, Inner Mongolia. Photo by Fanghong

GOADED by the domestic news media, many people in China are pressing their government to place economic restrictions on Japan to teach them a lesson. They are specifically asking the government to limit the export of rare earth minerals, as it did after the September 2010 incident. Those restrictions exposed the fecklessness of Kan Naoto and his Cabinet and caused it to back down.

If that were to happen again, however, the ones who might be taught a lesson would be the Chinese. The incident two years ago made Japanese companies aware of China risk, and they immediately took steps to protect themselves from similar measures in the future. In the aggregate, Japanese industry has responded in several ways. Some companies have stopped using the minerals, while others began large programs to recycle them or make arrangements to purchase the minerals from other countries. The Japanese have also discovered resources on their own.

Reports the Epoch Times:

After a boat collision incident in September 2010 in the disputed Senkaku Islands, China stopped exporting rare earths to Japan for two months. Japan says that was the first time China imposed an economic sanction upon it since the installation of Sino-Japanese diplomacy.

Soon after, Japan altered its policies and began to seek new sources for rare earths in order to decrease dependency on China. In 2011, Japan imported 15,400 tons of rare earths from China, a 34 percent decrease from 2010.

According to the Nikon Keizai Shimbun, Japan imported 49.3 percent of its rare earths—a total of 3,007 tons—from China the first half of this year; this is the first time that imports from China have fallen below 50 percent of Japan’s rare earths import since 2000.

China Securities Journal reported on Sept. 27 that most of Japan’s new sources provide light rare earths such as cerium and neodymium, satisfying 60 to 80 percent of Japan’s demands for those materials. However, Japan is still dependent on China for 90 percent of its heavy rare earths.

The China Securities Journal report says that Japanese industries like Toyota have been developing mines in Canada with local industries, and are expecting to provide heavy rare earths, including dysprosium, to Japan by 2015.

Last year’s 34% decline in imports continues to worsen this year, as they were down 43% in the first half. The general export framework is 30,966 tons, and it’s possible that target won’t be reached. Further, prices are plummeting due to overproduction and higher inventories. The mining companies are already hurting, and they would be further hurt by new restrictions.

Then again, the Chinese government might have painted itself into a corner. Japan, the EU, and the U.S. complained to the WTO about the Chinese actions in 2010, and the WTO began a study this August. Later that month, Premier Wen Jiabao said at a forum with visiting German Chancellor Angela Merkel: “China does not intend to curb exports of rare earths.”

Journalist Miyazaki Masahiro wrote the following column that further outlines the views of some in Japan.

*****
China’s economic sanctions on Japan will be tantamount to a declaration of economic war. The first battle in the bilateral dispute over the Senkakus will take place over rare earths.
They are an indispensable material in advanced engines and cell phones. China’s restriction on rare earth exports succeeded in convincing two Japanese companies to move their processing plants to China, one of which was Showa Denko. But Japan looked elsewhere for sources of supply, including the U.S., Kazakhstan, Malaysia, and Australia.

Companies took measures to disperse risk, a core part of security, albeit belatedly. As a result, China lost an important customer that bought the minerals at good prices. This is causing concern in Baotou, a city in the Inner Mongolia autonomous region.

China instituted some economic sanctions in concomitance with the September anti-Japan riots. They’ve purposely dragged their heels on customs inspections, delayed the import of automobile parts, and used other methods to hinder manufacturing by Japanese companies. Production at the Toyota Lexus plant came to a standstill. If materials do not reach Sumitomo Chemical and other plants, operation will stop there, too.

The Chinese newspapers are calling for the government to institute the measures that leverage the following.

* Japan’s reliance on Chinese markets in bilateral trade is 30%.

* The reliance is 49.3% for rare earths.

* A free trade agreement between China and South Korea will result in tariffs disadvantageous to Japan.

* The number of Chinese tourists will decline to Japan.

* China has 18 trillion in Japanese bonds, making the country Japan’s largest foreign investor.

…First, Japanese exports to China facilitate the operation of the Chinese manufacturing industry, and include machinery, robots, and raw materials. If Japan stops exporting construction equipment and cranes, the impact will be on China. If companies such as Juki stop exporting sewing machines, it will have a negative effect on companies in the apparel industry, throwing many people out of work. (A lot of equipment is already old and needs to be replaced.)

Second, Chinese rare earth exporters are already complaining. Inner Mongolia’s industrial structure is weak and depends on rare earths and coal. If Japan stops buying, they’ll have to start dumping or find new buyers.

Third, even if China and South Korea sign an FTA, Japan will shift its manufacturing to its Korean plants and ship products to China as being Korean made. The impact will be slight.

Fourth, Chinese tourists have a bad reputation in Japan, and the tours are discounted, so the operators don’t make a profit. The lodging industry is unhappy about the theft of equipment and materials by tourists and would rather they not come. Most of the hotels with large losses from group cancellations are Chinese-operated. A large segment of the Japanese tourist industry is glad there are fewer Chinese tours.

Fifth, China buys Japanese bonds because of their value as a financial instrument. A China selloff in the market wouldn’t result in making them less popular as an investment.

Here are some of the changes that have occurred since last month:

* Adidas closed its factories in China.

* Toyota halved its Chinese production and there was a sharp decline in sales of Japanese cars. Nissan has also reduced production and operations.

* Japan has found other sources for rare earth minerals.

* The Philippines is ready to welcome any company leaving China.

* Yamada Denki (consumer electronics) will cut back on the stores they open in China, and convenience stores are doing the same.

* Upscale French hotels are turning away Chinese customers.

* The Chinese travel industry is upset at the large falloff in tours from Japan.

There are 14,600 Japan companies with a presence in China, but the growth trend will now come to a stop. Toyota, Nissan, and Honda have cut production, which means their plant operations will also be scaled down. That will result in large layoffs. Japanese parts companies and other subcontractors will think about leaving. Combined with the large number of strikes throughout the country, that will result in the further curtailing of plant operations.

Most Japanese industries are examining a scenario of reduced production, partial withdrawal now, and complete withdrawal in a few years.

The insurance industry will either raise insurance premiums as a result of the riots or stop selling policies altogether.

Notes commentator Seki Hei (Shi Ping):

“The Chinese government has the obligation to maintain law and order and protect the safety of foreign and domestic companies and their employees. But they have in fact completely abandoned their responsibility and allowed illegal acts of destruction and looting. In short, this country has the potential to become a lawless zone.

“Further, the Chinese government has no intention to assume responsibility and compensate the Japanese companies for the damages. They don’t even apologize. Rather, they said that the responsibility is entirely with the Japanese government. This is now a lawless state divorced from international standards.”

I doubt that Japanese companies will be able to establish themselves in this lawless country with peace of mind.

(End translation)
*****

A week after this article appeared, the Philippine government made offers to 15 Japanese companies to relocate. Also Oclaro, a Japanese manufacturer of optical and laser components, announced it will move its operations from China to Malaysia.
*****

But look what all those Japanese companies would miss if they decided to relocate.

Posted in Business, finance and the economy, China, International relations | Tagged: | 1 Comment »

 
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