By on May 8, 2020

Japan released a list of companies subject to new foreign-ownership rules on Friday, with automakers included in the document. The adjustment influences how outside investment will be handled in regard to business sectors crucial to national security by the nation’s Ministry of Finance.

Foreign outfits buying a stake of 1 percent (or more) in Japanese companies will now face a pre-screening process to ensure they’re not a threat. The old benchmark for such action was set at a substantially higher 10 percent.

While the language used in the document isn’t targeted and largely pertains to additional scrutiny in the general sense, this has everything to do with China. It also mimics measures taken in the United States and Europe to avoid further instances of intellectual property theft (or simply having sensitive information leaked to the Chinese Communist Party). It’s still risky, however, as about a third of Japanese stock is owned by investors from outside its borders. Meanwhile, the nation is hoping to ramp up investment to boost its economy. 

China has proven itself willing to spend money to accrue new technology, making it a repeat customer in most markets. Unfortunately, much of the world has started to grow distressed with the way it does business. While the nation has made impressive technological advancements in short order, quite a bit of that know-how came from industrial, academic, or even governmental institutions in other countries — and not always by legal means.

“China has institutionalized a system that combines legal and illegal means of technology acquisition from abroad,” William Schneider Jr., former undersecretary of state for security assistance, science and technology and former chair of the Defense Science Board, said last November.

While that often involves simply buying up hardware or software from another entity, technical information is frequently gathered covertly and given to Chinese universities that then apply for regional patents and hand the tech over to companies that utilize it on a grand scale. The United States was the first to openly bemoan and then attempt to counter such practices; similar measures have started taking hold in other countries.

According to Automotive News, the country’s Ministry of Finance identified 518 of roughly 3,800 listed companies with operations deemed essential to national security. They’ll all be subject to the new regulations — here’s a spreadsheet if you’re interested in the complete list. The outlet also noted that not everyone may be on board with the new regulations, as there is some concern it might discourage future investments in Japanese businesses.

From AN:

“The revised law is aimed at accelerating foreign direct investment in Japan,” said Finance Minister Taro Aso, referring to a law passed in November, and adding that technology and patents needed protection from a national security standpoint.

“As we have explained our intention overseas, misdirected criticism such as that we may limit foreign investment in Japan has disappeared.”

Some analysts say the revised law reflects Tokyo’s concern over China’s growing influence in industries such as defense, running the risk of leaks of confidential information and outflows of key technology.

The new rules take affect today, adding stricter measures on extra-national investments in sectors like space exploration, weapons technology, digital security, nuclear energy, railways, telecom, and some automotive (e.g. Toyota), among others.

[Image: WSW1985/Shutterstock]

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