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Abe’s plans for a global business hub earns low marks

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Japan’s dismal ranking in the World Bank’s latest (2015) “Doing Business” report can surely not have escaped the government of Prime Minister Shinzo Abe. Released in October, the annual report — which surveys how easy it is to open and run a business in host countries — ranked Singapore first, Hong Kong third and Japan at lowly 29th, down two places from 2014. South Korea, which once shared Japan’s reputation for being a tough business nut to crack for foreign companies, is ranked fifth.

After he took office in December 2012, Abe famously told international businesses he would drill through the “bedrock” of regulations that have kept his country out of such global league tables. One of the centrepieces of that strategy was dubbed “national special economic zones”, created last year. According to Abe, the six zones would be under his direct responsibility and would foster a business environment that “stands shoulder to shoulder” with London, New York and other world cities. “The battle to create such a Japan is a battle in which I myself will be fully engaged,” he said.

The Big Idea, as The Economist notes, is that these zones will allow companies to take daring steps “considered still too controversial for the country as a whole”. They would allow true competition into some of Japan’s most protected industries, particularly farming and pharmaceuticals. Tax breaks, simplified residence and business permits, and incentive-based pay were all on the agenda. Later on, these deregulations would be wheeled out across the rest of the country.

It goes without saying that not only have such zones been attempted around the world (with some success in China, South Korea and Malaysia), they’ve been tried out extensively in Japan. Since the idea of introducing them began at least a decade ago during the era of then Prime Minister Junichiro Koizumi (2001-2006), Japan has approved more than 1,000 special zone proposals, according to Takuji Okubo, managing director and chief economist at Japan Macro Advisors, and previously a senior economist with Société Générale, Merrill Lynch and Goldman Sachs. These allowed corporations to run farms and medical clinics, and partially deregulated customs clearing, among other reforms. The impact? Limited, concludes Okubo. “Many zones failed to produce almost any results at all.”

What makes this time different? One difference supporters point to is the prime minister’s personal backing. Another is his ambitiousness — the zones cover an area responsible for nearly two-fifths of Japan’s GDP, according to Robert Feldman, managing director at Morgan Stanley Japan Securities. The current scheme is also unique because it is led by the state, not municipalities, says Hideyuki Dempo, a senior policy planner with the Tokyo Metropolitan Government. But Dempo is reluctant to predict success. “We are waiting to see how fast the effect will show in our economy.”

Adding to the lack of clarity about the new scheme is that it seems to partially overlap with one already running in Tokyo (the other five zones are Kansai, Niigata and Yabu, Fukuoka, and Okinawa). The Special Zone for Asian Headquarters, based in Tokyo and set up in 2011 by the municipal government before Abe became prime minister, is supposed to make the capital also a hub for business by smoothing the entry path for foreign companies. “It’s confusing,” admits Namiko Watanabe, a consultant with the Tokyo project.

In practical terms, the capital’s business zone has scored some business success. It has a team of lawyers, accountants and bilingual experts who have fielded thousands of queries since it was set up. The office can point to several successful start-ups. But the zone has very little chance of hitting its target of attracting more than 500 foreign firms, including 50 with their Asian regional HQs or R&D centres, before 2016. Another aim, of bringing more foreign doctors to Tokyo, is also floundering.

Watanabe says it is “obvious” that other Asian cities such as Singapore are more attractive than Japan. She cites Japan’s high corporate tax of 35.6%, roughly double the rate in Singapore and Hong Kong. Another headache is bureaucracy — paperwork has been simplified by many Asian governments but it can take months to apply to start a business in Japan, she says. “The government [also] expects foreigners to apply with documents in Japanese.”

Dempo says the municipal government is working on these problems. And this year Japan announced plans to cut the corporate tax rate in stages below 30%. But many analysts think the recession this year will delay radical changes to the country’s corporate tax structure. In any case, tax cuts are rarely the main driver for decisions to invest in foreign markets, points out Dr Christian Geltinger, chief representative of the State of Bavaria, Japan office. “In my view, the key driver should be market attractiveness, access and entry as a whole.”

Like other foreign critics, Geltinger sees nothing new in the business zones. He says the concept is hard to communicate to European businesses. “Japan as a whole should be a special zone,” he says. European businesses are looking for market opportunities and smooth operations once they set up here. “The other questions — labour costs and taxes — come into account, but later.”

So is the government’s new bid to lower Japan’s business drawbridge already tangled beyond repair? One sign of growing frustration is open criticism from the team of die-hard reformers set up by Abe to make the zones work. Led by Tatsuo Hatta, acting chair of the Cabinet Office’s Council for Regulatory Reform, the team recently said that proposals for deregulatory measures in Tokyo did not go far enough. Some of the panel members, notably Heizo Takenaka, member of the government’s Industrial Competitiveness Council, are known to favour neo-liberal shock treatment to jolt Japan out of its slow decline.

With or without the zones, Japan could do much more to lure European companies, say analysts. Geltinger wants the government to pass the free trade deal with Europe and lower non-tariff barriers, which are currently under negotiations between the EU and Japan. Extending the practical help of Tokyo’s Special Zone for Asian Headquarters to the rest of the country would help, too. And cut red tape and translation costs for new businesses, add many analysts. The top performing economies in the 2015 World Bank survey are not those without regulation, said the bank’s chief economist and senior vice-president (development economics) Kaushik Basu after the release of the latest league tables. “‘Doing Business’ is about smart regulations that only a well-functioning state can provide.”

© Japan Today

©2024 GPlusMedia Inc.

19 Comments
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This should surprise no one...

2 ( +2 / -0 )

Released in October, the annual report — which surveys how easy it is to open and run a business in host countries — ranked Singapore first, Hong Kong third and Japan at lowly 29th, down two places from 2014.

Been there. Done that. And have the scars to prove it. I can set up an LLC in the U.S. simply by going on the computer. As this article says, setting up a KK in Japan can take weeks or even months, and can cost a fortune.

Another headache is bureaucracy — paperwork has been simplified by many Asian governments but it can take months to apply to start a business in Japan, she says. “The government [also] expects foreigners to apply with documents in Japanese.”

As usual, Japan is its own worst enemy, and will never grasp just how far behind it is.

2 ( +7 / -5 )

"Since the idea of introducing them began at least a decade ago during the era of then Prime Minister Junichiro Koizumi (2001-2006), Japan has approved more than 1,000 special zone proposals."

What does this really mean? Could it be that the 1,000 zones have not actually been approved, but the proposals have not yet been rejected and have been approved of as a proposal to be given further consideration?

0 ( +0 / -0 )

setting up a KK in Japan can.. cost a fortune.

No, setting up a KK in Japan now cost only one yen, no " fortune".

-5 ( +2 / -7 )

How mysterious. All these foreign executives declining to be taxed at 55% and instead wanting to pay 15% (Hong Kong) or 20% (Korea or Singapore).

2 ( +2 / -0 )

No, setting up a KK in Japan now cost only one yen, no " fortune".

tina -- I am afraid, once again, you shoot from the hip wihout any real knowledge of the subject at hand. While you are technically correct, only 1 yen needs to now be paid as paid-in-capital to form a KK, the filing process/paperwork that must be completed, in Japanese, is generally very expensive for a foreigner to undertake. Along with all the filing fees for the various bureaucracies like the ku, etc. In addition, as I recall, you must pre-pay your first year's anticipated taxes, which is ridiculous, since most start-ups lose money in Year 1. Also, you must set up a bank account that the filing agency can verify, and that needs to have suffiecient funds in it to impress them.

3 ( +6 / -3 )

jersey, Still not a fortune, about 300,000 yen (plus translation for a foreigner). What part is the fortune that other countries don't have?

-5 ( +2 / -7 )

It cost us 250,000 to register our KK. This was all in Japanese though, no translation.

jersey, Still not a fortune, about 300,000 yen (plus translation for a foreigner).

Didn't you just say 1 yen?

5 ( +5 / -1 )

"The government [also] expects foreigners to apply with documents in Japanese."

I'm intrigued. Do the governments of other countries allow paperwork to be submitted in whatever language the applicant pleases? With the onus on the host country to translate into the local language? Paid for, presumably, by the taxpayer? How does an entrepreneur expect to run a business if he cannot cope with the language?

cut red tape and translation costs for new businesses

Cut the red tape by all means, but we translators need to make a living, too. How would you cut translation costs without cutting the income of professional translators? Isn't Abenomics supposed to be about putting more money in people's pockets, not less?

0 ( +4 / -4 )

Japan as usual continues to shoot itself in the foot, again & again.

As I keep harping Japan MUST re-invent itself or continue to rot!

Forget the rest of the world, start making things easier, simpler, cut out the BS & excess bureaucracies etc FOR J-Business in JAPAN! Forget the TPP Japan should have been fixing its farming issues for ITSELF from about 20-30yrs ago, but NO, just sucking air in between teeth for decades & do NOTHING, yeah that's really working out, NOT!

Special zones..............wtf! Forget that crap & as suggested make ALL of Japan a special zone & start making some changes for the better rather than doing nothing & making things worse!

I can give advice but why bother, Japanese need to collectively realize they need to re-invent EVERYTHING, a new restoration if you will, the old ways are killing Japan & quickly! Quality of life must change or couples will NEVER have more kids, if families cant spend hardly any quality time together(which most cant now, for decades running!) then they wont be happy, wont have many kids, lead depressing sorry lives............

Hey Japan its all up to YOU! Do you want to see better, happier, healthier times???

Sadly I don't expect any sort of answer & most haven't even realized they need to re-do how they live/work etc, going to get worse.

And Japan I doubt you will attract many new takers with these lame ideas that are all clear as mud!

3 ( +4 / -1 )

Doesn`t North Korea also have a couple of these "special economic zones", under the personal supervision of the Great leader? I don´t think any modern, successful economy has those, only the basket cases.

Abe should stop this meddling and give us our taxes back. To claim that he can handle our money better than we can is insulting.

1 ( +2 / -1 )

WilliB,

When was the last time you build a road for others? Or personally paid a sailor to protect Japan. Get real about the value of government. It does for society what you cannot do alone and the market totally neglects.

As far as how you spend your money, I would guess you are probably paying heavy alcohol taxes to support the government. We thank you for that.

0 ( +0 / -0 )

Zucronium:

Of course government has a function. But that function is not to micromanage the economy. To see how that works out, look at all the failed communist countries. It is a question of balance. Nobody ever claimed that a country should have no government at all (that would be something like Somalia...)

0 ( +1 / -1 )

It's really quite easy to set up a company in Japan, but the infrastructure that supports the business is bureaucratic, slow and inflexible. That should be the target of improvement.

Import/ customs clearance and reciprocal export of goods and materials can be a nightmare; setting up corporate bank accounts and corporate cards is a slow and cumbersome process; simple overseas telex transfers to a vendor can take hours as banking staff interrogate you on the contents of the invoice that you are paying, with obviously no clue as to the actual contents; buying/ renting an office is both unnecessarily expensive and time-consuming, with highly suspicious real-estate agents, and spills over into any staff accommodation.

The most helpful people are those in the tax offices, who seem to bend over backwards to help you minimise your tax payments!

1 ( +1 / -0 )

When was the last time you build a road for others? Or personally paid a sailor to protect Japan.

I pay for these things personally each and every day. I figure that nearly half of what I earn ends up being absorbed by the government in taxes, fees, licenses, and other costs. But very little of what I pay gets spent on things like building roads or paying sailors. Much of the infrastructure cost goes into administration, fluff, and kickbacks to politicians (known in Japan as "loans"), and to support armies of bureacrats, pencil-pushers, and bean-counters. Little of the money spent on education goes to teachers or classrooms, most goes to construction projects, service contracts, and administration.

If my neighborhood got together to build a road, school, or police station, the cost would be much less, and the work done on time. Of all the government-funded projects performed in my former city, not a single one was done on time, and within budget. The new high school built by the school board was deemed unsafe for occupation by the state before the first class was held. It had to be demolished and rebuilt from scratch. A $3 million project became an $11 million project. Do a Google seatch on the "big dig", and you can see a stellar example of what happens when our governments build things we need, and why our infrastructure is crumbling. And after reading about these spectacular accomplishments, see if you are still confident in your government's ability to manage the economy.

-1 ( +2 / -3 )

Ouch! Japan is only 29th and South Korea is 5th? How are they going to make excuses for this? The red-tape will NEVER be gotten rid of, nor will Japan as a whole be made into a special zone, and hence the situation will never improve for Japan. Left in the dust again.

-1 ( +1 / -2 )

All the BS mentioned in the posts & article above were meant to keep gaijin business OUT of Japan & worked like a charm! And now when they appear Japan maybe "wants" to increase foreign investment all the BS & bureaucracies make Japan a PITA! Whether to laugh or cry, that is the question!

When, if ever, will Japan start to GET IT!

Japan needs to learn its needs to make Japan attractive instead of a pain............

-1 ( +0 / -1 )

Abe will be known as the patron saint of lost causes.

Add Abe's "global business hub" to the list; dealing with the Fukushima crisis, diplomacy with China, the Japanese economy, and much, much more.

1 ( +1 / -0 )

Tina,

Still not a fortune, about 300,000 yen (plus translation for a foreigner). What part is the fortune that other countries don't have?

Still 10 times the cost in Singapore:

https://www.enterpriseone.gov.sg/Topics/Starting%20Up/Register%20Your%20Business/Choose%20A%20Business%20Structure/regbiz_type_company.aspx#COST

0 ( +0 / -0 )

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