How The Tables Have Turned In Tokyo
When Prime Minister Keizo Obuchi visits the U.S. starting on Apr. 29, he'll be flanked by Japanese corporate chieftains. With Japan Inc.'s finest in tow, he will swing through Los Angeles, Chicago, and Washington with a new message: Pull out your checkbooks, folks, Japan is opening up.
How the tables have turned since President George Bush asked Japan to open up in 1992. The U.S. economy is thriving and companies are strong and growing. By contrast, Japanese companies need foreign money and expertise to cope with overcapacity, poor earnings, and heavy debt loads. So they are putting out the welcome mat.
But just how real any such opening would be remains a big question. U.S. officials dismiss the Bush-style trip with execs in tow as mere "propagandizing." Great obstacles to foreign investment still exist, from sky-high energy prices to barriers against entering businesses such as construction and retailing. And potential investors worry that when Japan recovers, it will revert to its bad old gaijin-hostile ways.
But big deals are taking place already. In March, Renault spent over $5 billion to take a 37% stake in flailing Nissan Motor Co. And on Apr. 25, AT&T and British Telecommunications PLC said they would together spend $1.85 billion for a 30% stake in Japan Telecom. Last year, foreign deals with Japanese partners soared to $11.3 billion, vs. just $806 million in 1997, according to KPMG Corporate Finance. So there will be a ring of truth to what Obuchi tells President Clinton when they meet on May 3.
Obuchi's push for new investment seems genuine enough. He has done much to kick start an economy in the grip of a three-year recession. About $200 billion in tax cuts and public-works spending is now wending through the economy, and $60 billion has been pumped into a banking sector crushed by bad loans. Obuchi may well pony up another $50 billion to $100 billion in fresh spending this fall if need be.
He's also developing a plan to make Japan more investor friendly. Japan will make it easier to value companies by lifting the veil on profits earned by subsidiaries as well as debts hidden on their books, starting in 2001. Japan may also adopt U.S.-style (401)k pensions that will make the country's rigid labor force more mobile, something Washington has pushed for years. More international schools and better healthcare for foreigners should also help expats.
DEEP POCKETS. Obuchi will be pushing these points when he meets American leaders. And the cream of Japan's corporate elite--including Mitsubishi Corp. Chairman Minoru Makihara and Yotaro Kobayashi, chairman of Fuji-Xerox Ltd., will be on hand to underline the positive changes. Take the attitude toward foreign investors. Back in the 1980s, T. Boone Pickens bought an equity stake in an auto-parts maker called Koito Manufacturing Co. and demanded a board seat. The whole country went nuts. These days blue-chip banks, brokers, and auto makers pass into foreign hands without a murmur.
Meanwhile, Sumitomo Bank President Yoshifumi Nishikawa, who has teamed up with Daiwa Securities, T. Rowe Price, and Robert Fleming Holdings in asset management, has a ready answer to those who doubt Japan's change of heart. He insists the economy's problems run so deep that "the old rules won't come back."
First, though, Japan has to sweep away those rules. It would help to lift protective barriers in sectors such as housing and distribution that are big employers. Also, only U.S. companies with very deep pockets can afford to invest in Japan. Electricity prices are 40% higher than in the U.S., while coastal shipping and international phone rates are three times more expensive.
And there's a long road ahead before foreign investment in Japan reaches normal levels for an industrial economy. Foreign direct investment still only represents about 1% of gross domestic product, vs. 8% in the U.S. If that figure jumps as Obuchi hopes, the irony would be rich. What three decades of hectoring from the West failed to do, Japan's own mismanagement of its economy just might yet accomplish.