TOKYO — Japan’s ruling party will urge the government to limit foreign acquisitions of small and midsize businesses critical to national security, especially with many now hit financially by the coronavirus.
A group of Liberal Democratic Party lawmakers led by former Economic Revitalization Minister Akira Amari will meet Tuesday to discuss current issues surrounding foreign acquisitions. Companies in such sensitive sectors as defense and nuclear power are expected to be covered under the group’s proposal, due for submission to the government next month.
There is concern that confidential information could leak overseas through acquisitions, threatening national security and undermining the competitiveness of Japanese enterprises. Economic officials from the National Security Secretariat and Tama University professor Toshifumi Kokubun, an expert on rule-making strategies, will also attend the Tuesday meeting.
“Many Japanese companies handle data and technology tied to national security and key social infrastructure,” Amari said.
“The government needs to know how foreign players are approaching these companies, and we aim to create a framework for gathering this kind of information in cooperation with the NSS,” he said.
Foreign players could also expand their clout over Japanese companies in strategic sectors through underwriting bonds and buying commercial paper. There is a push for government to keep an eye on a wider range of transactions, as well as on proposals for joint research projects and offers for debt relief.
“Allies with similar values, like democracy and the rule of law, need to have shared rules on economic security,” Amari said. “If confidential information leaks from Japan, we would be left out, so economic security is just as important as armed power.”
The LDP will also coordinate its discussions with the government. “There are smaller businesses that have many different technologies, and we need to makes sure they are not snapped up by foreign players,” Prime Minister Shinzo Abe had said last month.
Japan tightened restrictions on foreign investment Sunday, requiring foreign investors to seek advance approval before taking a stake of 1% or more in strategically important Japanese companies. The threshold was previously 10%. As a rule, investors also must notify authorities before taking a stake in unlisted companies.
The move is part of a larger global trend. In the U.S., new regulations under the Foreign Investment Risk Review Modernization Act of 2018, or FIRRMA, took effect this February. Foreign investment in American companies dealing in critical technologies and infrastructure, as well as real estate deals close to military facilities, is subject to review.
The European Commission issued guidance for member nations in March, calling for greater scrutiny of investments amid the COVID-19 outbreak. The goal was to prevent foreign acquisitions of European drugmakers and other medical-related companies to safeguard public health.
Many of these moves are motivated by China’s economic statecraft. Officials in Fujian Province, a key stronghold of President Xi Jinping, told local companies to step up acquisitions abroad in late March.