TOKYO — Japan’s former Economic Revitalization Minister Akira Amari, a confidant to Prime Minister Shinzo Abe, posits a nightmare scenario for national security: Struggling Japanese companies being scooped up by foreign entities, their data and information leaked overseas and Japan excluded from a group of like-minded democracies because it cannot be trusted with sensitive intelligence.
“Economic security is just as important as military power,” Amari said in an interview.
He leads a group of lawmakers in the ruling Liberal Democratic Party who begin discussions Tuesday on safeguarding smaller enterprises from foreign acquisitions.
Particularly in need of protection, they say, will be businesses critical to national security, such as defense and nuclear energy.
“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,” he said.
Foreign entities are said to have various ways to try expanding their influence over Japanese companies. These include direct investment, underwriting bonds and buying commercial paper. Some have called for stronger government oversight regarding for joint research projects with foreign entities and offers for debt relief.
The sense of emergency has only been heightened by the financial woes these businesses are suffering in the COVID-19 era.
The group of lawmakers is expected to submit a proposal to the government by July. Officials from the economic wing of the government’s National Security Secretariat and Tama University professor Toshifumi Kokubun, an expert in rule-making strategies, will also attend Tuesday’s meeting.
“More and more companies have been hurt financially by the coronavirus,” Amari said. “Even otherwise healthy companies could run into cash troubles. It’s a golden opportunity for foreign investors.”
He worries that if companies with sensitive information fall under foreign control, they could become a door through which data or technology leaves.
“Economic security is a set of rules shared by allies with similar values, such as democracy and the rule of law,” Amari said. “If confidential information is leaked from Japan, we would be left out of such a framework.”
The LDP lawmakers intend to coordinate 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.
On Sunday, Japan officially tightened restrictions on foreign investment, 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.