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PLC Global Finance update for September 2010: Japan
Practical Law UK Articles 8-503-4840 (Approx. 3 pages)
PLC Global Finance update for September 2010: Japan
by Atsumi & Partners
| Published on 01 Oct 2010 • Japan |
The Japan update for September 2010 for the PLC Global Finance multi-jurisdictional monthly e-mail.
Government policy
METI announces its "Action 100" plan for growth
On 1 September 2010, the Japanese Ministry of Economy, Trade and Industry (METI) announced its action plan, entitled "Shin seicho senryaku: Jitsugen action 100" (New growth strategies: A 100 point action plan). The action plan is publicly available on the METI website in Japanese, and the government has also set up a new growth strategies implementation committee to oversee implementation of this plan. Some of the specific points included in the plan that are relevant to international businesses operating in Japan include:
- With the goal of strengthening the competitiveness of companies operating in Japan and encouraging more foreign companies to set up businesses in Japan, the government intends to reduce the effective corporate tax rate and promote investment in research and development and cutting-edge technology to levels seen in other major countries. The government aims to reduce the corporate tax by 5% in 2011. [Action 1]
- The government hopes to stimulate a broader range of sources of risk capital by, among other things, strengthening the corporate bond market and the financial intermediation function of funds. It hopes to do this by implementing tax changes in relation to the recognition of profits on financial products and stimulating the corporate bond market by creating a market for professional investors, as is done elsewhere in Asia. [Action 12]
- Item 11 of the action plan proposes to amend various laws relating to corporate governance, competition policy and corporate funding, with a view to promoting restructuring and reorganistion of Japanese companies. This action plan item also calls for 100 billion yen in assistance in relation to long-term funding for corporate reorganistion, and a further 20 billion yen through "The Innovation Network Corporation of Japan". [Action 11]
- Positioning "green innovation" as the driving force for growth. To this end, the government intends to implement a broad policy package including design of new systems, regulatory reforms, green tax reforms, and profitability assessments, in an effort to spread the latest environmental technologies, products and services developed in Japan to the rest of the world. In this way, the government hopes to make Japan the foremost global environment and energy power. One of the many items included in the action plan on this topic include plans for a drastic overhaul of the current tax system towards greater focus on promoting energy saving, low-carbon footprint facilities and other investments that improve the structure of energy supply and demand. [Actions 16-49]
Project finance
Government forges ahead with public-private fund for infrastructure projects
Facing dwindling tax revenues, the Japanese government is under pressure to cut public expenditures, while at the same time, many Japanese banks, companies and investors are building up surplus cash reserves as a buffer against future market turmoil and also due to a perceived dearth of attractive investment opportunities in the domestic market.
The Nikkei newspaper recently reported that the Cabinet Office in August 2010 began working on the formation of a new public-private fund for infrastructure projects, to be open to investment from the private sector, including banks, as well as the government. The Cabinet Office is also aiming to prepare a bill to revise the PFI (Private Finance Initiative) Act. In May 2010, the Cabinet Office published an interim report regarding PFI proposing greater structural flexibility with fund-raising, so the new public-private fund is expected to be included in the bill. It is hoped that a public-private fund structure will allow the government to reduce budget expenditures on developing and maintaining public infrastructure while still completing projects, and at the same time be attractive to private sector investors given the perceived lower risk resulting from government involvement.
Interestingly, there is a possibility that the public-private fund may also target infrastructure projects overseas. In June 2010, the Cabinet, headed by the new Prime Minister, Naoto Kan, announced its "New Growth Strategies" which include the suggestion of efforts to support Japanese companies working on infrastructure overseas. In July 2010, the Ministry of Land, Infrastructure, Transport and Tourism launched a committee aimed at supporting PPP (public-private partnership) projects for water infrastructures overseas.
On August 28, 2010, the Prime Minister then made a public statement regarding the need for the government to introduce a program for promoting domestic investment to help facilitate the reinvestment of large cash reserves stored in private companies back into the domestic economy. The public-private fund plan is likely to be an important platform for achieving this goal.