Archive 2008

Statement by the Minister of Finance and the Minister of Economy, Trade and Industry ~Japan's Policy to Promote Foreign Direct Investment is Unchanged~

April 16, 2008

  1. Regarding the notification submitted by The Children's Investment Master Fund (TCI) to acquire a stake of J-Power, the Minister of Finance and the Minister of Economy, Trade and Industry made a recommendation today toward TCI based on the provisions set forth in Article 27 Paragraph 5 of the Foreign Exchange and Foreign Trade Act (FEFTA), that TCI is recommended to discontinue the inward direct investment as stipulated in the notification, since the investment is likely to impede the stable supply of electric power and Japan's nuclear and nuclear fuel cycle policy, and disturb the maintenance of public order.
  2. Based on the basic concept of liberal foreign transactions in principle, Japan's inward investment regulations require a foreign investor who plans to invest in the limited and specified industrial sectors to submit prior notification to the authorities from the perspective of 'national security' and the 'maintenance of public order' etc., complying with international investment rules such as the OECD Code of Liberalization of Capital Movements. The electric power industry is one of the specified industrial sectors which are required to submit a prior notification from the perspective of the maintenance of public order. Among the OECD countries, 11 countries report to the OECD that they restrict foreign investment to electric power industry; 18 countries have state-owned electric power companies; six countries have adopted both measures; and seven countries have adopted neither measure.
  3. Screening of the inward investment of this case was conducted with a number of interviews with TCI. As a result, it is recognized that, once TCI acquires 20% of J-Power shares, the management of J-Power may be affected to some extent, its financial strength may be damaged and its capital investment and repair expenses for core facilities may decrease, through use of the shareholder right held by TCI. There is also concern that the construction and operation of Ohma nuclear power plant may be affected adversely. Therefore, it is recognized that a stable supply of electric power and Japan's nuclear policy and the nuclear fuel cycle policy may be affected, and that the maintenance of public order may be disturbed. Hence, having taken into account the opinion of the Committee on Customs, Foreign Exchange and Other Transactions, TCI is recommended to discontinue inward direct investment as stipulated in the notification. This is the first recommendation ever made under FEFTA.
  4. Needless to say, foreign direct investments stimulate the national and regional economy through introduction of new technology and management skills, and lead to greater employment opportunities. It is Japan痴 fundamental policy to continue liberalization of investment and to promote investment aggressively. This fundamental policy was reiterated at the World Economic Forum in Davos by Prime Minister Fukuda.
    The Japanese government announced its goal to double the amount foreign direct investment stock in Japan by raising it to the level of 5% of GDP by 2010. As of the end of 2007, foreign direct investment in Japan totaled \15.4 trillion (3% of GDP), which was \2.6 trillion larger than the previous year (0.5 points larger on a GDP basis), recording the second largest increase.
    It is emphasized that all 760 notifications submitted in the past three years, except for this case, have passed the screening within 30 days, which is the screening period stipulated in the regulation, and that about 95% of the notifications have passed the screening within two weeks.
    Active discussions are taking place at The Council on Economic and Fiscal Policy and The Expert Meeting on Foreign Direct Investment which was newly established in January this year. The Minister of Finance and the Minister of Economy, Trade and Industry will work hard to further promote foreign direct investment.
  5. This recommendation presents the decision by the government in relation to 'possibility that the maintenance of public order is disturbed' as stipulated in FEFTA. However, needless to say, it is essential for J-Power to achieve accountability from shareholders through sincere discussions with them. J-Power is expected to make efforts to gain shareholders' understanding and consent so as to fulfill its responsibilities to them, while taking into account the public nature of its business

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