Japan is set to revise its Foreign Exchange and Foreign Trade Act to strengthen the scrutiny of suspicious foreign investments, according to reports from Japanese media. The move aims to prevent China from using corporate investments to steal Japan’s confidential information.
According to the Nikkei Asian Review, Japan’s Ministry of Finance is expected to introduce new regulations as early as this spring. Under the new rules, companies and individuals who are legally obliged to provide information to foreign governments will be classified as “specific foreign investors.”
These “specific foreign investors” will be required to report to the government in advance when acquiring more than 1% of the listed shares of “core industries” that have a significant impact on security, such as nuclear energy, telecommunications, and critical infrastructure. The same restrictions will also apply to all entities in which “specific foreign investors” hold more than 50% of the shares.
Currently, the only entities required to provide comprehensive information to authorities are those under the control of the Chinese Communist regime, so this policy clearly aims to prevent Beijing from espionage.
Under the existing system, when acquiring over 1% of shares in a “core industry” listed company, notification to the regulatory authority must be made in advance. If the government deems it may affect national security or public order, it has the power to suspend the investment.
However, if the investor owns less than 10% of the shares and meets conditions such as “foreign investors not participating in the board of directors” and “not proposing the transfer or termination of significant operations at the shareholder meeting,” they can bypass the above regulations. The determination of compliance with the standards is left to the discretion of the company.
While this is a measure taken to not overly restrict foreign investment, critics are concerned that it may not be sufficient to prevent unauthorized information leaks.
In 2017, China enacted the National Intelligence Law, which stipulates that individuals and organizations are obligated to cooperate with the country’s intelligence activities.
In 2021, China’s large e-commerce company Tencent Holdings entered into a stake in Japan’s Rakuten Group, becoming a major shareholder of Rakuten. Tencent claimed that the investment was solely for “investment purposes” and had no intention of participating in the company’s management. Data owned by Rakuten would also not be accessible to shareholders, so no official review was deemed necessary.
Rakuten is a major telecommunication operator in Japan and part of the country’s critical infrastructure. This raised concerns among US and Japanese officials. The US and Japan also reached an agreement to jointly monitor the Rakuten Group to prevent customer information from flowing into Tencent’s hands.
Analysts warn that this is a loophole in Japanese regulations, and if Chinese companies penetrate into e-commerce or financial industries, they could obtain household registration and healthcare data. If China gains access to such information, it could launch a comprehensive commercial competition or obtain the health status of political figures, which would be a crucial part of the intelligence warfare.