“Are pharmaceutical and medical device companies safe, as well as industries related to security?”
This was one of the major concerns among finance ministers of the Group of Seven major industrial countries, including Japan’s Finance Minister Taro Aso, who participated in a teleconference on the evening of April 30 Japan time. They met via monitors to exchange opinions on the new risks that have arisen due to the spread of the novel coronavirus.
Their main concern is that important enterprises in developed countries, hit by a sharp decline in earnings and stock prices, may become targets for acquisition by well-capitalized Chinese companies.
A senior official of the government’s economic affairs office is wary of China’s attempt to dominate the global economy.
“It is necessary to closely watch whether promising ventures, or start-ups, will fall prey to China’s money in the future,” the official said.
President Xi Jinping of China, which was the original epicenter of the virus outbreak, is hastening the normalization of economic activities after declaring that the country “has basically contained the momentum of the spread of infections.” In contrast, most economic activities in Japan, the United States and Europe remain halted to prevent the spread of the virus.
It is possible that Chinese companies, which recovered earlier due to this “time difference,” will put out feelers to companies in weakening developed countries. Policymakers in developed countries feel threatened.
To counter this, the Japanese government plans to invoke measures to protect itself in a timely manner. The revised Foreign Exchange and Foreign Trade Law, which will make it more difficult for foreign parties to invest in Japanese companies, will take effect on Friday. The new rules will be applied from June 7.
Under the new system, foreign investors who buy more than 1% of shares in 12 sectors, including nuclear power, space technology and electric power, are required to report their purchases in advance, in principle, for authorities to confirm the flow of money.
“The G7 countries are highly aware of the issues before the coronavirus spread, and there is an undercurrent of trying to get things right,” a senior Finance Ministry official said.
Also, there is a risk that the Japanese economy as a whole will take a defensive position.
In fiscal 2020, the government has established a new tax system for promoting “open innovation.” Under the new system, introduced as the centerpiece of this year’s tax reforms, investors who invest in start-ups will receive a corporate tax cut.
However, due to the rapid economic slowdown, companies have no choice but to preserve existing businesses. Entry into new fields and cooperation with other industries will be postponed. Naturally, the structure of the Japanese economy remains unchanged.
According to a survey by the Mitsubishi Research Institute Inc., there were 1,473 mergers and acquisitions targeting start-ups that were founded within 10 years in the United States and 704 in Europe in 2018, but only 15 in Japan. There is a big difference between companies in Japan, and those in the United States or Europe, in efforts to break away from self-reliance and seek further growth by flexibly incorporating external forces.
Even under abnormal circumstances, competition for survival continues unabated. To enhance the sustainability of each business, it is necessary not only to raise funds to survive the crisis, but also to take aggressive steps to rebuild its operations and to launch a turnaround.