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More countries institute regulations on foreign investment

  • September 7, 2021
  • , Mainichi , p. 7
  • JMH Translation

With heightened interest in economic security amid an intensifying U.S.-China rivalry, more countries worldwide are reinforcing regulations on foreign investment in domestic companies. The number of countries that introduced an advance screening system to prevent corporate acquisitions that may lead to an outflow of important technology have doubled in the past ten years to 34 as of the end of June 2021. Japanese companies who want to form partnerships to expand to overseas markets may face difficulties.


According to Japan External Trade Organization (JETRO), only 16 countries had a advance screening system in 2010, but their numbers have increased rapidly in recent years. Japan, the U.S., Australia, and India had such as system early on. China, Russia, Israel, and Belgium have recently instituted  screening systems.


Companies in emerging nations such as China have become more prominent and are actively acquiring companies in industrialized countries. With the fall in stock prices amid the COVID-19 pandemic, countries have grown more cautious about the acquisition of domestic companies that possess important technology.


Companies in the military sector were the initial targets of the screening system. More recently, screening has expanded to companies with technology that may be adapted for military use and are directly related to national power, such as semiconductors and 5G mobile telecommunication systems. The regulatory authority will evaluate the companies’ business plans and may request investors to revise or suspend the plan if it is deemed to threaten national security.


The screening applies not only to corporate acquisitions but also to transactions that may allow access to board member selections and confidential information. A JETRO official says that Japanese companies that plan to expand to overseas markets “will need a thorough examination of the regulations and prior consultations with the authorities.”


The criteria for whether a business is a threat to security is not very clear, and some are wary of countries implementing the system in an arbitrary way. In Japan, whose Foreign Exchange and Foreign Trade Law stipulates advanced screening, the Ministry of Economy, Trade and Industry (METI) was criticized for colluding with the Toshiba management in requesting a foreign fund to withdraw its shareholder proposal. If transparency cannot be guaranteed, investment may dwindle.

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