Japan considers tighter ownership reporting rules to better monitor China

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Japan is considering lowering the 10 percent ownership threshold at which foreigners are required to report stakes in domestic companies, two officials said, as Tokyo looks to better monitor Chinese investment in areas related to security.

Such a move would follow similar steps taken by the US and European countries in recent years and reflects growing unease in Japan about the possibility that Chinese state-backed companies could gain access to key technology.

“We need to strengthen monitoring for national security but we don't want to hinder foreign direct investment itself,” said one of the officials, both of whom declined to be identified because the talks have not been made public.

While Japan can't explicitly target a single country under the reporting rules, the move would in effect enable closer monitoring of Chinese investment, the official said.

Under current rules, a foreign entity is required to report ownership in a Japanese firm once it plans to take at least a 10 percent stake. The change would see that percentage lowered, although the new threshold is yet to be finalized, the officials said.

“The US and Germany have taken similar measures aimed at China. Japan is much further behind when it comes to protecting the security of its economy,” the second official said.

The government is taking what appears to be an initial step by changing how the current 10 percent threshold is calculated, according to a document on the finance ministry's website.

From October, its 10 percent threshold would only apply to shares with voting rights, rather than all outstanding shares presently, which means an effective tightening in the reporting criteria.

Japan, the world's third-largest economy, has been on a push to welcome foreign direct investment since Prime Minister Shinzo Abe took his office in 2012.

The balance of the inward direct investment has steadily increased and reached 30.7 trillion yen ($291.30 billion) at the end of 2018, according to government data.

Chinese mergers and acquisitions in Japan totaled 220 billion yen ($2.1 billion) in 2018, according to Tokyo-based advisory firm Recof Corp.

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