Published on January 6, 2020. This article introduces an essay by Tamura Hideo from the monthly magazine Sound Argument’s special feature “What Erodes Japan from Within.” Through the case of Japan Display seeking financial support from a China-Taiwan alliance, it discusses the danger that Japan’s OLED technology may be absorbed into Xi Jinping’s state-subsidized high-tech localization plan, “Made in China 2025.” It criticizes the lack of national consciousness in Japan’s Ministry of Economy, Trade and Industry, public-private funds, the Japan Investment Corporation, market fundamentalism, technology leakage, fiscal investment and loans, and corporate internal reserves.

2020-01-06
If matters proceed as the article says, Japan’s OLED technology will be swallowed up by “Made in China 2025,” the state-subsidized high-tech localization plan into which the Xi Jinping administration pours its obsession.
The following is from an essay by Tamura Hideo titled “Japan Display Being ‘Sold Off’ to China, and a Public-Private Fund Lacking National Consciousness,” published in this month’s special feature of the monthly magazine Sound Argument, “What Erodes Japan from Within.”
As I have mentioned several times, unlike the World Bank, Japan’s mass media, and economic commentators who merely repeat the Finance Ministry’s received economic commentary, Tamura Hideo is one of the few people who speaks about the economy from the insight he gained by spending his life as an economic-section reporter, that is, by spending his life in order to discuss the economy.
This month’s issue of the monthly magazine Sound Argument is also packed with essays that every Japanese citizen must read.
The Japanese people must immediately go to their nearest bookstore to buy it.
As for people throughout the world, I will inform them as much as possible, though my translations may be imperfect.
As a result of the public and private sectors joining forces to work on semiconductor technology development, Japan was a high-tech kingdom in the latter half of the 1980s, threatening the United States in competitiveness, but now there is scarcely any trace of that left.
Japan has fallen behind South Korea and Taiwan and has reached the point of relying on acquisition by Chinese capital.
A representative example is Japan Display, abbreviated JDI, which was established by integrating the liquid-crystal divisions of major manufacturers and injecting state funds.
This is based on the business-school textbook type of thinking that companies without earning power should be eliminated from the market, but is that not far too naive?
For China, which aims for high-tech hegemony, Japan, hardened in market fundamentalism, is exactly falling into its trap.
Japan Display was launched in April 2012 when the Innovation Network Corporation of Japan, a public-private fund led by the Ministry of Economy, Trade and Industry, invested 200 billion yen and integrated the small- and medium-sized LCD panel businesses of Hitachi, Toshiba, and Sony.
Before that, Panasonic’s LCD division had been integrated into Toshiba, and the LCD divisions of Seiko Epson and Sanyo Electric had been integrated into Sony, so the LCD divisions of most of Japan’s LCD-device manufacturers were brought together into JDI.
It is literally a “Hinomaru LCD” company.
Although JDI was listed on the First Section of the Tokyo Stock Exchange about two years after its launch, its performance produced losses for six consecutive terms, and in the April–September 2019 consolidated financial results it posted a loss of 108.6 billion yen, compared with a loss of 9.5 billion yen in the same period the previous year, and as of the end of September that year it had fallen into excess liabilities of more than 100 billion yen.
To overcome its financial crisis, it entered into negotiations from around December 2018 with the “Suwa Consortium,” formed by Taiwanese and Chinese electronic component manufacturers and investment companies, aiming to form a business alliance and raise up to 80 billion yen from that consortium.
The Suwa Consortium is composed of Harvest Fund Management, China’s largest asset-management company, TPK Holding, a Taiwanese touch-panel manufacturer, and CGL, an investment fund of Taiwan’s Tsai family.
In April of this year, JDI reached a basic agreement with Harvest Fund on a business alliance concerning a mass-production plan for evaporation-type OLED displays, and signed a basic business-alliance contract with TPK Holding concerning liquid-crystal displays.
Weekly Diamond reported in its electronic edition dated February 7, 2019, “The ‘Effective Control’ Aimed at by the China-Taiwan Alliance Proposing to Acquire JDI by Dispatching a Majority of Directors.”
The outline of the article is as follows.
The China-Taiwan alliance planned to use JDI’s technology to build an OLED panel plant in Zhejiang Province, China, and JDI chairman and chief executive officer Nobuhiro Higashiiriki, JDI executives including executive officer Isao Fukui, and JDI’s largest shareholder INCJ president Mikihide Katsumata and executive officer Nobuyuki Azuma visited Zhejiang Province in December 2018 for the first discussions.
The investment amount for the OLED panel plant was about 500 billion yen, and the funds would utilize subsidies from the Chinese government.
Construction would begin within 2019 at the earliest, with mass production expected to begin in 2021.
OLED enables higher-quality and higher-resolution displays than liquid crystal, and its uses are limitless, from smartphones and televisions to monitors for citizen surveillance.
If matters proceed as the article says, Japan’s OLED technology will be swallowed up by “Made in China 2025,” the state-subsidized high-tech localization plan into which the Xi Jinping administration pours its obsession.
The Trump administration in the United States is strictly checking “Made in China 2025,” and leading companies in that plan, such as the major telecommunications-equipment maker Huawei Technologies, are finding it difficult to use U.S.-made parts and technologies.
One can clearly see the intention to absorb Japan’s latest technology under the pretext of rescuing JDI.
METI Is Soft on Technology Leakage
On April 12, 2019, JDI came to announce that it would receive financial support from the China-Taiwan alliance and that the China-Taiwan alliance would become its largest shareholder.
This could amount to being effectively “sold off” to Chinese capital, but METI was also enthusiastic.
On the 16th of the same month, then-Minister of Economy, Trade and Industry Hiroshige Seko said at a press conference, “JDI’s technology is now already held and put into practical use by competing companies in other countries, and the mobile market, which is its main sales destination, is in a saturated state,” and he paid no attention to technology leakage to China.
Is this not precisely treating JDI in the same context of market transactions as ordinary corporate M&A, that is, corporate acquisitions and mergers?
In August, JDI agreed to accept 80 billion yen, of which Harvest would provide just over 60 billion yen, from a corporate alliance formed by Harvest and a Hong Kong investment fund.
After that, the drama unfolded in an unexpected direction.
The companies of the China-Taiwan alliance said one after another that they would withdraw from negotiations to support JDI.
On September 26, JDI’s next president, Minoru Kikuoka, announced that he had received notice from the Harvest Fund Management Group that it would forgo financial support.
However, Kikuoka did not give up, saying, “We will continue investment negotiations with Harvest.”
On December 12, he announced that JDI had reached a basic agreement in the direction of receiving 80 to 90 billion yen in financial support from the independent investment adviser Ichigo Asset Management, but he also showed eagerness to reach a final agreement with Suwa, centered on Harvest, saying, “At present, there is a definitive contract with Suwa.”
The basic agreement with Ichigo seems to be positioned as insurance in case support from Suwa cannot be received.
To begin with, what is the true identity of the Harvest Fund Management Group?
Looking at Harvest Fund’s website, it collects funds from institutional investors inside and outside China and invests in companies and others within China to manage assets.
The problem is the investment yield, and when one looks at the yields of the various funds of Harvest Global Investments, based in Hong Kong, most have fallen into negative territory since 2018.
Under such circumstances, it is highly unnatural for Harvest Fund, which is supposed to place priority on investment returns, to pour a huge amount of money into a company with no prospect of improved performance.
When the use of Beijing’s subsidies is also taken into account, it is clear that this is due to political motives reflecting the intentions of the Xi Jinping administration.
What the Chinese side particularly wants is OLED technology.
The “forgoing of support” is a diversionary operation by the Chinese side, and is probably a common negotiating tactic in China to absorb OLED technology under more favorable conditions.
Kikuoka also sees room for negotiation, but judging from Seko’s aforementioned statement tolerating the “selloff,” the Chinese side must believe that it can extract any number of concessions from Japan’s public and private sectors, including METI.
Economic Revitalization Versus Market Fundamentalism
Even so, what exactly are the investment principles of the Japan Investment Corporation?
If the answer is that even “Hinomaru” technology should have investment pulled out quickly when it does not fit business logic such as return on invested assets, then where is the meaning of the existence of a public-private fund that uses state funds?
The public-private fund function of the Innovation Network Corporation of Japan was taken over by the current Japan Investment Corporation, JIC, in September 2018 through institutional reform.
Masaki Tanaka, former deputy president of Mitsubishi UFJ Financial Group, became president, but over management policies such as high compensation for executives, the corporation clashed with the Ministry of Economy, Trade and Industry, and in December of the same year all nine directors from the private sector resigned.
METI had also judged that unless high incomes were promised, excellent fund managers could not be gathered.
However, public opinion reacted against the idea that, despite injecting the people’s blood-tax money, salaries far outside common sense would be paid, and METI hurriedly broke its promise of high compensation.
The discrepancy between the management team, including Tanaka, who objected to this, and METI could not be bridged.
Since then, JIC had been in a state of de facto dormancy, but after renewing its management team, it resumed activities for the first time in a year.
On December 10, 2019, Keisuke Yokoo, former president of Mizuho Securities, became the new president.
Yokoo declared, “We will never put money into extending the life of companies that should exit the market.”
I do not know how they settled the compensation issue, but both former president Tanaka and Yokoo are from the financial world, and the idea that so-called zombie companies will not be rescued is exactly the logic of Japanese banks after the bursting of the bubble.
Although JIC is still a Hinomaru investment fund, it will prioritize the logic of financial capital.
JIC seems like a monster whose face is the national goal of long-term economic revitalization, while short-term market fundamentalist blood flows through its head and the body below its neck.
As for the media, in general, it is harsh toward public-private funds.
In its morning edition of December 12, the Nihon Keizai Shimbun ran a column titled “Questioning the Reason for the Existence of Public-Private Funds,” saying that JDI, into which the Japan Investment Corporation has invested, is in excess liabilities and its survival is in doubt, and pointed out that “in Japan, where there are few investment professionals to begin with, more than ten public-private funds exist” and that “the proliferation of public-private funds is a symbol of governance failure in Kasumigaseki.”
It is an article typical of Nikkei, which emphasizes market logic, but why did the proliferation of public-private funds occur in the first place?
In a word, it was excess money.
The Proliferation of Public-Private Funds Due to Excess Money
The argument that government debt is more than twice gross domestic product, GDP, and that spending cuts and consumption-tax hikes must continue for fiscal consolidation is the line of the Finance Ministry-sympathetic media, beginning with Nikkei, and if one swallows this whole, it seems to mean that there is a “shortage of money,” but that is a complete misunderstanding.
The government has a general account and special accounts, and only the general account lacks money.
In the special accounts, ultra-low-interest funds can be raised freely by issuing FILP bonds.
These funds become fiscal investment and loans and are also passed on to public-private funds such as JIC.
Fiscal investment and loans are divided into fiscal loans and industrial investment, and investments in public-private funds are classified as industrial investment.
At the end of October 2019, industrial investment contributions were about 5.5 trillion yen, an increase of 720 billion yen compared with three years earlier.
Corporate internal reserves exceeded 470 trillion yen, an increase of nearly 200 trillion yen compared with December 2012, when Abenomics began.
During that period, the increase in GDP was only 66 trillion yen.
Internal reserves are the result of companies suppressing domestic capital investment.
Moreover, apart from internal reserves, companies are also increasing share buybacks, which lead to higher stock prices.
Corporate holdings of treasury stock increased by 4.6 trillion yen year-on-year at the end of September 2019, whereas the increase in capital investment was only 2.5 trillion yen.
If money remains excessive and does not flow into the real economy, it is only natural that the economy comes under deflationary pressure and falls into zero growth, and innovation cannot occur either.
Thus, the idea arises that the government should absorb private-sector funds and guide them toward industrial revitalization, but it is not that easy.
If the government expands the fiscal investment and loan plan and greatly increases industrial funds without any preparation, it becomes necessary to forcibly increase the recipients.
The result is the proliferation of public-private funds.
Thus, a succession of public-private funds have recorded huge losses, and among them the abolition of the Ministry of Agriculture, Forestry and Fisheries-affiliated fund, the Agriculture, Forestry and Fisheries Fund Corporation for Innovation, Value-chain and Expansion Japan, A-FIVE, whose condition is especially miserable, was recently decided.
It was established in January 2013, but by the end of March 2019 its accumulated deficit had swollen to 9.2 billion yen.
From within the Ministry of Agriculture, Forestry and Fisheries, one hears complaints such as, “The Finance Ministry also urged us to increase the investment more.”
The Finance Ministry itself, which repeatedly says there are no financial resources, had too much money only in the fiscal investment and loan plan.
The resource called money exists in abundance.
However, private companies are dyed in the trend of emphasizing shareholders, and instead of making capital investments, they raise something called shareholder value and curry favor with financial investors at home and abroad.
If that is the case, it is reasonable for the government to absorb private-sector funds and invest them in industry, but elite bureaucrats in the Finance Ministry and METI have been trained in neoliberalism through study in the United States and brandish what they call private-sector-led market principles.
However, to put it plainly, they do not possess the technique of investing in stocks and making profits.
So they brought in former executives of top-brand megabanks with high compensation, but people who merely performed safe work inside banks cannot possibly have investment talent.
This article continues.