Years ago, Japan rose to economic prominence by taking apart American products like cars and television sets to learn how to make them better.
Now, as Japan’s focus on manufacturing wanes, economic planners here are trying to reverse engineer another source of the United States’ economic strength: Wall Street.
Japan’s Financial Services Agency, which oversees the nation’s banking and securities industries, is working on a plan, to be presented before the end of the year, aimed at transforming Tokyo into a global financial capital more on par with New York and London. Top Japanese officials have toured Wall Street and the City, London’s financial district, in search of the secrets of their vitality.
But so far, the initial drafts suggest that Japan’s economic specialists are having trouble figuring out the secret of the Western financial centers’ success.
The Japanese government is also seeking ways to maintain Tokyo as the financial capital of Asia, and to keep ahead of rivals like Hong Kong, Singapore and even Mumbai, formerly Bombay. Officials here hope that the plan will attract more foreign investors and help revive their country’s stock markets, which have underperformed other major markets, even after the turmoil in subprime lending hurt American and European financial institutions.
The plan comes as Japan’s $4.5 trillion economy is on the rebound. In the most recent quarter, it grew at a solid annual pace of 2.6 percent.
But for many years, the Japanese, rather than investing more at home, have been putting their money overseas because of the low returns from domestic stocks and bonds. Some of that flow of money abroad now appears to be slowing, a move reflected in a stronger Japanese yen. That gives resonance to the Japanese hopes of creating a financial district in Tokyo that can lure foreign investment and Western professionals.
But some of the proposals from the Financial Services Agency read more like excerpts from a real estate brochure than a manifesto for financial ascendance. There are proposals for building more spacious apartments, earthquake-resistant offices and plusher sports clubs.
One idea is to add restaurants that serve Western fare like spaghetti and stay open after midnight to accommodate the financial industry’s grueling work hours. Drafts of the plan also call for adding English-speaking hospitals and schools, more English street signs and a faster train link to Narita, the main international airport, a 90-minute trip from downtown.
Less evident are the sorts of changes that might actually draw foreign professionals and companies: lower taxes, a larger English-speaking talent pool, and greater transparency and restraint in market oversight by the agency itself.
“The agency’s plan does not solve the core issues,” said Naoko Nemoto, a banking analyst at Standard & Poor’s here, who was on an agency committee that made early recommendations for the plan. “Tokyo will lose out if it doesn’t make bigger changes.”
Critics said the lack of more substantial measures reflect bureaucratic resistance by the Financial Services Agency, which fears losing its power. An even bigger hurdle, many say, is a deep-seated aversion in Japan to finance, which is regarded here as a dirty game.
This has made many politicians and economists reluctant to promote the finance industries instead of manufacturing, which Japanese celebrate as honest work from the sweat of the brow.
Many Japanese businessmen and economists agree that such attitudes must change if Tokyo is to compete in a crowded field of current and would-be world financial centers — including the ascent of Hong Kong as financier and alternate marketplace for a fast-growing China.
Singapore has rolled out the red carpet to foreign investors, with low taxes and spare regulation. Contenders like Shanghai, Mumbai and Dubai, on the Persian Gulf, have emerged as investment centers, including the money from Middle East oil wealth.
To make a comeback, Tokyo must reverse more than a decade of decline. The Tokyo Stock Exchange has fallen from being the largest stock market in the world at 1990 market capitalization to No. 2, behind the New York Stock Exchange. During that time, the value of all shares traded on the Tokyo exchange rose less than 60 percent, to about $4.6 trillion at the end of last year.
By contrast, the value of the New York exchange increased fivefold. Hong Kong’s main exchange rose by a factor of 21, though it is still half the size of Tokyo. In London, already the global center for trading in currency, the main stock market has grown fourfold since 1990 and could soon overtake Tokyo.
In recent years, the Tokyo Stock Exchange has become even less attractive for foreign companies because of high costs and language barriers. There are now 26 foreign companies listed on the exchange, down from 127 in 1991, the market said.
And while Japan remains Asia’s largest and most advanced economy, many here are alarmed by the rise of China as an industrial powerhouse. Proponents of the financial-capital plan hope it will help Japan shift from a goods-producing nation into more of a soft power like the United States, which creates, designs and finances goods and services while doing less manufacturing itself.
“The United States and England were both economically ill for a time, but succeeded in finding new growth in their financial industries,” said Yuji Yamamoto, a former financial services minister who is a chief architect of the plan. “We need to emulate that success.”
Mr. Yamamoto visited New York, Washington and London in January, when he was still the minister. During the trip, he asked officials like Ben S. Bernanke, the Federal Reserve chairman, and Christopher Cox, the chairman of the Securities and Exchange Commission, what was wrong with Tokyo. They told him that if Japan did not open its markets, “it will just be a small Asian country,” he said.
But the most memorable moment, he said, was walking around Wall Street and seeing the offices of financial companies from around the world. London also made a deep impression because so many of the firms were from developing regions, like India, South America and the Middle East. This contrasted with Tokyo, where the vast majority of companies are Japanese.
“That is when I realized the secret of Wall Street and the City success was their ability to attract money and talent from all over the world,” Mr. Yamamoto declared.
He decided that the way to emulate such success was to turn Tokyo’s financial district, Kabutocho, into a more international environment where foreign bankers and investors could feel comfortable living and doing business.
Most outsiders agree that Tokyo has enormous potential as a hub for foreign companies, not only because of Japan’s wealth but also because the city is widely regarded as one of the safest and cleanest in Asia. But there are concerns that the plan will do little more than create a ghetto for well-heeled foreigners.
The proposals also fail to get at the complaints of foreign investors and bankers over high taxes and onerous regulations.
The biggest sore point is the Financial Services Agency itself, which is widely criticized as having enormous discretion in setting rules and enforcing them. Japanese bureaucrats have long wielded murky powers over private business. Many foreign investors and financial professionals point to the agency’s shutting down Citigroup’s Japanese private banking unit three years ago as an instance of heavy-handedness toward foreign companies.
Tokyo “is a wonderful city to live in,” said Robert Feldman, an economist in the Tokyo office of Morgan Stanley. “But unless it changes its regulatory environment, no one will come here.”
Source: http://www.nytimes.com/2007/11/16/business/worldbusiness/16capital.html?_r=1&pagewanted=2&ref=asia&oref=slogin
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