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    Japan
     Jul 28, 2011


China hand seen behind
vast buy-up of Japanese shares

By Hussain Khan

TOKYO - China, which over the past months has emerged as a top shareholder in leading Japanese companies, is not buying such large stakes aimlessly. Its targets are Japan's biggest trading and financial groups and leaders in specific technological fields, in line with Beijing's own long-term plans.

China's style of development, though it has become more open to capitalism over the past three decades, is different from that of capitalist countries. It has allowed free enterprise, but it has maintained its socialist pattern of controlling and developing its economy through five-year plans. During the past 60 years, it has attained the goals set in each of its five-year plans and now aims

 
to achieve the goals set out in the 12th, which runs from 2011 to 2015.

Beijing aims to develop "strategic emerging industries" in a wide variety of fields, including biotechnology, information and environmental technologies, machinery, energy, materials and autos, according to a Nikkei report. Under its 12th five-year plan, Chinese investors favor Japanese companies for their technologies in such fields, according to Naoki Tashiro, president of TS China Research, while investments by China's sovereign wealth fund are "closely linked" to the plan.

The Nikkei report highlights the close relationship between Chinese adaptation of foreign technologies and their original developers, pointing to China applying in the US and other countries for patents on high-speed bullet trains it has developed based on Kawasaki Heavy Industries Ltd's technology for shinkansen bullet trains, claiming the technology as its own.

While China considers it more efficient to introduce cutting-edge technologies from foreign companies than to develop them by itself, Japanese companies have such technologies but are often unable to profit from them. As a result, given their low stock prices, Japanese companies "may appear undervalued" to China, Tashiro said in the Nikkei report.

Mitsubishi Corp, in which an investor in the name of OD05 Omnibus is the sixth-largest shareholder, has operations in water purification and desalination, wind power and rare earth elements. The same investment fund is the sixth-largest shareholder in Nippon Telegraph and Telephone Corp, which has developed technology in telemedicine. [1] Toray Industries Inc, in which OD05 Omnibus is the seventh-largest shareholder, possesses carbon fiber technology used in midsize passenger jets.

OD05 Omnibus is the fifth-largest shareholder of Sony Corp and the pioneering Takeda Pharmaceutical Co. Sony had been always a leader in developing electronic products, while Takeda is considered the top developer of new medicines in the country, as well as the biggest. It is reported that Takeda is employing 500 PHDs for research on developing new medicines.

Less clear is the reason for OD05 Omnibus becoming the third-largest shareholder of Mitsubishi UFJ Financial Group Inc, Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc - Japan's top banking groups. The scale of such stakes in such big banks is a very significant, and the Japanese are wondering as to what may be the Chinese motive behind it.

Of similar concern is that the same entity is the fourth-largest shareholder of Mitsui & Co and sixth-largest shareholder of Mitsubishi Corp - the biggest trading groups in Japan for over 100 years. It is the seventh-largest shareholder of Softbank Corp, a world-leading innovator in mobile phone development including mobile reception of TV, and motion control sensing.

Omnibus stands out among the otherwise predictable list of names, such as custodian Japan Trustee Services Bank Ltd, that make up the biggest investors in Japan Inc.

OD05 Omnibus has its head office in Sydney, Australia, but such huge investments in Japan and other countries by this investor indicate that such a job can be done only by a big sovereign fund. Tatsuya Imade, managing executive officer at Japan Shareholder Services Ltd, says that OD05 Omnibus is "very likely a Chinese sovereign fund".

Several factors lie behind that assumption, including its full name - the SSBT OD05 Omnibus China Treaty fund - and that a Chinese investor has business ties with one custodian's Sydney office. The Nikkei Veritas has found evidence supporting this view from a shareholder research service provider.

Eiichi Sekine, chief representative of the Beijing office of the Nomura Institute of Capital Markets Research, also endorses the hypothesis. "[Omnibus] seems to be managing assets of China Investment Corp [CIC], among others," said Sekine referring to China's main sovereign wealth fund.

CIC added $35.7 billion in new investment in 2010, and made a net profit of $51.5 billion, China Daily reported on July 27, citing the fund's annual report released this week. The fund ended the year with a net asset value of $374 billion.

In the six months to the end of September 2010, OD05 Omnibus bought an estimated 1 trillion yen (US$12.8 billion) in Japanese shares.

During that period it concentrated on banking shares, increasing its holdings in Mizuho Financial Group Inc by as much as 90% from six months earlier to about 330 million shares at the end of September, equivalent to 1.47% of the megabank's outstanding stock.

The fund also became a major shareholder of Canon Inc at the end of September. It is the ninth-largest shareholder of Canon, noted for its innovations in fields such as medical imaging and optics.

The SSBT OD05 Omnibus China Treaty fund owns the 11th-largest aggregate stake by value in 90 listed Japanese firms, at nearly 1.8 trillion yen, according to a survey based on securities reports filed by listed firms and other disclosure documents.

The Nikkei report says that at the end of March 2011, OD05 Omnibus held shares worth a total of 2.5 trillion yen, nearly 2% of the firms' combined market value. It is also believed to have bought shares in companies that are not subject to disclosure requirements. Assuming a similar stake of 2% in those firms, that would increase the size of the fund's holdings by several times.

There was a time in the past during the bubble economy of Japan in the 1980s, when the world was afraid of Japan for its buying binge of assets in America and Europe. The entire Rockefeller Center of New York was bought by Mitsubishi Estate in 1989.

On November 8, 1989, Sony Corp acquired the American film and television production company Columbia Pictures Entertainment, Inc (its stable included Columbia Pictures, Tri-Star Pictures and others) from The Coca-Cola Co for $3.4 billion. Sony also acquired the Guber-Peters Entertainment Co for $200 million (formerly Barris Industries, Inc), and hired Peter Guber and Jon Peters to head its Columbia Pictures Entertainment acquisition.

The company was renamed Sony Pictures Entertainment on August 7, 1991. Sony's financial position has now deteriorated so much it is facing losses in its balance sheet, but in the 1980s it helped to created a Japanophobia in the West.

Bill Emmot, editor of The Economist in Great Britain at that time, wrote a book with that title - Japanophobia. Replying to a question by C-Span founder and chief executive Brian Lamb, "Why do you say there's the 'myth of the invincible Japanese'?", Emmot said,
Because I think in the 1980s, in particular, perceptions of Japan, particularly in the United States, but also in Europe, too, came to be characterized by the idea that Japanese companies had, I don't know, found the elixir of eternal strength. They were going to beat the world; they were going to take over the world; Japanese hegemony was predicted and feared by a lot of people.

There was an idea that Japan and Japanese companies had discovered something that Americans haven't discovered, and that this was going to lead them on and on and on, and beat off American competition, make Americans more impoverished, make Europeans even more backward than they actually are, and so on.
Now China is replacing Japan and someone may start writing a book on China-ophobia on similar lines.

Note
1. Telemedicine - the use of audiovisual media for examinations and medical procedures.

Hussain Khan holds a master's degree in economics from Tokyo University and has worked in Japan as an equities analyst. He is an independent Tokyo-based analyst on current affairs and economic issues for various newspapers and magazines and he is a specialist on the Japanese economy. He can be contacted at cj@ourquran.com.

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