Public-Private Investment Funds: Review Strategy in Light of Massive Losses

Even if a public-private investment fund holds significance as part of government policy, it does not mean that a ballooning deficit is acceptable.

The government must verify the reasons why one of its public-private investment funds has generated huge losses, and reconsider its methods used in investment schemes.

The Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) — a public-private investment fund under the jurisdiction of the Land, Infrastructure, Transport and Tourism Ministry that helps companies invest in overseas infrastructure projects — posted a loss of ¥79.9 billion in fiscal 2023.

The accumulated deficit is expected to swell to nearly ¥100 billion, making it difficult to recover about 40% of the total of about ¥250 billion in investments and loans.

Many public-private investment funds were established in 2013 or after as part of the government’s growth strategy, and there are more than 10 major ones.

Cool Japan Fund Inc. has an accumulated deficit that has reached ¥39.8 billion and has long been viewed as problematic. However, JOIN’s deficit has far exceeded that of Cool Japan Fund in a single year. It presents a far more serious problem.

The ministry plans to set up a panel of experts to discuss business improvement measures. It is hoped that the panel will closely examine problems with the investment strategy.

With China continuing to promote infrastructure development in developing countries through its Belt and Road Initiative, which is creating a massive economic zone, the Japanese government’s aim of helping Japanese companies expand their business overseas through JOIN is understandable in itself.

One major cause of JOIN’s huge losses stems from a Shinkansen bullet train construction project in the U.S. state of Texas. JOIN invested in a U.S. company, but due to local circumstances and other factors, the future of the railroad business remains unclear. JOIN had to write off a loss of ¥41.7 billion.

In addition, an urban development project in Myanmar has been suspended in the wake of the military coup, resulting in a loss of ¥17.9 billion.

Public-private investment funds are structured in such a way that the government assumes risks that would be difficult for the private sector, while investing funds in a manner that complements private business. The operating principle is less about producing large profits and more about avoiding large losses.

The current problem with JOIN is largely due to the excessive amount of investment per project. And in some respects, geopolitical risks have been underestimated. It is essential to work out measures to minimize the burden on the public.

It was confirmed at the Japan-U.S. summit in April this year that the project in Texas will continue to be promoted. The project is also intended to serve as a model demonstrating Japan’s Shinkansen technology to the world. However, it is necessary to closely examine whether there is a possibility that the investment can be recovered.

The ministry posted information about JOIN’s huge losses on its website, but has not held a press conference or other such events. It has not yet been held accountable.

The Finance Ministry, which manages the nation’s finances, should strengthen its oversight of JOIN and strongly demand that the infrastructure ministry address JOIN’s problem.

(From The Yomiuri Shimbun, June 28, 2024)