Japan to strengthen monitoring of foreign investments

The government will strengthen its screening and monitoring system for foreign investment capital in order to prevent the outflow of advanced technologies handled by Japanese companies, The Yomiuri Shimbun has learned.

According to government sources, the National Security Secretariat (NSS) and related ministries and agencies will start a full-scale discussion to share information in a new council. The council will conduct thorough prescreenings of foreign investments in Japanese companies and monitor such investments after they are made.

Set up along the lines of the U.S. Committee on Foreign Investment in the United States (CFIUS), the new council is an expanded version of a meeting held in summer that gathered participants from the NSS and Finance, Trade, and General Affairs ministries. It will share cases of investments and trends, and continue to monitor investments as necessary. If a company is found to be at risk, its competent authorities will take measures to correct the situation.

In the revised Foreign Exchange and Foreign Trade Law enacted in May 2020, the government tightened regulations on core industries that are particularly important for national security.

The threshold for requiring a prior notification of investment was changed from 10% or more of the outstanding shares or voting rights to 1% or more. However, companies are exempted from the notification requirement if they meet certain requirements, such as not allowing access to undisclosed technologies.

Still, there are concerns it would be difficult to ascertain whether companies are in compliance.

In March, Chinese tech giant Tencent invested in Rakuten Inc. through a subsidiary without prior notification. China’s National Intelligence Law obliges domestic companies to cooperate in intelligence-gathering activities, and there was widespread alarm over leakage of information to China.