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 AOYAMA VIEW

CHALLENGES IN PARIS CONFERENCE, CHALLENGES BACK HOME IN JAPAN
It was an epic start for the Paris COP21 environment conference: China president making his policy speech claiming his nation cannot sacrifice its economic goals to cut back on its pollution just when TV-screens around the world went wild with the year's worst pollution in Beijing telling that latest calculations show 4000 Chinese people die every day for it. Yet, Mr. Xi's and Communist Party's stand seems actually unusually democratic: according popular surveys only 19% of the people in China see the environmental degradation as serious threat. Money is still more important than health for the masses as much as it is for the party. For other countries, it seems a win already that China is joining the global talks this time.

In turn, USA, "the land of the free", seems less democratic: majority of the people there, too, think global warming is not a serious threat to their country, yet president Obama has launched highly ambitious target to cut U.S. carbon emissions and has been one of the strongest proponents for a decisive global deal in Paris following failure in Copenhagen six years ago. From Kyoto time, this is a complete turnaround from the U.S. government, who refused to accept the agreement from its own negotiators there.

Whether the U.S. policy will hold even this time is questionable: the opposition law makers, who control the Congress have already written to the President that they will scuttle any agreement he makes in Paris. The party's Environmental Committee chairman is a well-known climate change skeptic. There are conservative elements in every country, who think strict measures to tackle the problem can prove too expensive and need a close look how to share the burden, but in the ongoing political paranoia in U.S.A many of the Republicans refuse to even accept there is a problem. For many others, anyway, it does not really concern USA and hence Americans don't need to pay for it.

Despite such starting points at two world's biggest polluters, it should not be too difficult to reach an agreement in Paris as, this time, most of the participants have given in advance their own plan to contribute to the global total. Some of them are in line with the general target of reducing the emissions so much that the global warming will not exceed beyond 2C up from preindustrial time. Some are probably not, yet they seem to be accepted as they are, in order to make up for the unity. This bottom-up model has been praised for its pragmatic approach, yet it also means targeting something that is politically feasible rather than what is environmentally desirable.

Hence the wordings that are being discussed now are full of "try" and "target" or "should" instead of "will" and, after the first week, there still remains multiple versions for each chapter of the 48 page draft for the final agreement, which should come out at the end. Energy forms and methods to reach the targets are also under scrutiny: many would like to ban financing coal power, some also nuclear. The fact is that all the leading polluters make majority of their energy in coal plants and wish to export their technology to developing countries, who are building thousands of more. China is the No.1 builder for coal as well as for nuclear and wish to both buy and sell technology.

Japan's policy is to sell its "clean burning" coal technology and new nuclear plants even if it is closing old coal plants and planning to restart only part of its old nuclear plants at home. It is also one of the countries testing new carbon catching (CCS) technology, while its nuclear waste problem remains unsolved as in most other countries. Plan for fast breed reactors that would reuse the material has failed here like elsewhere and demands are rising to close the Monju pilot plant that has never worked in its 40 year life despite billions after billions thrown in.

Much of the talk also involves money: the developed countries have pledged USD 100 billion aid to developing countries to do their part and it is debated what exactly each country will pay and receive. As per last column, Japan has flagged a generous sharing, where as in USA the opposition has already threatened to cancel out even a smaller promise by Obama government. Meanwhile some countries seem to think they are not part of either side, too poor to pay but rich enough not to claim to receive. These include the world's second biggest economy, who is the biggest polluter.

Serious environmentalist threaten to spoil the fun for all this bureaucratic master work. They say that the currently discussed draft will not lead to 2C ceiling but about 3C rise and that even keeping the 2C level is not enough for some regions and ecosystems. There's many low lying areas, islands, river deltas, even big cities that could end up under water and parts of Tokyo, Osaka, Shanghai and Helsinki are included in that list. We'd better start thinking alternative plans how to keep up living where we do now in some distant future even after Paris agreement.

As if there isn't challenges enough for the time being for our bureaucrats and politicians to solve even at home! In Japan, the political debate has revolved around budgets and taxes in connection to economy. The money requests from each ministry for the FY'2015 budget are all in and the government draft will be presented to the Diet in January when the session resumes following Prime Minister's busy travel program in overseas. That is said to focus on economic growth and spreading the benefits more equally around Japan. Parallel to government's "spreading out" will be next spring's general salary agreement for which Keidanren has again urged its big member companies to be "generous" so that more of the huge pile of cash held by the corporate sector would "trickle down" to consumers.

Before the main budget, there will be an additional budget of some JPY 3 trillion ( USD 24 billion) for the rest of the FY'2104 lasting to March that targets to boost up the consumption in time before the next VAT tax rise from 8% to 10% scheduled to next April Happily no new debt is needed for this as this year's tax income has proved better than expected thanks to good profits at corporate sector. One idea is to give out special JPY 30,000 check to low-income pensioners. It is unclear how much such small money will boost the consumption but the critics have bitterly noted it will certainly buy some votes in next year's Upper House election. If government was serious about its concerns of low-income earners, it could have driven through 30% rise to minimum legal salary level instead of feeble 3%. The average level across Japan is just JPY 790 (EUR 5,50) per hour, so lifting it over JPY 1000 (EUR 7,50), would have improved low-income earners' position closer to where it is in other industrialized countries. Sure, fixing roads and serving fast-food would have come a bit more expensive, but think steady salary earners could survive that. Applied proportionately to 30% of all workers, whose part-time wages are somehow related to this bottom level, it would have been a valuable boost for consumption.

Prime Minister has also announced that government will spend big money to "alleviate the adjustment pains" of farmers facing the new TPP rules: it does not matter that most of the tariff changes won't take effect until 10-15 year later when Abe has already been happily retired for many years. The TPP challenge has also necessitated establishment of new Agriculture Agency and appointment of Koizumi Jr, the country's most popular politician today, as LDP's special spokesman to listen to farmers' complaints. The farmers' numbers are in rapid decline - according fresh survey there were this year 2,09 million workers in farming and forestry, 20 pct less than 2010 and 60 pct less than in 1985 - yet their vote counts more than city people's vote and this is a key to LDP's high number of seats in the Diet. Once again, the Supreme Court ruled that the latest Lower House election was held "in state of unconstitutionality" as the weight of vote in some sparsely populated places exceeded 2 to1 in Tokyo. The court did not nullify the vote as some local courts already did noting that the count had been corrected in 2013 from even higher relation and exceeded 2-to-1 only because the population base had continued to change since then. Still, the verdict was meant as warning that Parliament has to make new reforms before the next election.

Much political debate has been made also whether the VAT tax rise should be exempted for food "to support low income earners". Many have emphasized this is not necessary as the tax increase is specifically targeted to support pensions and social benefits that will rise JPY 1 trillion (USD 80 billion) every year with the rapid aging of the society. Some also claimed it would be difficult for companies to calculate different tax rates to different products, something totally strange for us in Finland or other European countries where a shop receipt always shows different rates applied to each product. Ministry of Finance even proposed a monstrous bureaucratic system where low-income earners would apply at the end of the year for their money back with their cash receipts. At the end, it seems, an agreement prevails that fresh food - farming product - will be exempted from tax rise but processed food - industrial product - will bear full rate. This only costs government JPY 400 billion in lost tax instead of JPY 1 trillion for all food, same as the social benefit cost will rise again next year.

Another tax issue has been the reduction of corporate tax, something laid out in the original Abenomics program in 2013 and already reduced down one step. Now the PM seem to have decided to speed up the schedule and take the next step to bring it below 30 pct in next year's budget instead of 2017. In return, Keidanren chairman Sakakibara has estimated that the corporate capital investment will go up some JPY 10 trillion to reach JPY 80 trillion (USD 640 billion). He has also urged the member companies to be generous not only to their workers but to political parties in return. Needless to say, the party who has traditionally received the biggest donations, is LDP. Interestingly enough the party with second biggest earnings is Japan Communist Party, which also is now the second biggest party in Japan measured in number of parliament seats following the split-up of the last few years' firebrand Japan Innovation Party, kind of "True Finns" of Japan. It is speculated back in Finland that True Finns are also likely to split up following rapid decline in its popular support. In that measurement JIP is still way ahead of them: despite its many MP's from 2014 election JIP support figure is today just 0,5%.

Keidanren chairman's investment indications are not just wishful thinking like politicians' talks often are: the corporate investment was already up last quarter much more than early estimates indicated and this is necessitating fresh review of total 3Q.GDP growth. The new figures should be out this week and it could be that the total was positive, so Japan is not officially in recession, after all.

"Womenomics" or promotion of women's positions in working life, one pillar of Abenomics in the beginning and recently even more when others have withered, is proving to be such wishful thinking much as I expected. Government this week took back its idea that Japan would have 30% of top corporate management seats filled by women by 2020, embarrassed after not even one company applied for its offered tax cuts in return for presenting a plan to promote women. Now, government admits, it looks more realistic to think the current 5% share of women at top will rise to just 7%. Some things take time to change, especially those that are deeply engrained in the national psychology.

The plan to shift more Government Pension Investment Fund investments from low yielding JGB's to corporate shares for better earnings did not start very well either. During its first quarter with more of its money in share market, the fund lost USD 64 billion. Talk about bad timing. Yet I am sure that some hot shot investment manager they hired from some equity fund did not lose out on his own high salary.

Share markets are always risky, you might earn more, but you can lose money as well. For making stupid decisions, however, you must take the blame for yourself and banging your head against a wall only gives a big bump and headache. In resuming its "scientific" whaling Japan is doing both. After all the effort that Abe and his government have made to improve Japan's image in overseas, it is prepared to undermine all its success for sheer obstinacy and small town politics in his native Yamaguchi prefecture, the traditional home base of Japan's whaling fleet. There's no logical point for this business: it is not profitable, there's little, if any demand and the stocks are full of old, unsold product. Few people want to eat it, it is not an important national heritage that should be protected and its waste of tax money. This time the country is even going against International Court's decision that followed after claims from Australia and New Zealand, two close allies for Japan, something that makes the loss of international PR even worse. Yet, Abe and some others in the LDP stubbornly stick to their guns and willingly damage the national benefit.

LDP celebrated last week its 60th anniversary and it has ruled Japan most of this time, yet it has many controversies. To start with, the old saying goes that it is not liberal in its policies, it is not really democratic in its approach and it is not even a party in in true meaning of the word, but rather an amalgamation of many parties and many schools of thought under one roof. In Finnish terms, a combination of businesslike Conservatives and agrarian Center Party could come close to same, yet LDP also contains rightist elements that would be close to what True Finns are thinking. Abe has his own strong support from that segment.

In his speech at the party celebrations, PM focused on economic and trade issues calling for all party lawmakers to give their support on them so that LDP will win next year's Upper House election. Yet, in a separate meeting with his likeminded rightist supporters, Abe asked for their support in the election so that LDP would have enough seats to push through their long planned revision of the Constitution. There is a small but remarkable difference between the two approaches. Something we must always keep in mind when talking about LDP and Abe.

Timo Varhama  
Tokyo, 8 December, 2015   


Previous Columns

27 November 2015
"Refugees, bombs, business and global warming - can we control them all? "

3 November 2015
"Japan, USA, UK or Germany - China Impacts Us All Today "

22 October 2015
"New Ministers, New Trade Deals, All Political Play"

7 October 2015
"Power games, ball games, trade deals and refugee misery"

25 September 2015
"Big Problems, Big Talk and Big Figures - Each in Their Own Way".

9 September 2015
"Challenges in Japan, Tougher in USA and Europe ".

1 September 2015
"Looking at Neighbors, Japan Seems Stable and Safe ".

19 August 2015
"End Summer, Ceremonies and Holidays Over, Back to Work for All".

6 August 2015
"Hot Weather, Hot Air in Politics - From War Anniversary to Whisky in Space".

23 July 2015
Greece, China, EU, Japan: looking for the lost reality

23 June 2015
World No.1 City? The Difficulty of Passing New Laws, the Easiness of Spending a Lot

16 June 2015
"Only in Japan?" - Somethings, Yes, But Others Are Same All Over

4 June 2015
Security and Finances: Pensions, Companies, Banks, Olympics, FIFA

21 May 2015
Economy Back on Track, Record Profits at Big Companies

11 May 2015
Spring Events: Odaiba Rock, Shibuya Sex, Capitol Hill, White Hall and Red Square

22 April 2015
Elections, Elections - Finland, Japan, Around the World

30 March 2015
Sakura: beautiful, but just for a short, fleeting moment

16 March 2015
Better late than never - Japan moves slowly

2 March 2015
Three struck out, three more in doubt - Abe's ministers under attack again

19 February 2015
Spring, Sibelius, Chocolate, Budget and Big, Bad Putin

5 February 2015
Reform Work Starts - Energy, Farming and Food on Wish List

26 January 2015
Terror strikes, plenty work, sad memories wait

15 January 2015
Watching AKB, Eating Mochi, Spending JPY 96 Trillion - Japan Off to Better 2015 After So-So 2014



About the Columnist

The columnist is a Japan veteran among Finnish business, our Chamber ex-president and today Member of the Board of Trustees.
After running a major Finnish industry company's Japan business for over 20 years, he is now Senior Associate in a strategic consulting company.

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