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 AOYAMA VIEW

Global Environment, Food Tax, National Stadium: Historical Decisions or Political Parading?
Waiting for Christmas in Tokyo is fun today: no more heavy "bonenkai" parties all through the month, then working normal office hours during the holidays. Christmas music is piping out all over town, magnificent Christmas lights have been set up many places and even decorations in department stores are today very impressive and stylish, not the cheap commercial kitsch they used to be. Finland, the official land of Santa Claus is well featured in much of this and Finnish design products are displayed even in daily shops. Few of us could, however, expect that the big Mitsukoshi-Isetan chain would be chiming out Finnish "letkajenkka" as its selected Christmas music in all of its stores. Check out their incredible promotion video featuring the Ginza store and its staff here.

The reality outside Japan continue to look grim and worrying news give little to cheer about. The bombing and killing in Middle East has got even worse and more indiscriminate pushing tens of thousands more to try seek refuge in Europe where resources to receive them have been exhausted and attitudes against immigrants have hardened. New terror strikes in Paris and California have raised panic and polemics propelling unforeseen popularity for far-right, anti-immigrant populists like Trump and Le Pen.

In Finland, too, local protest and violence against refugee centers has become almost daily news and all Nordic countries are drastically cutting back on social benefits for the refugees. The good news is that this has led to new kind of reporting in the Arabian media: instead of stories of "paradise" waiting in the Far North with well-paid work, free lodging and generous benefits, Finland is painted now as "hell" where you will be exposed to hardships, unfriendly climate, racial discrimination, even "slave labor" without any salary. The latter is based on Labor Minister痴 statement that the refugees should be urgently helped out from the holding centers into active working life even if this means going below Finnish minimum salaries. Prime Minister's famous offer to use his summer house as temporary shelter is now said to have been actually an effort to get "free servants to his palace". Maybe this will discourage many from taking the long, hard road to North while some with money among those already in Finland, have packed their bags disillusioned to go back home. Meanwhile, the refugee status review process is proceeding and has so far flanked 41% of the applications as not genuine, so maybe pressure in the shelters will slowly decline and those who will stay should have it easier to assimilate into the society. Still, it's a long way.

The "historical" climate deal in Paris got finished to much acclaim last weekend. It is historical in the sense that it is the first time all participants agreed to sign in, albeit this time only to follow what they each had proposed they would do. As per last column, their plans won't lead to the agreed 2 C target and, moreover, all important real action is pushed to some distant future. Review of the individual plans to line in on the temperature target will be worked out only by 2020, the long discussed USD 100 billion fund to help the developing countries to do their share won稚 either be realized until then and and China's huge emissions won't stop growing until 2030. That record pollution in Beijing and northern China was declared "red alert" during the conference did not change anything after all the pollution itself was nothing new but, like the country's signing on the deal this time, the mere admittance of the alarming health risk at home should be seen as sign that its leaders are now taking the situation seriously.

Apart from money and action, measurements and their verification will need to be developed. For the time being the emission data for each country is calculated from economic activity figures - power production and electricity consumption, industrial production, number of cars etc - and it is not based on actual pollution measurements on the ground. Mistakes and misrepresentations are easy: just before the conference China revised its coal burning figures with resulting carbon emissions up about as much as all emissions in Germany. In fact, some say the margin of error is said to be bigger than the entire carbon footprint of Europe. Having impartial monitors to come in to check the local data, however, did not gain acceptance, so all reported data, not just China's, will remain under doubt.

One solution is to develop further satellite monitoring that USA and Japan have done on overall carbon concentrations since 2002. Making the sensors in the satellites more precise, they could verify not only each country's emissions, but even pinpoint the individual power plants and factories culpable for the overflows. This would help central government's environmental officers in geographically wide countries like China to get a grip on the polluters. In Brazil and Indonesia, two big countries with huge rain forest areas, it could help central government to get hold of persistent illegal cutting which has led to tremendous loss of forests that act as valuable carbon sink. On top of illegal cuttings, Indonesia is causing big pollution with burning the forest areas already cut bare in order to plant instead oil palms that, ironically, will be used to produce "environmentally friendly" fuel. The amount of carbon emissions from that is said to be same as all Japan emissions and most of the haze is spreading to neighboring countries like Singapore, Malaysia, who once again this year suffered of dense smog.

As expected, there was no agreement on coal power production or on public support for its exports. As pointed out in last column, China, USA, Germany and Japan all still rely on coal as a main power source and they are all involved in exporting their technology to developing countries where it is likely to remain the main power source for long time for purely economic reasons. Recently, the main sales outlet looks increasingly China: since 2010 its state enterprises have built and state banks financed 92 coal power plants in 27 countries, often the lowest technology at bargain prices, totaling 107 million gigawatts, more than all the planned coal plant closings in USA next 5 years. In comparison to all the OECD countries combined providing USD 25 billion government-backed financing for coal projects in 2007-14, China has provided USD 38 billion similar money and has plans for an additional USD 72 billion. A good part of the latter is likely to come from China's new Asian Infrastructure Investment Bank, something that will test "green" Germany and the bank's other European shareholders.

And these numbers are just for coal power exports. At home, the reality looks much uglier: even Japan plans to build 41 new coal plants in next five years, China probably hundreds, if not thousands more.

With dramatic decline in prices for coal, oil and LNG, the economics are simply not favorable for drastic cut backs on fossil fuel usage except in selected countries that have the strong political will 鍍o pay for the fun. A proposed solution that fossil fuels should be loaded with extra taxes to make them uncompetitive, did not fly well with the developing countries. Yet, it looks like simple business economics are helping to curb the fossils in medium term. With the recent steep price decline the commodity companies are in deep trouble already: hundreds of mines have been closed, some 1200 oil rigs or 2/3 of US total have been decommissioned and 250,000 workers in the industry have been laid off. Giant companies, who borrowed hundreds of billions of dollars to invest in new mines on account of China demand are busy paying back that money, while many of the new wave US shale oil companies have hard time to pay even interest on their debts. This year some 40 of them already declared Chapter 11 with liabilities totaling USD 15 billion.

Capacity closures and poor profitability - oil price hit as low as USD 34 yesterday in the Saudi induced "global oil war" - will limit chance to quickly ramp up the supply when needed again. Ever-important search for new oil and gas sources is hardly continued either, so the supply could stay stagnant for quite a while. Coal mines can be re-opened quicker, though, and even for the time being low cost producers like Australia have continued to ramp up more production to compensate for the sinking prices.

For Japan, that traditionally imports most of its energy, low prices for fossil fuels have been an economic boost. Thanks to them, the persistent trade gap since closure of the nuclear plants in 2011 has changed to surplus, not by increased exports as targeted. In October, exports were actually down -3% in JPY value and much more in volume as JPY is now over 20% weaker, yet, imports were down -16% mainly thanks for the oil bill being halved by the 52% decline in price. As guessed in last column, current account surplus including profits from Japanese companies' business in overseas and the boom in inbound travel turned out even better: 72% up to JPY 1,46 trillion or USD 12 billion, quite a significant sum of money just for one month. Contribution from travelers, many of them from China, contributed JPY 110 billion or close to USD 1 billion! No wonder "bakugai" referring to their frenzied shopping was a strong contender for 徒anji of the year.

With all this, business sentiment remain high despite worries of China's economic decline and this week's expected US interest rate rise that has brought share values down also here. Big manufacturers expect their sales volumes continue decline at home in line with the population, yet see this can be compensated by continued small increase in exports, especially to USA where demand has picked up speed. The key to good corporate feeling is, however, expectations of continued good profitability. The corporate champion Toyota earned unprecedented JPY 874 billion (USD 7,3 billion) in just three months to September, more than twice the combined earnings of GM and Ford, and other Japanese car makers are on similar track.

As per last column, corporate investment was last quarter finally up, too, and while much of it is financed from the big corporate cash pile, fresh data says that bank lending continued to grow as well in November, already 50th month in row, mainly for corporate M&A and real estate investment. The balance at commercial banks stands now at JPY 428 trillion (USD 3,5 trillion). This is a healthy change from some years back when bank business was suffering as companies could not find any good reason for borrowing but rather paid back to the banks all they owed.

With such good economic news, it's a pity politicians feel they can waste time in useless debate on meaningless small details just to look important. The recent marathon talks between the two government parties on which food items should get 2% preferential treatment in the next VAT rise was an outrageous show of such parading of "their concern for low-income earners". It was nothing but cheap vote buying for the Upper House election next year conning followers to believe that such a small difference in their monthly grocery bill is worth throwing away JPY 1 trillion new tax income to help keep up national social welfare. It would be totally different if the tax difference was 12% like in Finland, not just 2%.

Taro Kono, the US educated son of a well-known past LDP leader, is a different kind of politician, a serious straight talker who does not hold back his punches and hence often sidelined by the others. This time in government as minister for national security and for curbing wasteful spending, he has again raised eyebrows by his recent utterances on two subjects. Firstly, he dared to touch the hot potato that industry, trade and public social care will not manage long without opening up borders for more foreign workers. This was, of course, against the official line and prompted quick response from PM's spokesman that minister's thoughts were totally his own and the government line stays definitely negative on this. Secondly, he sided with NRA, the nuclear safety agency, that the Monju fast speed reactor, the key pilot plant in Japan's grand plan for nuclear reprocessing strategy, should be closed due to continued safety lapses as much as for being complete waste of money as it has never worked during its 40 year life time despite huge money, thrown at it. According Kono, apart from poor safety record, Monju is part of the wide wasteful spending that the state auditors have identified and he is now authorized to stem off. This is an argument that no other politician could publicly deny, so now it looks the futile plant's closure will be finally seriously discussed. Yet, I am sure, that these statements made again new enemies for Kono and his hopes to one day become Prime Minister, something his father somehow missed, took another step back.

It was not Kono, but the Prime Minister himself, who earlier this year shelved the world-known architect Zaha Hadid's plan for the new Olympic stadium after its initial JPY 130 billion cost estimate shot to JPY 300 billion and then the ordered redesign down to JPY 160 billion quickly inflated back to JPY 250 billion. This week Japan Sport Council introduced two alternative plans it has selected from wide pack of entries that include this time not only architect design but also building plan and budget from a committed constructor. According initial introduction both will "blend in better with the greenery-rich area and stay within the JPY 155 billion budget limit" at least for the time being. I reserve comments on their architectural merit as I have seen only one CG photo of each, but take note only that both come, not unexpectedly, from well-known Japanese architects and big local construction companies and, surprisingly, they both use wood as one of the key construction materials. Coming personally from wood working industry and Finland, where building multi floor wood structures has been long discussed, I find the idea of using wood in such large structure as National Stadium very attractive and globally important. Certainly look forward to hear more details and hope it will even provide new business opportunities for Finnish saw mills and laminated beam makers.

Guess it is appropriate to close this year's last column with such positive thoughts for future.

Timo Varhama  
Tokyo, 17 December, 2015   


Previous Columns

8 December 2015
"Challenges in Paris Conference, Challenges Back Home in Japan "

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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