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Bear Outlook for Monkey Year Grows, Taiwan Votes to Keep Distance
from China, but Pop Group is More Important for Many
It's supposed to be Year of Monkey now according to old Chinese calendar, but in financial markets it looks like year for Bears. And this one comes from today's China, not the old one. Another USD 5 trillion worth of wealth was wiped out during the first two weeks and outlook for the year seems extremely uncertain. Everybody is following with fear China government struggling to put the genie of free markets back in the bottle where it once was let out from. Unforeseen decline in global oil prices is adding its own to the confusion. Japanese stocks have taken beating even more than others due to economy's big exposure to China and JPY, the "safe haven" currency, has risen over 10% against CNY, the most important export currency. No doubt, this will have impact on the real economy, but just how much? Yet, the financial markets make only one of the recent topics here.

Heavy snow fall Monday morning that affected millions of Tokyoites on their way to work was probably the thing in most people's mind this week. For some it took even 5 hours to get to work instead of 30 minutes normally, some others had to wait 1-2 hours at their home station just to get in their train. Other recent topics include Taiwan election result, China's continued global expansion, problems with pensions and the new social security system, coming electricity market liberalization, Olympic arrangements, dramatic ski bus accident and Finnish skiers saved by helicopter in Nagano. For some, the most shocking news was the death of David Bowie - one deranged guy tried to make suicide - for others rumors of super popular SMAP group's split up - even PM' was asked to comment on this in Diet's budget committee. Luckily or unluckily, depending on your view point, the group announced they will, after all, stick together - for another 25 years? Every third home had their tv-sets turned on to hear their vows and apologies "for causing trouble" to fans.

Taiwanese people's vote for change was more overwhelming than expected. The nationally minded DPP not only took the president's office with 56% against KMT's 31%, but also - first time ever - clear majority in the parliament with 68 seats against KMT's 35. Moreover, the party leader and new president is female and international: Tsai Ing-wen is ex-government trade lawyer with degree from London School of Economics and Cornell University in New York. Even a new party based on strong student movement that occupied the parliament in 2014 to prevent another trade deal with China, got seats in the legislature in thorough beating of KMT's policies that took Taiwan closer to China than what people wanted. It's difficult to believe that last year's student movement here againsta security law change would get into Parliament in next summer's election

While exports to China and business investment in mainland have brought fortunes to Taiwan companies, Taiwanese people have not benefitted much of it. Jobs have not increased at home, neither salaries, while living and housing costs have grown significantly. Most recently even corporate sector and KMT got worried when China's money rich state companies tried to buy strategic key companies in Taiwan's advanced electronic sector. For the people, last year's events in Hong Kong showed in concrete the reality behind Beijing sweet talk of "one country, two systems". It came clear to all that there is only one system and one voice, the one set by the Communist Party, so it was important to put a stop on getting too close as long as it was still possible.

The first ever meeting between China president and Taiwan president, a hastily organized theatrical spectacle to turn the tide at last minute, actually cost thousands of more votes for KMT. The two embracing each other and paying lip service "being same blood and family" while the Big Man kept issuing thinly veiled threats to the "errant prefecture", looked like Godfather's kiss to his treacherous nephew before sending him to the assassins, one commentator described it.

For Mr. Xi, the result is already third indignity in short time coming on heels of stock market running out of control and best friend North Korea blowing up again a nuclear bomb without any warning. That the official GDP growth published after these setbacks miraculously met exactly the minimum target 6,9% set in advance received sneers from disbelieving economists. Few dare to raise their doubts officially, of course.

While China's role as "the factory of the world" seems now have come to its end, there is still plenty fire and business potential in its consumer market. Fast food chains like KFC and Pizza Hut still report growing sales while Starbucks, H&M and Uniqlo all plan to substantially increase number of their stores in China. Nissan expects healthy growth in car sales this year and Apple is said to get 24% of its revenue from China market. When your own cash register clings positively, you don't have to worry about whether the economic data is reliable or not. Just keep good relations with apartchiks and don't run across government's own industry champions!

In financials, the main worry is not the stock market, but the capital flight from the country - performed by its own people and companies. In past three months, it is said, more than one Greek economy's worth of money moved out and the total for the year might have reached over USD 800 billion. As only about USD 250 billion flowed in, this means that China's earlier big FX coffers are running down. That's why there are now limits for public investments to prop up growth and it looks clear Beijing cannot maintain simultaneously all three of its financial targets, flexible monetary policy, free flow of capital and fixed currency rate. At least one of them must be abandoned and many economists think the one to be ticked off will be the capital flow even if it means that China will not live up to its new commitments to IMF, who made CNY one of its global reserve currencies against many experts' advice. As Mr. Xi sees it, they say, China is in the center of the world, but it does not have to be open for others.

China's outbound corporate investment has been feverish in the first two weeks of 2016 with 23 deals totaling USD 12 billion which is four times more than in beginning of 2015. The total for 2015 was USD 110 billion, so just think if it would go up to USD 400 billion this year! Two big US takeovers caught headlines last week: Haier Group's purchase of GE's white goods division for USD 5,9 billion and Wanda Group's purchase of a Hollywood studio known for its Batman and Jurassic Park movies for USD 3,5 billion. The first one is business as usual: the world biggest maker of washing machines and fridges buying itself into US market with big money. The only intriguing aspect is that earlier US government had stymied Electrolux's ready negotiated deal to buy the unit blaming it would give the Swedes too big position on the market. Instead they preferred Chinese.

Wanda's foothold in Hollywood in the heart of US entertainment is different. It comes as part of Beijing plan to expand its soft power around the world as much as Wanda's own plan to become a global movie empire. It already owns big theater chains in China, USA and Australia and last year started building a giant production studio in China. As next step, it's looking to expand to Europe. Controlling even part of the movies made and much more what's watched around the world puts Wanda in an enviable position to influence their contents.

Just 10 years ago Wanda was a local real estate dealer in northern city of Dalian, today it is China's and the whole world's biggest commercial property developer with 125 shopping malls and 81 hotels raking in USD 44 billion last year. One year ago it also bought 20 pct stake in Atletico Madrid as well as in Swiss sports marketing group that controls media rights for Soccer World Cup and Olympics, so it will have a hand on sports media as well. Wanda's expansion is not only close to government's political targets but also to Mr. Xi's own wallet through USD 1,5 billion worth of shares issued to his family members.

The group owner Wang Jianlin, son of a Long March veteran and ex-Army officer, is today the No.3 richest person in the world. Too bad that he lost USD 6,5 billion in the recent stock rout, about same as Bill Gates and Jeff Bezos of Amazon. But bet he and the others have more than plenty money left.

In Europe, everything is cheaper, at least in Greece, so it was no big news that China government's shipping company COSCO paid just EUR 300 million for the rest of the Piraeus port that it did not yet own. The Greek port will now become the European end terminal of China's world stretching One Belt, One Road plan that include other ports for its navy in Sri Lanka, Pakistan and Djibouti. While meant for the commercial navy in the first place, they have already been visited by military submarines and destroyers as well.

In Japan, the big New Year change concerning all of us was My Number, the social security number system that took effect January 1. It is difficult for most of us foreigners to understand that Japan did not yet have such personal identification system so commonplace elsewhere, even more that it was resisted by many on grounds of privacy and information leaks to outsiders. Earlier, it was commonplace to establish any number of bank accounts under false names - Mickey Mouse was a popular choice - now they all lead to same person. Meanwhile, leaks of information have been a continuous problem recently: public entities have been pretty helpless in protecting their computer networks from hacking and stolen collections of personal information have been sold for big money for online marketers and others. Sure enough, this proved true for My Number, too, with parts of its registers offered on black markets even before it was launched. The distribution of the numbers to recipients by registered mail looked feeble in security, too, as the mailman, who delivered mine, never asked me for any proof of identity. Counter signature from the man who opened the door in the indicated address was enough.

One result of the new system has been that, with social security now connected to corporate pension files, officials found out that around 2 million permanently employed people were not included in the corporate pension funds as they should because their companies this way avoided paying the employers' part. Instead, they had enrolled to public pension fund that gives you much lower payout and, besides, makes government to pay the missing part from public funds. Labor Ministry will now "make enquiries" to all 790,000 businesses around the country "if they happen to have any such cases in their books". Let's see if such "Japanese approach" will bring in changes.

One big business change in the near horizon that also concern all of us is the liberalization of the electric distribution consumer market in April. Already last year big lot users in corporate sector were able to select from which source they buy their electricity instead of just one local monopoly as before. Now private consumers will be able to do the same and this has created quite a whirlwind in the market. Not only power companies from other parts of the country are preparing to raid the dominions of their colleagues, but gas companies, steel companies and others who have extra power to sell are also preparing to take their share of the market. Moreover, many consumer related companies who don't have power source of their own, plan to buy the power from some producer and bake it into one attractive package for the consumer. For instance, mobile phone carrier and broadband network operator Softbank is set to combine the local producer's electricity with its own products and offer the whole package at price that will save consumer JPY 8,000-15,000 depending on area. The buyer can even earn T-Point loyalty program points that can be used for purchases in just about any shop or restaurant. Naturally all orders and payments are handled on Softbank online connections.

It all sounds very new and imaginative so no wonder 70% of consumers are contemplating to change their purchases from current monopoly to a new source. Not to be outdone completely the original producers say they will cut their prices to keep customers and for instance TEPCO is offering flat 6% off their current prices from April. All this was unheard in "old Japan", so it's a welcome move after all criticism that Abenomics has not achieved much for all its promised market reforms and deregulation.

The recent break in business morals showed again in the shocking bus accidents close to Karuizawa, Nagano highland, where 13 young students and 2 drivers died when an overnight ski bus skidded and rolled over the railings in cold night 2 am. Small, scrupulous bus operators continue to flout safety rules that were tightened after earlier accidents in order to meet low prices demanded by tour companies. There is also big gap in supply of of good drivers - the country allegedly needs 100,000 new truck and bus drivers now that the drive times and kilometers are limited to same level as in other advanced countries. In this case, the 65 year old driver had little experience and training in driving a full-size bus, even less in icy conditions in high mountains, nor had he gone through any health test required by traffic rules. Bus company had also given him free choice of route and and for some reason he chose the curvy regular road instead of more straight running highway. The final analysis might take time but, but the clues are clear: young lives were lost due to operator's criminal negligence and driver's incompetence.

Rules were broken also in two cases earlier in the week when foreign skiers were lost in the mountains after going off the marked tracks against all warning signs to enjoy the thrill of the powder snow on untamed slopes. This means taking quite a risk for accidents, getting hurt or lost or buried in avalanche and the growing number of such reckless skiers from overseas has been a cause for trouble for ski patrols and rescue crews throughout Japan. Happily this time both groups, one Australian in Gunma and one Finnish in Nagano, were saved by the rescues teams, the Finns towed up from helicopters in a dangerous spectacle shown in live TV. Guess they got a hefty bill to pay for their foolishness, yet it was not a good advertisement for Finland.

Debacles around Olympic arrangements continue bring in new twists and turns. That Zaha Hadid claims the new much smaller, wooden stadium design by Kengo Kuma is copying parts of her grandiose plan with huge molded arches that was flanked, can be written off as sour grapes, so different the two plans clearly are. Yet, it is sad to hear that the Japan Organizing Committee has not paid in full her due contract fees, even tried to blackmail her to give away her copyrights to get what she is owed. This sounds simply mean and unbusinesslike however badly their co-operation ended.

The competition for new Olympic logo to substitute the old winner that DID prove to be a copy, has now reached the last step with just four designs left. Hope these will be published in good time before the final selection, so that any claim for resemblance can be handled openly and another catastrophe can be avoided. The first one was such a shame that it even provided a new word in Japanese language: twisting the designer's name Sano produced verb "sanoru" or "to make a sano" that means now "copy and paste". It was even a candidate for the kanji of the year 2015, but it was "an" for "safe" or "secure" in reference to much resisted security legislation that won the competition.

Further news tell us that a "task force" - lost account which one as there seem to be countless involved in the process - has proposed that "to enhance the environmental image" of the games the medals should be made of recycled precious metals sourced from scrapped computers and mobile phones. How IOC and the competitors themselves would take such idea was not included in this committee's idea.

I am afraid there will be many more similar "ideas" coming out on this front before 2020. Think the best move so far has been Akio Toyoda's decision to step down from such committees and focus on how his company will support the games and benefit from them. For instance, if we really can have driverless cars as taxis on Tokyo streets, as planned, it will make a big impact on visitors. Both Toyota and Nissan are ready to put them on road for testing already next year, it's only up to officials to make traffic rules to allow them. Japan has all the things, new technologies as well as old traditions, to attract the world. What we need is same effectiveness from bureaucrats and politicians to put them in effect.

Timo Varhama  
Tokyo, 20 January, 2016   

Previous Columns

12 January 2016

17 December 2015
"Global Environment, Food Tax, National Stadium: Historical Decisions or Political Parading? "

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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