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 AOYAMA VIEW

Refugees, bombs, business and global warming - can we control them all?
The weather was dark, cold and dreary when I visited Finland last week, but it seemed that the whole national mood was depressed and confused. Television was pumping out all day live propaganda of "new energetic Finland" from the ongoing Slush event, but the fact is that despite doing all the right things and winning all accolades - global competiveness, innovation, primary education, high technology, fair business and public debt discipline - Finnish economy wallops in decline for third year and reached last quarter the bottom position in EU even below Greece. Despite all talk of young start-ups, the old established companies focus on cost cuts and staff reduction, unemployment is approaching the worst 90's levels and the government is cutting back social benefits, health care, even education, Finland's pride. There's hardly any reason for cheer.

The new government that was early on determined to get grip on problems and push through necessary reforms has proved wibbly-wobbly, announcing new radical moves almost every week, then cancelling them when meeting resistance. On top of all this, the nation is challenged to settle in the unexpected big wave of refugees, some 30,000 so far, from distant countries and exotic cultures. No wonder people are confused what to make out of this all. The attitudes against the immigrants are also hardening with news of social troubles they are creating. Hoarded into crampy refugee centers to wait "yes" or "no" without anything to do creates dissatisfaction, discomfort and friction.

It's not only Finland but across Europe: the early positive mind meeting big numbers of Middle-East refugees has clearly changed in face of the overwhelming, seemingly non-ending human wave. Rumors of warm reception and hopes of protected, peaceful life in Europe have attracted more and more migrants from new sources: the battle-torn Syrians have been followed by Iraqis, even Afghans. Now Germany, Sweden and Finland, too, strictly control the inflow and radically cut back on provisions they provide for housing, food and money for newcomers. It's tough to sleep in just a tent in the Northern winter, so some with money have already decided to return home. Many others will be sent back once the screening process shows that they are not true refugees, who have escaped death and destruction, but just seeking better life style. Problem is that this takes time and the would-be immigrants, incarcerated in refugee centers with nothing to do, are getting restless. Reports of violence both inside and outside of the centers, even rape of local women are on rise. The massacre in Paris and threat of further terror across Europe, has raised worries that the new arrivals could also develop into such risk.

Amidst all this mess, it was positive to find that interest for Japan remains high and many companies are now looking for business in Japan. The sudden economic decline in China and difficulties experienced doing business there also help re-finding Japan that looks now a rare safe haven in the stormy global surroundings. It seems we will see next year busy traffic of new Finnish entrants looking for access for their products here.

Back in Japan, there's plenty new developments on old themes and subjects to follow up.
The 2Q. GDP data showed small decline as predicted, yet the general mood seems still positive and it is widely expected that the ongoing quarter will prove Japan is back on modest growth track. The consumers seem still ready to spend whenever special opportunities come up, so retailers are pushing hard to catch them: Christmas songs started to chime out in department stores as soon as Halloween decorations were removed November 1. Old extraordinary tricks don't work anymore as they used to do: imports of Beaujolais Nouveau, a big fad in the past that made Japan No.1 export market for the French wine merchants, were down 30% last week.

China's economic decline casts a long shadow on Japan, but US economy is now growing nicely and provides some counterbalance. Exports to China, chemicals, steel and machinery, continued to shrink in October, but exports to USA, mainly cars, rose 6%. Trade with EU also grew well both ways, imports even more than exports giving EU surplus in the balance. With China and other Asia dominating here, total exports declined for the first time since 2014, yet import bill declined much more (-13%) thanks again to lower prices for oil and natural gas. Result was an unexpected trade surplus, the first in seven months. This indicates that the balance of payment data, once it comes out, will show even bigger surplus than before. Money continues to flow in Japan not only from its overseas businesses: it is said that even foreign investors are now putting so much money on low yielding Japan government bonds that BOJ has hard time to find enough to buy its big monthly policy allocation.

In comparison, China's is facing problem of rapid capital outflow and approaching deflation in addition to its economic slowdown well depicted by whopping -19% decline in October imports. No wonder, the leaders there have changed the tune in political relations with PM Li in person meeting Keidanren 200 man strong executive mission in the Great Hall to declare that "Japan business community has made important contribution in China" and "China will broaden market access, improve supervision to better protect IP rights and prepare open, transparent and fair investment environment" as well as "be ready to work with Japan to build infrastructure in developing countries". It must have felt music to Japanese ears after years of blasting them for their depicted historical sins.

In other positive business news, Mitsubishi Heavy's new 100 seat regional jet, the second ever domestically developed civil plane in post-war Japan, had its maiden flight. The company hopes to take 50% share of the estimated 5000 plane orders in coming 20 years in the market segment now dominated by Embraer of Brazil and Bombardier of Canada. Its claim to fame is the carbon fiber construction excelled by Japanese companies and new, fuel efficient turbofan engines from US Pratt & Whitney.

Meanwhile, Mitsubishi's H2A rocket lifted to space the first ever commercial cargo for a Canadian communication satellite. Until now, Japan's space program has carried only government satellites to space since its start in 2001. Now the public-private consortium target to take up competition with European and Russian space agencies for carrying cargo from others, who don't have own rockets.

In more earthly hi-tech biz, the fast fashion retailer Uniqlo and Toray, one of Japan's leading carbon fiber technology companies, announced a new step in their long time co-operation for better cloth fibers, comfort and functionality in "Life Wear", that could reach up to JPY 2 trillion (USD 16 billion) in value. They will invest together into new production sites in China, Taiwan and Hong Kong. This week, Uniqlo also announced a USD 10 million donation of winter clothes to UNHCR, the UN refugee body, for European refugees facing winter in inadequate clothes. It would be ironical if this is the way these high class, but economically priced clothes find their way to Finland.

Another well-to-do newly emerged company Rakuten - call it Japan's Amazon or Alibaba - launched a USD 100 million international fund for new start-up companies around the world. It's great to see Japan's new generation companies stretching out their hand for help around the world, each in their own way. If my memory serves me right Rakuten owner Mr. Mikitani was involved in promoting Finland's Slush start-up initiative, too.

Japan's global cultural impact is reflected in Oxford Dictionary's annual choice for Word of The Year: this time it's "emoji", the variety of pictograms that millions of internet users are decorating their messages to boost their emotional content in a simple way. The word comes from Japanese language "e" for picture and "moji" for word and the pictures originated in Japanese mobile phones. Their usage has tripled around the world this year and even well-known political leaders have been caught peppering their messages with smiling faces, angry fists or cuddly animals. To be precise, the emoji selected by Oxford Dictionary is the half-crying, half-laughing "Face with Tears of Joy", the most popular emoji in USA and UK used in 20 pct of all mails.

Not all news and updates on old subjects from Japan are that positive. Toshiba has come up with new revelations of further losses at its US subsidiary Westinghouse that were not properly published - mainly write downs of assets and good will in face of nuclear business decline. For that, the company shares took another 9% fall on top of earlier 40%, just when investors were starting to look into buying in again. Its business is down in all of its divisions and it booked an operating loss of USD 730 million for the past six months. Financial Service Agency is expected to fine it JPY 7 billion on top of the JPY 400 million fine by Tokyo Stock Exchange, something that shames the company further after all it's gone through already. Meanwhile, competition is said to tighten up for NAND flash memory chips that have been Toshiba's milk cow for profits. To ease its finances, the company already sold its image sensor business to Sony, who is the world leader in this indispensable component for mobile phones and laptops.

The real problem child of Japan's old glory consumer electronics electronics, however, is Sharp. The company, that invested big in LED displays only to be badly beaten by Korean and Taiwanese competitors, booked another whopping USD 800 million loss for past six months, beaten this time by newly rising Chinese LED makers. It's still resisting selling out its LED factories to Taiwan's Foxconn, who could make them profitable by lifting operating rates to decent level overnight. Instead Sharp keeps counting on support by the Japanese banks and government's Financial Restruction Agency. Its despair came evident this week when it was leaked that the top management had requested (read: ordered) Sharp employees to buy company products to help with orders. The request was clearly defined based on position and salary: directors should put up JPY 200,000, managers JPY 100,000 and other staff JPY 50,000. What was not clear was whether the request applied also to the 5000 people that are being fired from the company this year. It is clear that the banks should have pulled the plug long time ago and any public aid should be withdrawn for this "zombie company".

The Yokohama piling scandal has spread through the building industry. First, the original perpetrator Asahi Kasei Construction Corp announced that its review of all past works over past 10 years showed that similar data falsification had taken place in over 300 of its 3000 construction sites around Japan. When another, bigger company in same business announced it seem to have similar bad records, it became evident that the problem was spread through the entire building industry prompting Industry Ministry to declare a nationwide probe. Waiting for results, we can only take consolation that this does not mean that all those buildings are in danger of collapsing, it's just that companies have cut short on their reports as there has not been sufficient public follow up. So far, no building has collapsed as they frequently do in the neighboring countries, yet this is an area where we all hope Japan would not develop close relation with them. It can be that this breach of trust with consumers will cool down the booming construction business: the price of new apartments in Tokyo area has already come down, the sales declined for the first time in years and the leading developer Mitsui Fudosan pulled out all its advertising in TV and other media.

To add insult to injury, Japan had it first terror bombing this week. OK, it was only a small bomb that did not do more damage than a hole in a toilet roof at Yasukuni shrine and, judging by location, it probably was neither set up by any jihadists. Anyway, it serves as reminder what we can experience here from extremists, whatever cause they represent, if the security is not tightened up. This is especially important now that Japan is met with unforeseen crowds of tourists that will grow even more for the 2020 Olympics.

The terrorists that struck in Paris surely hit France in a soft spot. Tourism is a huge industry for Franc with over 70 million visiting the country, more than any other, and almost all of them flocking to Paris, where 1 in 10 inhabitants is employed by tourism. Eiffel Tower, Louvre Museum, Champs Elysee and Arc de Triumph are what they want to see in France and if there is risk for being bombed or shot by terrorists, the whole trip to France will be cancelled. Japanese are famously the most sensitive travelers in this respect and JTB, the No.1 travel agency, cancelled all its trips to Paris immediately. Now two weeks later, it appears others have followed: tourist numbers to Louvre were 30 percent down this week. French Ambassador in Tokyo implored Japanese tourists not give up on France in a press conference saying "things will be soon normal". This sounds pretty thick considering that the French president says "this is war" and the government has declared a "state of emergency" for three months until February. Stepping up bombing in Syria will also step up risk of further counter action by the jihadists in France. While most of us are all for crushing the terrorists at their home base as much as in our own countries, we should not pretend they will then hold back on attacking us at our homes. If it is war, there must be two sides, each with its own strategy.

I don't expect any trouble for the big international environmental conference in Paris this weekend as terrorists have time and patience to wait until the stepped up security measures are over before they make their next strike. Let's hope this gives the world leaders peace of mind to find a way to an agreement that stops the global warming that has well published catastrophic consequences for further generations. Majority of the 196 participating countries have announced their own targets to cut their carbon emissions, each in their own way, and industrialized countries have pledged to help developing countries to do their share with up to USD 100 billion until 2030. PM Abe announced yesterday that Japan's contribution will be USD 11 billion in form of public and private projects. This seems very generous in comparison to US government pledge for just USD 3 billion and even that immediately threatened to be cancelled by the Republican president candidates if they get the power next year.

I have my doubts of the success of the COP21 conference as, more than really focusing on the earth saving emission deal, it is a moment for each country's political leader to shine in the global media spotlight. For instance US president, after failing last time in Copenhagen and gloriously failing in his foreign politics in Middle East, wants to make COP21 a lasting monument for his 8 year career. Apart from money, China, is a big obstacle to the deal: it's the world's biggest polluter and "the factory of the world", yet pretends it's just one of the developing countries, who does not have to make drastic cuts into its pollution that kills up to 1 million of its own citizens every year and spreads to neighboring countries every winter season. Politically, it is essential that it will be included this time and it seems that the other world leaders are accepting for full face value China's proposal to only start its emission reduction from 2030 when all others have already cut back theirs by 20-40%.

Japan is one victim until then, no matter how much it cuts its own emissions, yet even for PM Abe it's probably more important to just stand in the spotlights in Paris. Showing his "statemanship" in multiple global meetings past two months - East Asia Summit, ASEAN, G-20 etc - has already lifted his popularity back to levels before summer when he engaged into unpopular security legislation push through. We'll see what happens to the environment, but we can be sure that Abe and other leaders will come back from Paris as winners.

Timo Varhama  
Tokyo, 27 November, 2015   


Previous Columns

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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