JIN-155 -- HSBC Targets Japan-China Traders

Japan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news

Issue No. 155
Wednesday, October 31, 2001


++ Viewpoint: HSBC Targets Japan-China Traders
++ Noteworthy news
- Unemployment Soars to Record High
- Hakuhodo Forges New Media Alliances
- Nomura Holdings Takes Heavy First-Half Hit
- Apology
++ Events

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++ VIEWPOINT: HSBC Targets Japan-China Traders

Japan's trade surplus during the first half of FY2001
(April-September) nose-dived 44.1 percent year on year, according to
the Ministry of Finance. Trade has slumped worldwide, and Japan's
export machine is suffering. Yet trade with China is surprisingly
robust. Japan's exports to China posted a 29.2 percent year-on-year
increase during the fiscal first half, while imports from China also
increased by 24.9 percent. Overall, Japan's trade deficit with China
stands at over JPY1.5 trillion--Japan's single biggest deficit with
any country, although the figure narrowed by 20 percent year on year.

Banks are making a killing on China-Japan trade thanks to the fees they
charge for everything from forex transactions to letters of credit.
To win more of this business in Japan, Hongkong and Shanghai Banking
Corp. (HSBC) is issuing free import-related letters of credit, and it
has applied for a patent on its business model to keep other banks from
taking the same approach.

There are two basic conditions that must be met to get a free letter
of credit from HSBC: The exporter must use HSBC's overseas
office to undertake payment; and the service is only for bulk
importers that do business worth at least JPY3 billion annually.

A letter of credit allows importers to offer secure terms to
exporters, as it guarantees the supply of goods within specified
time limits. Once the letter of credit has been issued and goods have
been shipped, the exporter usually goes to a local bank, and the bank
says it will pay the exporter if it presents certain documents. The
seller presents the documents, in accordance with the arrangements
specified in the letter of credit, and the bank checks the paperwork
and pays the exporter.

The aim of issuing free letters of credit, says Takuya Aiba,
assistant relationship manager in HSBC's corporate banking
deptartment, is to "enclose bulk exporters." Although the scheme is
not limited to importers of Chinese goods -- in fact, it covers the
company's branches in 78 countries -- HSBC is betting on Japan-China
trade to provide big business. The free letters of credit may be a
negative for HSBC's Japan operations,Aiba says, but globally it will
be beneficial for the company.

According to Aiba's estimate, an importer of this size could save
JPY10-20 million annually by using this service. The company started
the service in 1999 as Chinese exports to Japan started to boom, and
now has 10 big Japanese importers as clients.

But a trader at a large trading house is skeptical that HSBC's
program will save traders money. "The whole import/export business
comes in a package," he says. "Even with letter-of-credit fees, some
banks may be able to come up with a better deal overall, like less
fees on forex deals."

-- Sumie Kawakami

Trade stats from MOF:


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** Unemployment Soars to Record High

Extract: Japan's jobless rate hit a new high of 5.3 percent in
September, according to government reports released on October 30.
The government attributed the 0.3 percentage point rise from a month
earlier to the September 11 attacks in the U.S. and the outbreak of
mad cow disease at home. To make matters worse for workers, payrolls
dipped for the first time in 17 months, and the number of full-time
employees dropped a record 980,000 year on year in August to 35.97

Commentary: Corporate Japan's restructuring is hitting all sectors of
the workforce. In September, 3.57 million people were unemployed,
according to government statistics, including 930,000 heads of
households. More than 1 million of the unemployed were fired, and
1.27 million left their jobs "voluntarily." But those figures
probably don't accurately reflect what's going on in Japanese
companies, where workers in their 50s are getting fired more than
young workers and have few options before them. The veil of "lifetime
employment" and downsizing through combining retirements with fewer
new hires is falling off of corporate Japan, and a much less gentle
giant has emerged. Workers would be right to be worried.
Restructuring efforts will only get more intense.

News from Kyodo:

The Foreign Workers' Handbook:

** Hakuhodo Forges New Media Alliances

Extract: Hakuhodo, Japan's second biggest advertising agency,
announced that it would cooperate with Daiko Advertising and
Yomito Advertising in broadband media. They will work together
to form common strategies for advertising on the Internet and
to develop new forms of advertising, the companies said. They plan
to work out the details of the agreement in meetings beginning
next month.

Commentary: Although all three companies denied this, this move
is probably because of Dentsu's planned IPO late next month.
Dentsu is far and away Japan's most powerful advertising agency,
with Hakuhodo trailing in a distant second, and investors have
been bullish about prospects for Dentsu's listing.

New media or old media, it seems the rules aren't changing as
much as we had hoped. Large firms are likely to dominate huge
chunks of the Internet ad world, and Hakuhodo knows it needs
some powerful friends to keep up. Daiko ranks fifth in the industry,
and Yomito ranks sixth.

From the Asahi Shimbun (Japanese only):

** Nomura Holdings Takes Heavy First-Half Hit

Extract: Nomura Holdings Inc., Japan's biggest brokerage, saw
group net profit plummet more than 90 percent to JPY11.33 billion
in the first half of fiscal 2001 (April-September).
Nomura, which went into a holding company structure from
October 1, said the dive in profit was caused by the weak
stock market and dwindling commissions.

Nomura also announced it will set up a comprehensive alliance
with Thomas Weisel Partners, an investment bank from San Francisco.
Nomura will invest about USD75 million in the bank and spend
an extra USD200 million on future projects.

Commentary: At least Nomura has remained profitable, which
is not an easy thing to do for brokerages these days. The Associated
Press reports that 14 of Japan's 20 listed brokerages were in the
red for the fiscal first half.

Nomura's business alliance with Thomas Weisel Partners is perhaps
the more interesting piece of news (though seeing profit
plummet 90 percent is nothing to shake a stick at). Thomas
Weisel is known for its expertise in cross-border mergers
and acquisitions, especially in the fields of IT and

From the Nikkei Net:

** Apologies to readers who received multiple copies of JIN 154 due
to a software glitch. The problem has been solved. - the editors

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