TT-583 -- Japan & China -- the Slippery Slope, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, September 26 2010 Issue No. 583


- What's New
- Short Takes
- News
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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Normally we don't write about political issues, because
usually there is no right or wrong and all you do is wind
people up. However, the current spat between China and
Japan over a fishing boat skipper and a remote group of
currently uninhabited islands in the South China sea, just
170 kilometers from Taiwan, is too much to pass up.

The islands in question are the so-called Senkaku Islands,
the Diaoyu's to the Chinese, and unless you've been living
under a rock yourself over the last two weeks, you will
know that Japan detained a Chinese fishing trawler that was
in Japanese territorial waters near the islands. It seems
that the fishing boat skipper tried to make a run for it
and the Japanese coast guard rammed him (or did he ram
them, who knows?). They then detained him, his crew, and
his ship, and returned them to Ishikawa island, for a
decision on charges to come from nearby Okinawa.

The crew were quickly set free and flown back to China from
Okinawa on a chartered jet, but Japan obviously wanted to
make an example of the skipper -- much as they did with the
Green Peace skipper, Peter Bethune, back in July.
Unfortunately for Japan, China is not the pushover that New
Zealand was, and the Chinese have thousands of years
experience in playing the "Great Game". The Chinese quickly
expressed outrage at the arrest, especially since they
dispute sovereignty of the islands in the first place, and
thereafter started turning the screws on the Japanese.

First there were withdrawals from various high level
government talks, then street protests in China against
Japan, which led, we heard from a friend there, to stonings
of a Japanese school (not reported in the media). Then
there were the arrests of four Japanese Fujita construction
employees who somehow managed to stray into "sensitive"
territory in China, and finally the news that China has
discontinued shipments of rare earths vital for the
manufacture of motors, hard drives, and many other things

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[...Article continues]

Finally after two weeks of escalating pressure the Japanese
got the message and had to do a highly embarrassing step
down, letting the Chinese skipper go free, and leaving it
to a hapless prosecutor in Okinawa to tell the world that
because no one was hurt in the ocean incident, and in view
of the political pressure, no charges would be brought
against the captain.

Something that should have been a simple policing action
has turned Japan into the proverbial 90lb weakling of Asia,
with China doing the sand kicking. It's all very

Well, you might say, "Being laughed at a bit is OK isn't
it?" After all, the trade off being made was very pragmatic
and it allows the Japanese to get on with what they are
good at: which is making more money out of their extensive
interests in China. Indeed, the response proves that Japan
has its priorities right and is a mature nation, so on one
hand we'd agree with the skipper's release. Certainly we
don't want to see a resurgence in rightest politics.

The problem for Japan, though, is that handing back the
skipper has not ended their public relations debacle.
Rather, a much worse problem may be emerging, that of
putting the genie back in the bottle as far as Chinese
power politics is concerned. The "slippery slope" effect
seems to be in motion.

Consider what is likely to come next. If China continues
pressuring Japan, believing that Japan will swallow its
pride to protect its investments, then China not only gets
the satisfaction of seeing the politicians and bureaucrats
in Kasumigaseki twist and squirm on every new event, but
also clearly establishes who is boss -- for the benefit of
others in the region. If on the other hand, Japan says
enough is enough, especially when the next incident occurs,
then both countries are likely to start either a trade war
or possibly even an arms race -- either of which will hurt
Japan more in the long run.

But surely China also benefits from its relationship with
Japan? Why is it risking such a valuable potential ally
with apparently petty politics? We can see two reasons that
are motivating China to get more aggressive for the next
few years:

1. Power and politics.
In 2012, the Communist Party's leadership is due to retire
and make way for the so-called fifth generation. There is
a lot of jockeying for positions going on, and lashing out
at everyone's favorite whipping boy, Japan, is a sure way
of showing leadership in the run-up to the elections. At
the same time, the military leadership will also change,
and the next generation of officers are those who were
raised to look abroad for control and influence. They
intend to make China an international power and see
Japan-bashing as a very convenient tool. Not just Japan,
but also the USA and other nations in East Asia have to be
worried about this prospect.

2. Economics
As China grows in influence and financial clout, it is
finding that the huge inflows of cash are giving it the
ability to rise beyond being a grateful recipient of
others' trade, to now becoming a full-fledged trader in its
own right. We have already seen China successfully gain
influence and control in various commodities --
ranging from oil and rare earths to soya beans and grains.
Our take is that in this spate, Japan hasn't tasted real
punishment yet and if China so chooses, it could
substantially hurt Japan without a shot being fired. Think,
for example, about the shipment of fresh vegetables, frozen
foods, and clothing -- much of which now comes from China.

What does China want? Well, we think the road map has been
quite clearly marked -- and some of the milestones, from
near term to longer term, will be:

1. Drilling and fishing rights around the Senkaku's. Both
countries have been talking about this already, but we
think the Chinese will really amp up the pressure now.

2. China rising to become the leading regional political
and economic power broker, with a humbled and humiliated
Japan staying in the shadows. A whipping boy can come in
handy sometimes -- especially to deflect discontent of
people back home.

3. Eventual yielding of the Senkaku islands territory to
China, probably in the form of shared administration by
both countries -- but with China supplying all the people
and most of the economic activity.

4. Ongoing indirect manipulation of Japanese politics and
economics, such as the incident that we have just
witnessed, so as to create either a subservient economic
partner and an economic zone outside the influence of the
USA, or a reviled enemy to focus the energies of the
populace back home.

Are we being paranoid? Only time will tell, but it's
important to remember that China has little love for
Japan, and the idea of eclipsing and humiliating Japan are
probably too great to resist. Japan needs to understand
this and be prepared to either offer China what it wants or
move quickly and firmly to find other major regional
partners to balance the China relationship.

Vietnam and the Philippines come to mind...

Lastly, if you're starting a company, or need tips on how
to run one you're already operating, maybe you should
attend our Entrepreneur's Handbook seminar, scheduled for
next Saturday, October 2nd, 2010. More details at:



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+++ NEWS

- Foreign funds buying real estate
- Japan to complain to WTO over Chinese rare earths ban
- Oracle Japan shares sink 9%
- DeNA invests in Astro Ape
- Paris Hilton denied entry to Japan

-> Foreign funds buying real estate

The Nikkei ran an editorial this last week on the spike of
buying by foreign funds of Japanese real estate. It refers
in particular to Japan Tobacco's Shinagawa office complex
and shopping mall, which could be worth as much as JPY90bn
(about US$1bn). Apparently a Chinese fund is interested in
bidding when the buildings come up for sale in November.
The Nikkei also refers to the JPY300bn of investments that
LaSalle Investment Management says it will make over the
next 2-3 years. A fly in the ointment, though, is a surge
of new office buildings due to come on to the market in
2011, as well, of course, as the high yen. (Source: TT
commentary from, Sep 24, 2010)

-> Japan to complain to WTO over Chinese rare earths ban

China has apparently stopped the export of all rare earth
minerals to Japan, a situation that in the mid-term will
disrupt the production of hard disks, air conditioners,
electric motors of various kinds, and other essential
electrical components. Japan imported 31,383 tons of rare
earths in 2008, 92% of which came from China. There is a
stock pile of the minerals in Japan already, but trading
houses are saying that the situation needs to be cleared
up or production shortages will happen. (Source: TT
commentary from, Sep 25, 2010)

-> Oracle Japan shares sink 9%

The shares of Oracle Japan (4716) sank by more than 9% on
Friday, on the news that the parent company in California
is requiring the Japanese operation to pay higher royalty
levels for licencing the U.S. firm's products. The Japanese
operation said that correspondingly its net profit would
probably fall by around 2% this year. ***Ed: This of course
opens the question as to how legitimate it is for a company
overseas to be listing in Japan while it obviously controls
the profit levels of the Japanese firm. Battling against
competitors locally is one thing, but the arbitrary
increase in royalties by a parent is clearly an act of
self-interest by the parent, at the cost of the Japanese
investors. We're surprised that the Japanese stock market
authorities or the Tax Office don't have anything to say
about this. Maybe Oracle is too big to bother?** (Source:
TT commentary from, Sep 24, 2010)

-> DeNA invests in Astro Ape

Mobile games company, DeNA, is trying to bulk up,
presumably to battle it out with U.S. player, Zynga. DeNA
announced this week that it is buying a stake in U.S.
game company Astro Ape. This announcement comes hot on the
heels of an investment by DeNA last week in a company
called GameView. DeNA has said that it wants to be an
“X-device, X-border” company, meaning that it will be
ubiquitous around the globe. (Source: TT commentary from, Sep 24, 2010)

-> Paris Hilton denied entry to Japan

Not that we really care, but it's interesting to see that a
fine old tradition starting with Paul McCartney many years
ago is still being pursued by the Immigration authorities
-- the tradition of turning back famous people at the
border if they have drug offenses on their resume. In this
case, Paris Hilton was refused entry because of her cocaine
drug arrest in August 2010 in Las Vegas. Although she got
off with a misdemeanor charge at the time, the Japanese
Immigration authorities didn't think 0.8gm of cocaine was
such a minor offense and sent her packing. (Source: TT
commentary from, Sep 22, 2010)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.



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Start a Company in Japan

Entrepreneur's Handbook Seminar, October 2nd, 2010

If you have been considering setting up your own company,
find out what it takes to make it successful. Terrie
Lloyd, founder of over 13 start-up companies in Japan,
will be giving an English-language seminar and Q and A on
starting up a company in Japan.

This is an ideal opportunity to find out what is involved,
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In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to

*** In Terrie's Take 582, we mentioned a news item about
Chinese manufacturer Haier looking at beefing up its sales
here in Japan. A reader responded with first-hand
experience of the company's products, that suggest that
Haier still has a lot of work to do to really earn a major
share of the Japanese market.

=> Reader: Just a quick note about Haier products: two
years ago, we decided to purchase a new washer/dryer. Since
the Haier products were, on a feature-by-feature basis,
considerably less pricey, we decided to give it a try. Big
mistake! The product only lasted a few months, and we soon
ended up going back to a more reliable Japanese brand.

Perhaps things have improved over the past two years, but
if they want to take a bigger share in the Japanese market,
even with price competition, they will need to learn to
provide higher quality products and services. In any case,
we don't plan on using their products for a very long

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