Terrie's Take 829 -- Japan-related Aid Corruption in Asia Revisited, e-biz news from Japan

Terrie's Take terrie at mailman.japaninc.com
Mon Nov 23 16:45:47 JST 2015

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term 
technology and media entrepreneur living in Japan. 

General Edition Sunday, November 23, 2015, Issue No. 829

- What's New -- Japan-related Aid Corruption in Asia Revisited
- News -- Legal development in Australia-Japan whaling stand-off
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Outlet shopping in Gotemba, Delicious kushi-katsu in Osaka
- News Credits

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After the successful preliminary agreement on TPP (Trans-Pacific 
Partnership), it seems that Japan is embarked on a "China-containment" 
strategy that consists of three main prongs: trade-exclusion, military 
rivalry, and SE Asian alliance building. The first prong is embodied in 
TPP, which obviously excludes China, and in which Japan found enough 
benefit that they sacrificed a number of holy cows (e.g., agriculture 
and pharma IP control) to satisfy the demands of the other signing 
countries. Handy that Abe and the LDP has such a stranglehold on the 
nation's law-making bodies, he can force through any resulting legislation.

The second prong is that of military rivalry. While a confrontation over 
the Senkakus or the Spratlys in the South China sea may yet lead both 
countries to mutual harm, our guess is that there will mostly be 
posturing and tense moments. Because both nations understand that there 
is too much financially at stake to be openly at war. Still, it would be 
good if Abe stopped stirring the military pot by keeping his nose out of 
what is going on in the South China sea concerning the Chinese building 
islands and air strips. Instead, he should leave it to the USA, Vietnam, 
the Philippines, and other local countries to neutralize any threats posed.

For a good overview of what China is doing on Mischief Reef, Subi Reef, 
and Fiery Cross Reef, read this excellent NY Times article:


The third prong is alliance building. This area of activity is the 
loosest in terms of action and results, but can basically be defined as 
Japan's foreign aid and infrastructure financing program and how it is 
implemented. It is in this sector that China and Japan are really at 
"war", and there was no better illustration of how high the stakes can 
be than when Japan lost what was considered to be a shoe-in bid for 
Indonesia's bullet train project, to China back in September.

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[...Article continues]

The Indonesian project somehow became unraveled when the Indonesian 
government declared that a high-speed train line was an inappropriate 
use of public money, and priority should instead be given to helping the 
nation's underdeveloped outlying islands. This forced the project into 
the private sector, where the Japanese companies involved were suddenly 
at a huge disadvantage because of their lack of access to safe funding. 
The Chinese bidder on the other hand had full backing of its government 
and financial institutions and was able to fund the project without 
Indonesian state guarantees.

It doesn't take much to see that the Chinese outsmarted the Japanese on 
this project, realizing about a year ago how to help their contacts in 
the Indonesian government sidestep its obligations to Japan and gain a 
shiny new high-speed rail service for no money down. We suppose that's 
the benefit of having a much bigger base of bureaucrats with overseas 
experience to draw from.

Anyway, Abe and co. were extremely miffed by this upset, and a couple of 
days ago the PM announced that Japan will in the future provide 
non-guaranteed loans to public organizations, providing there is 
"sufficient involvement of the governments of those countries." The new 
stance will mean that vetting loans will take just 18 months versus the 
36 months it has taken to date, and more importantly, that loans can be 
made without encumbering target country governments with "inconvenient" 
guarantees. Japan plans to provide about US$110bn of such soft loans 
over the next five years. Nice for those receiving such lavish attention...

Yeah, and nice for those in those governments who don't mind a little 
bit of corruption, either.

A quick look on Google for the search terms "Japan International 
Cooperation Agency" (JICA) and "corruption" reveal a broad range of 
articles from independent journalists around Asia. JICA may not be the 
instigator of the many allegations of corruption, but it sure does seem 
to be at the center of them, facilitating as it does a huge flow of 
funds into numerous poorly audited projects and the grasping fingers of 
the actors behind them. For example, take the case of a flood control 
project for Metro Manila (Philippines) which is being partly funded by 
JICA and where the writer points out that the original topographical 
study upon which all future construction will be based, is substandard 
and full of mistakes.


Or this charge of corruption involving JICA-funded irrigation works in 


You can find tons of these examples on the web, although surprisingly 
few of them get reported in the Japanese media -- probably because very 
few international corruption cases are brought to trial in Japan. 
Actually, the OECD had some damning words about Japan's lax attitude to 
foreign corruption in its report in December last year, where it said 
that, "The Action Plan (by METI in response to another damning OECD 
report in 2013) fails so far to rectify misleading information on 
'facilitation payments'..." and continued with, "...expects that METI 
will not delay any further in making it clear in its Guidelines that 
'facilitation payments' are not exempted by Japan's foreign bribery 

In a nutshell, the OECD is saying that the Japanese bureaucracy needs to 
make it explicitly illegal to pay bribes. Apparently at the moment it's 
just "a bit naughty".

The same OECD report also pointed out that until 2013, there were just 
three prosecutions since 1999 involving Japanese companies bribing 
foreign politicians, versus almost 100 cases in the USA. In fact, the 
U.S. Securities Exchange Commission (SEC) these days is eagerly 
prosecuting Japanese companies that have businesses in the USA, for 
paying bribes which are not even connected to the USA. This is both a 
nice source of income for the SEC and a continuing source of 
embarrassment to the Japanese government. For example, Hitachi was 
dinged two months ago for "violating the FCPA by inaccurately recording 
improper payments to South Africa's ruling political party in connection 
with contracts to build power plants." In the end, Hitachi paid US$19m 
to settle the charges. You didn't read that in the Japanese press did you?

Another entertaining case involves the target biting the hand that feeds 
it. Faced with criticism over corrupt use of Japanese aid in a drainage 
project, Cambodia's PM Hun Sen said his week that his government had 
never received funds directly from Japan. Instead, he said, "...monies 
were channeled directly into specific projects by Tokyo. The bidding is 
taking place in Tokyo, and Japan controls the budget... if corruption 
exists, the Japanese government should be criticized, not the Cambodian 
government." The newspaper that carried that quote, the Phnom Penh Post, 
said that  JICA has previously attributed any budget discrepancies to 
"currency conversions".

Cool... Ummm, or maybe not.

http://bit.ly/1Ob0RZ9 (original article)

The Japanese government and its JICA agency may not be directly involved 
in corruption, but the flow of easy and significant funds to developing 
countries is just too much of a temptation for the local authorities 
involved. How to fix this is difficult to say, but clearly proper 
auditing and legal penalties for the Japanese players is a starting 
point. Yes, this is tough when you're up against a competitor like China 
and where legal niceties are unlikely to be a major concern to them. 
Still, without some serious carrot-and-stick action against Japanese 
players in Asia, it's hard to see anything changing any time soon. Even 
more so now that the Abe government is going to be pouring hundreds of 
trillions of new yen into the region.

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+++ NEWS

- Fortress to double-down on Japanese hotels business
- New ADB-Japan infrastructure fund
- Legal development in Australia-Japan whaling stand-off
- Fine-tuning tax for stock prices
- Gold KitKats

=> Fortress to double-down on Japanese hotels business

Fortress completed a US$1.1bn Japan-dedicated fundraise in October, most 
of which will be allocated to buying and upgrading hotel assets in 
Japan. In the last month alone the company had already pumped US$180m 
into a variety of projects, and has many more lined up. ***Ed: 
Interesting to see Fortress being so bullish on Japanese inbound 
tourism, and a clear signal to other investors that they need to move 
quickly to capitalize on the situation -- else they will get stuck 
having to build assets from scratch. Equally interesting will be to see 
the push beyond the major cities to more rural areas.** (Source: TT 
commentary from reuters.com, Nov 21, 2015)


=> New ADB-Japan infrastructure fund

Per our editorial today, the Japanese government is significantly 
ramping up its competitive capability against China. The latest salvo is 
a new US$16bn infrastructure fund created with the Asian Development 
Bank (ADB) in the Philippines. The new fund will focus on urban 
transport (bullet trains, anybody?), renewable energy, and other 
infrastructure. Japan's JICA will inject US$1.5bn directly, and will 
provide another US$5bn in co-financing for actual projects. ***Ed: 
US$1.5bn sounds like a lot to set up a fund when the ADB already has 
delivery capability internally.** (Source: TT commentary from 
tribune.com, Nov 22, 2015)


=> Legal development in Australia-Japan whaling stand-off

Even as Japan is begging Australia to buy AUD50bn of submarines, she 
also continues to aggravate an otherwise great bilateral relationship by 
pursuing whaling in the Southern Ocean. But this last week has brought 
an interesting development, where Kyodo Senpaku Kaisha, the 
government-backed company that is responsible for the whaling in the 
first place, has been found guilty and fined AUD1m for hunting whales in 
Australia's Antarctic whale sanctuary. The sanctuary is an area that 
extends 200km from Australian territory claimed in the Antarctic. Japan 
maintains that the area is the High Seas, and so we assume the next 
stage is that the plaintiff, the Humane Society International (HSI), 
will seek enforcement of the fine and eventually to drag the Australian 
government into the issue. ***Ed: This would seem an ideal time for 
Australia's new PM, Malcolm Turnbull, to do a bit of horse-trading -- 
certainly something that the Japanese understand.** (Source: TT 
commentary from csmonitor.com, Nov 18, 2015)


=> Fine-tuning tax for stock prices

The Nikkei has floated a trial balloon on the behalf of the government 
whereby the Financial Services Agency (FSA) is going to ask the Ministry 
of Finance for a tax change that will allow inheritance tax discounts 
provided for property to be extended to stock holdings as well. 
Currently land holdings are taxed at 80% of the official appraisal and 
buildings at 50-70% of construction cost. In the next 15 years, 
approximately JPY100trn in assets are expected to be passed on as 
inheritances. Therefore, if a 10% discount were applied to those 
inheritances involving shares, JPY50trn that would normally be 
liquidated to pay death duties would instead stay in stocks. ***Ed: If 
this sounds like a shell game, it is. There is plenty of scope for the 
government to goose the country's stock market and so encourage a bunch 
more private investor money into more risky assets. A few months ago we 
saw the world's largest pension fund, the GPIF, reconfigure its 
investment portfolio for more exposure to stocks and thus unleashing 
JPY2trn-JPY5trn of new funds into the markets. That had some effect, but 
not enough to fuel the level of inflation that the government wants to 
inflate away its debt obligations.** (Source: TT commentary from 
nikkei.com, Nov 19, 2015)


=> Gold KitKats

Since it's been a dark week for world news, it's fun to see Nestle Japan 
continue building their KitKat brand by releasing a gold-leaf version. 
Only 500 of the new gold-covered KitKats will be sold, with each finger 
selling for US$16 each [Ed: Wonder if this means US$64 per packet?]. 
Nestle is doing a roaring trade with foreign tourists who enjoy the 
unique flavors available in Japan, including green tea, wasabi, 
strawberry, Okinawan pumpkin, and 26 other flavors. (Source: TT 
commentary from theguardian.com, Nov 20, 2015)


NOTE: Broken links
Some 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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Title: "Wednesday December 2nd, 2015 - ICA Japan End of Year Bonenkai"
Details: Complete event details at http://www.icajapan.jp/
Date: Wednesday, December 2nd, 2015
Time: 19:30pm to 22:30pm - Doors open
As a set menu it will include multitude of food including Beers, Wines, 
Juices, Shochu and Soft Drinks etc.
Cost: 5,500 yen - Open to all. No sign ups at the door!!!!!!! First 
registered will secure a place as seats are very limited
RSVP: By 4pm on Friday 27th November, 2015. Venue is Andy's Shin 
Hinomoto at Yurakucho



=> No corrections or feedback this week.



=> Shop at Gotemba's Premium Outlets, Shizuoka
Shuttle from Shinagawa for some shopping near Mt Fuji

Want to bring your wardrobe up to Tokyo fashion standards? Eager to 
escape the capital for a day? You can do both on a trip to the Gotemba 
Premium Outlets, located at the base of Mt Fuji in Shizuoka Prefecture. 
There's no need to stress over train schedules or station transfers. A 
direct bus runs from just outside Shinagawa station, leaving daily at 
8:10am and returning at 6:20pm. The bus stop is located a few minutes' 
walk from the Konan Exit (East Exit) of Shinagawa Station and is clearly 
marked in English.

On the day I went, the bus pulled out promptly at 8:15am and, despite 
all of the Tokyo area traffic, returned exactly at 6:20pm as scheduled. 
While same-day seats are available on a first-come, first-served basis, 
it's advisable to book ahead to avoid disappointment. Tickets can be 
easily purchased and printed from the Premium Outlet's user-friendly, 
multilingual webpage. The price is an incredible bargain at ¥2880 for a 
round-trip ticket.

The bus deposits passengers at the edge of the West Zone. The Premium 
Outlets boast 210 individual stores, divided into two zones - West and 
East. The two areas are joined by a long pedestrian bridge that boasts 
stunning views of Mt Fuji. At the entrance to the East Zone, don't miss 
one of the most photogenic spots in the entire complex, where you can 
snap a photo of yourself with Japan's highest peak looming over your 


=> Night Trip to Shinsekai, Osaka
Tips on direction and food

If you are going to Osaka, you must visit Shinsekai. It looks like a 
pop-up town from an anime, with large neon lights and decorated 
figurines. It is also well-known for a special kind of fried food called 
Kushi-katsu which is really delicious. To get there, get off at either 
Doubutsuen-Mae Station or Ebisucho Station. Note, though, that if you 
come from Ebisucho, you will not see the pufferfish and other cool 
decorations as you walk towards the tower.

The iconic food at Shinsekai is Kushi-katsu, which is actually anything 
fried on a stick. It can be vegetables, meat, cheese or even mochi. The 
batter is extremely crispy and you can dip the food into a bowl of 
specially made sauce. Remember not to dip your stick more than once into 
the sauce for hygiene's sake. The most popular restaurant is located 
near the Tsutenkaku Tower and is called "Kushikatsu Daruma". There is an 
English menu as well as instructions on the table. They have foreign 
staff who can speak English to help you with your order. Kushikatsu 
costs around ¥105-210 per stick and you get free-flow cabbage slices to 
balance the fried food. You should be full after 10 sticks, so it is 
very economical.




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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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