Chinese buying power unnerves Japan

MISASA, Japan – A plan by Chinese
real estate developers to invest in this little mountain town has opened a
window onto a Japanese crisis of confidence.

For locals here, the planned
development – vacation homes for rich Chinese – is a welcome infusion of
capital into a town that has been in decline since its heyday in the 1980s as a
hot spring resort.

But seen from elsewhere in Japan –
there have been news accounts in the national media, not all of them accurate –
the investment is a menace to the area’s pristine forests and streams, a land
grab that threatens the country’s natural resources and a chilling reminder of
the expanding shadow cast by China, which recently surpassed Japan to become
the world’s second-largest economy after the United States.

“Targeted by Foreign Money? Japan’s
Forests for Sale,” was the warning title of a news program in September by the
public broadcaster, NHK.

A fear that “China money” is buying
up the Japanese homeland is spreading across this nation, fanned by news
reports and a general anxiety over Tokyo’s fading economic prowess and an
increasingly hostile wealthy neighbour. The amount of money invested is still
small by China’s standards, but seems to be setting off an outsize reaction
among the Japanese.

Tokyo’s recent retreat from the
diplomatic face-off over the arrest of a Chinese trawler captain, and China’s
suspension of shipments of vital industrial metals and minerals to Japan, have
also put many Japanese on edge.

“I’m all for closer ties with China,
but we need to be on our guard,” said Hideki Hirano, author of the book
“Japan’s Forests Under Siege: How Foreign Capital Threatens Our Water Source,”
which was published in March. “We need to be more vigilant about who’s buying
what.”

Here in Misasa, however, nationalist
rhetoric is often tempered by pragmatism.

“Rich Chinese spend money in ways
that no longer exist in Japan,” said Kiyomi Kawakami, a local developer who
plans to build 47 luxury homes in Misasa with partners from Shanghai.

“People warn me not to sell land to
the Chinese,” he said. “But I run a business. If somebody’s buying, I’m
selling.”

Whether in far-flung corners of Japan
like Misasa or in corporate boardrooms, there is a realization that as the
Chinese economy booms, Japan needs – even as it remains wary of – China’s
money.

The sentiment is reminiscent of the
way Americans feared Japanese economic imperialism in the 1980s, alarmed by the
acquisition of U.S. icons like Rockefeller Center by Mitsubishi and Columbia
Pictures by Sony.

Chinese companies spent $120 million
in the first half of this year to acquire various small and midsize Japanese
enterprises, taking advantage of depressed asset prices, according to a recent
report from Goldman Sachs. The figure represents a sixfold increase from the
comparable period last year. China is also now Japan’s biggest trading partner,
with overall trade surging by a third, to 12.6 trillion yen ($151 billion) in
the first half of the year, compared with the same period last year.

“We shouldn’t think it a bad thing
that foreign investors are recognizing value in Japan,” said Kazuhiko Masumoto,
an analyst at the Mitsubishi Research Institute in Tokyo.

But Japan’s finance ministry has
seemed slow to agree.

Recently, Japan’s finance minister,
Yoshihiko Noda, asked Chinese policymakers to “clarify their objectives” after
recent bulk purchases of Japanese government bonds. Tokyo was concerned that
the buying was helping to drive up the yen’s value – making Japan’s exports
less competitive with China’s.

Bowing to economic realities, and
Japan’s already high levels of public debt, Finance Ministry officials have
since then played down the conflict, saying Japan was happy to find foreign
takers of its government bonds.

Until the trawler dispute prompted
some tour groups to at least temporarily cancel trips to Japan, waves of newly
rich Chinese tourists, with pocketbooks open, had been welcomed in Japan – even
while heightening a sense that the country is at the mercy of rich Chinese.

Reports of Chinese snapping up
Japan’s mountains and forests have struck a raw nerve, however. Although Japan
is known for its big cities, about 70 percent of its landmass is mountainous
forest, and the purchases raise the spectre of China’s gaining control of the
cherished hinterlands.

Japan’s logging industry is in
decline, as the country has been flooded with cheap imported timber. As a
result, forest real estate now sells for rock-bottom prices, and many plots
have been abandoned by absentee or aged owners and have fallen into a state of
neglect.

In January, the Tokyo Foundation, a
respected independent research organization where Hirano, the author, is an
analyst, issued a widely read report warning that foreign brokers could extract
natural resources like timber and water and threaten Japan’s national security.

“If we wait until the exploitation of
Japan’s natural resources by global interests is well under way,” the report
said, “it may be too late.”

Since then, local news media have
been sounding alarms, with accounts of deals, or potential deals, with Chinese
developers – including a report of the sale of 23 hectares of forest on the
northern island of Hokkaido to a Chinese broker.

Then came news that Chinese investors
were inquiring about mountains in Mie prefecture in western Japan, along with
recent coverage of the development plans here in the spa town of Misasa.

Not all of the reports have been
accurate.

Still, the government has ordered a
nationwide survey of sales of woodlands to foreigners.

“There have been rumours of foreign
companies quietly buying woodlands, so we decided to investigate,” said
Takayuki Doi, a senior official at Japan’s Forestry Agency. It is unclear what
the government can do, however, since foreign ownership of forests is legal in
Japan.

Kawakami, the developer in Misasa,
has received visits from worried local officials over his plans to team up with
Chinese investors.

His plans, he says, simply involve
building mountain villas that he had initially planned to sell to Japanese
buyers. But after a four-month marketing blitz yielded just two bidders in the
sluggish domestic market, Kawakami turned to China. In June, he set up a joint
venture with a Shanghai-based developer to build and sell the holiday homes.

“I wanted to sell to Japanese,” he
said, “but Japanese can no longer afford second homes.”

Whatever the wisdom of selling to
rich Chinese, Misasa, like the rest of Japan, could use the cash.

Once a thriving hot spring resort,
Misasa attracted almost 600,000 tourists a year in Japan’s bubble era, drawn by
attractions including a spa-themed amusement park.

But by 1998, the park had gone bust,
crippled by over 1.7 billion yen in debt. The attractions fell into disrepair.
Tourist numbers dwindled.

Now, the town of 7,000 is desperate
to attract new visitors.

Michiko Mifune, 81, runs the Kiya
Ryokan, one of Misasa’s oldest traditional inns. She says she has heard the
rumors – that the Chinese are supposedly taking over Japan’s forests. But
recognizing that newly rich foreign tourists come with pocketbooks open, she is
eager to have more visitors to Misasa from China.

She recently learned the word
“huanying” – “welcome” in Chinese.

“Nobody cared about Misasa until
now,” Mifune said. “Now that foreigners might be after it, suddenly everyone
cares.”

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