While Tokyo is capital of the world's number-three economy and offers attractive incentives such as tax breaks, it also has a number of stumbling blocks Japan is hoping to lure businesses considering relocating from Hong Kong, but it faces some tough obstacles, and competition Photo: AFP/File
business

Japan finds luring businesses from Hong Kong may be tough

48 Comments
By Etienne BALMER

Tokyo is on a charm offensive, hoping to lure firms in Hong Kong spooked by protests and a controversial security law imposed by China. But the city is proving a tough sell.

"I want to make Tokyo Asia's number one financial city," Tokyo Gov Yuriko Koike said in October, as the Japanese capital opened an information centre in Hong Kong for international businesses considering a move.

Tokyo's courtship comes with some concrete promises, including temporary office space in the city for foreign financial firms that want to try out life in Japan.

There are also a number of more theoretical incentives being floated, including tax breaks, streamlined bureaucracy and even a special economic zone like Shenzhen, China's Silicon Valley.

In some ways, Japan might seem an obvious alternative for businesses looking to leave Hong Kong: it is the world's third-largest economy, home to the Tokyo Stock Exchange, and already houses outposts of numerous financial institutions and international firms.

But there are some serious stumbling blocks, and competitors, that experts say mean Tokyo's hopes for regional financial dominance may be little more than a pipe dream.

For a start, Japan's income taxes are sky high, comparatively, topping out at 45 percent against Singapore's 22 percent and Hong Kong's 17 percent.

Low English fluency levels are also a chronic handicap, as is the country's comparatively sluggish adoption of digital technology.

Trade on Tokyo's stock markets was halted for an entire day last month because of a "hardware failure" -- a glitch seen as unlikely to boost confidence and bring new traders flocking.

Michael Mroczek, president of the European Business Council in Japan, said there were high hopes for new Prime Minister Yoshihide Suga's digitization and deregulation push.

But "there's also a lot of skepticism because there haven't been a lot of changes" over the years when similar initiatives have been proposed, he added.

Japan's particularly strict approach to border control during the pandemic -- for months foreign residents were not allowed to return even as Japanese citizens did -- has been seen by some as "discrimination" and could also be off-putting for tentative transplants, added Mroczek.

Tokyo is also not the only Asian city seeking to take advantage of a potential Hong Kong exodus.

Australia has announced new visa opportunities for Hong Kong students and entrepreneurs, and officials have said they will be "very proactive" in encouraging businesses to relocate.

And while Singapore's government officially says only that it seeks a "stable, calm and prosperous" Hong Kong, it is probably the most obvious alternative for firms, said Rajiv Biswas, Asia-Pacific chief economist at consultants IHS Markit.

"Most international financial services firms may already have a large presence in Singapore, and therefore may prefer to expand their existing operations in Singapore rather than finding another new location," he told AFP.

There are still questions, though, about whether an exodus from Hong Kong is really on the cards, whichever regional city stands to gain.

"I wouldn't expect big firms to announce that they are pulling out of Hong Kong completely," Mark Williams, chief Asia economist at Capital Economics, told AFP.

"It's more likely that firms will just gradually reduce their headcount in Hong Kong and increase it elsewhere."

And despite jitters over freedom of expression, Hong Kong "remains the primary gateway to mainland China" for investors and financial services companies, said Stephen Innes, chief global markets strategist at AxiCorp.

Since 2014, the Hong Kong stock exchange has been directly connected to Shanghai's, allowing companies based in Hong Kong to invest in listed Chinese companies more easily.

And Hong Kong's proximity to Shenzhen is another important plus for some businesses.

"Wait and see is the general attitude," one expat employee at a major Western bank in Hong Kong told AFP on condition of anonymity, adding he personally was not yet thinking about relocating.

Innes said regional hubs like Singapore might also fear China's wrath if they seek to siphon off business.

No one "in the region wants to bite the hand that feeds", he said. "It is way too early to write Hong Kong off."

© 2020 AFP

©2020 GPlusMedia Inc.

48 Comments
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I think making Japan comfortable for outside investment means a lot of uncomfortable questions about the way its being done here.

Yeah, nothings gunna change...

31 ( +34 / -3 )

Perhaps if Koike-san had vocally called for equal re-entry rights for all residents earlier this year, HK companies might find Tokyo a tiny bit more attractive.

25 ( +26 / -1 )

Looking forward to Koike-TV again shortly, telling everybody what they need to do.

7 ( +10 / -3 )

Duh,...obvious:

For a start, Japan's income taxes are sky high, comparatively, topping out at 45 percent against Singapore's 22 percent and Hong Kong's 17 percent.

Low English fluency levels are also a chronic handicap, as is the country's comparatively sluggish adoption of digital technology.

I think HK could go communist 100% and have both hands tied behind its back, and STILL come up on top of Japan.

22 ( +25 / -3 )

Why move to Japan and endure cramped conditions in a country that doesn’t even want you to be there?

27 ( +30 / -3 )

Among expats here in Japan the way the border control issue was addressed compared to Singapore is huge. This issue was allowed to fester and continue by the government here and is now well known overseas. The way Japan has handled this issue will have a major impact. Unfortunately the government is too arrogant to concede this and in the end their plan will fail.

23 ( +25 / -2 )

if Tokyo was attractive to companies.... they'd already be here....

32 ( +34 / -2 )

Yeah right!, and end up trapped here unable to leave because of the PCR test requirement for foreigners prior to re-entry .

20 ( +21 / -1 )

For a start, Japan's income taxes are sky high, comparatively, topping out at 45 percent against Singapore's 22 percent and Hong Kong's 17 percent.

Actually, it tops out just shy of 56% with the 2.1% surtax added to the highest marginal rate of 45%, plus a 10% inhabitants tax.

HK and Singapore also have ways to exempt funds from taxation that Japans would never accept.

17 ( +18 / -1 )

Agree with the above posters but with a note that, in the end, financial companies care about one thing and one thing only and that is “ show me the money !”

the major obstacle is the firm hold by the Japanese big banks and brokers over Japanese money from Japanese companies as well as Japanese government. Japan Post with huge saving reserves from the man in the street here, has stil a lot of trust from that man. And Japanese, companies, individuals, brokers even, rather trust Japanese with their money.

so , while all other very real problems might be overcome, including a declining GDP and depopulation, the main reason to come to Japan is not present.

16 ( +17 / -1 )

It will never happen!

The tax rate alone is enough to put them off!

22 ( +23 / -1 )

Tokyo's hopes for regional financial dominance may be little more than a pipe dream.

But what the writer fails to note, in their rush to "promote" this far fetched idea, is that the PR coming from Koike and others is mainly directed to the domestic audience, and not Hong Kong or any other city or country in general.

Just like Abe, Koike puts out the ideas, the people look at her as if she is doing something! Even though there is nothing to really back it up.

Just like the idea of offering "English" assistance to foreign businesses!

24 ( +25 / -1 )

Yeah, nothings gunna change...

because Japan -unlike a lot of countries-, has its act together.

-24 ( +1 / -25 )

Japan's particularly strict approach to border control during the pandemic -- for months foreign residents were not allowed to return even as Japanese citizens did -- has been seen by some as "discrimination" and could also be off-putting for tentative transplants, added Mroczek.

Seen by some?? Anyone who is not a right wing nutjob or a foreign sock puppet would see this as discrimination.

Among expats here in Japan the way the border control issue was addressed compared to Singapore is huge. This issue was allowed to fester and continue by the government here and is now well known overseas. The way Japan has handled this issue will have a major impact. Unfortunately the government is too arrogant to concede this and in the end their plan will fail.

well said!

13 ( +15 / -2 )

The ambush and treatment Goshn, reverberates loudly, why would a company want to set up shop here? They could be set up for something they totally have no control over and not being Japanese suffer the same fate as GOSHN to a judicial hostage system, saving face is the first and only thing that matters, knowing the truth is only secondary

19 ( +20 / -1 )

Yeah, nothings gunna change...

because Japan -unlike a lot of countries-, has its act together.

Haha....if that was the case Japan would not be needing to desperately attract foreign business and talent to slow its decline.

15 ( +16 / -1 )

All the above posters are spot on ( except our resident wisdomspeaking entertainer of course ). The cons of relocating to Tokyo vs another Asian  centre far outweigh the pros.

15 ( +16 / -1 )

about one thing and one thing only and that is “ show me the money !”

That is it ! People will come only if in the end there is enough money left to justify the move.

Cost is a problem; rent, taxes, insurances, English translation , police , courts.

There are many ways to skimming money off "foreign investments" and that is fine but it has to brought to something predictable.

12 ( +13 / -1 )

Haha....if that was the case Japan would not be needing to desperately attract foreign business and talent to slow its decline.

And FAILING to do so!

9 ( +11 / -2 )

UK:

Offers a direct route to British citizenship for a million Hong-Kongers

Citizens and residents treated exactly the same during this pandemic

Japan:

Offers temporary office space, no mention of visa routes let alone citizenship

Imposes discriminatory measures against residents during the pandemic

If you were a Hong Kong business person, which would you chose?

15 ( +17 / -2 )

If you were a Hong Kong business person, which would you chose?

mate, not even a fool would be dumb enough to choose Japan

11 ( +13 / -2 )

The article forgot to mention how unwanted leaders like Ghosh are treated. That’ll never go down. Tokyo, you’re dreaming.

16 ( +17 / -1 )

Tokyo-m......great example. Yet the Nagatacho suits keep scratching their heads.

11 ( +12 / -1 )

You know a country is bot attractive when even HK companies don’t see it as an improvement. Well done Japan!

9 ( +10 / -1 )

Not just income tax rate - but tax on worldwide income after 5 years and draconian inheritance tax laws.

9 ( +10 / -1 )

Japan's GDP rose an annualised 21.4% in the July-September quarter, making its biggest jump since records began in 1980.

-11 ( +0 / -11 )

Not tomention Japan's medieval justice system, inflexible mindset, rules for the sake of rules... I'll pack my bags.

6 ( +7 / -1 )

This topic is various forms seems to be coming up each week.

And the same comments from readers here:

"It's easy to set up a company or business here, but the challenge is running one, and the inflexible behaviour, attitudes and intransigence of banks and financial services agencies, real estate and property companies, personnel agencies and import/ export control is one of the major obstacles to any operation."

The National Tax Agency is the only one that operates digitally and actually helps businesses.

8 ( +10 / -2 )

Japan is the third largest economy in the world. They can get in on that by moving here. Also, English is not a problem. There are several expat communities here in Tokyo where everyone in the stores and restaurants etc. speaks English. Plus nowadays, English speaking employees are not so difficult to find. Many studied in the US or Britain or other English speaking countries.

-22 ( +1 / -23 )

The Nissan-Tokyo Prosecutor bid to frame Carlos looks kind of self-defeating now....

The #1 thing that Japan could do to draw HK business would be to offer immediate permanent residence to HK nationals that agree to invest a certain amount. That would give them some amount of protection from the CCP.

-11 ( +3 / -14 )

The problem lies with pro-China Japanese politicians/biz leaders. They are afraid of further disturbing Beijing authorities who try to shun capital flights & external support on HK democracy.

-1 ( +6 / -7 )

The #1 thing that Japan could do to draw HK business would be to offer immediate permanent residence to HK nationals that agree to invest a certain amount.

That is if permanent residence has any credibility which as we now all know has no meaning at all.

18 ( +18 / -0 )

The #1 thing that Japan could do to draw HK business would be to offer immediate permanent residence to HK nationals...

Well, we've all seen over the past few months how much that is actually worth now.

18 ( +18 / -0 )

The #1 thing that Japan could do to draw HK business would be to offer immediate permanent residence to HK nationals that agree to invest a certain amount

Only the mentally infirm or the not so sharp expats who failed to make it to HK or London go for a PR in Japan. As pretty much everyone here has noted, the level between HK and Japan is massive and irreconcilable, only the non-professionals and unskilled come to Japan, the brighter ones go to HK or Singapore.

10 ( +12 / -2 )

Both HK and Singapore are more congenial as places to live, unless you are long term committed here thru family or similar.  Tax rates here ridiculous, living conditions not so great unless paying a fortune in rent or to buy, regulation in may industries labyrinthine and excessive (although both HK and Singapore also pretty bureaucratic).  Plus side, can travel domestically here, great food, great culture. generally good people.

But this dream of Tokyo being some world financial centre and luring people from elsewhere has been around since forever and nothing ever comes of it.  If anything there are less expats here now that before. 

Seoul spouts this nonsense as well every couple of years and nothing comes of it for almost the same reasons.

-2 ( +6 / -8 )

Foreign financial companies: Show me the tax incentives and your monetary potential!!

Japan: shrug

Why move to Japan and endure cramped conditions in a country that doesn’t even want you to be there?

Before 2008 Great Recession, Japan was still a crown jewel of Asia for one reason. Access to Western capitals and markets. China used Japan as an intermediary of getting easy access into American markets as well as getting favorable loans from Western banks. Japan's big stick for China is the status of net creditor and a strong export powerhouse that everyone is willing to lend you money.

However, it all changed after 2008 as China no longer needs to go through Japan to get what it needs. They can do it directly with the West without going through bureaucratic Japan. The similar story is also found in the Asian underworld where Japan was hailed as the best transshipping point of drugs into the West. However, China and Vietnam had their own communities in the West, so now they ship the drugs directly without going through Japan.

Not tomention Japan's medieval justice system, inflexible mindset, rules for the sake of rules... I'll pack my bags.

And a delusion of thinking Nihon is still great.

It will never happen!

The tax rate alone is enough to put them off!

Yeah but you have to be sympathetic with the LDP cronies. Japan's high standards of living and stable employment rate are both ensured through the equalization of wealth (aka Communism). Insane tax rate forbids anyone to get rich. Everyone gets the same equal share of a declining economy without any reform.

If Japan is going to fully adopt American capitalism tomorrow, which they are gradually doing, then you kiss good-bye with that "social stability" myth.

Just like Abe, Koike puts out the ideas, the people look at her as if she is doing something! Even though there is nothing to really back it up.

Well, Koike is probably fed up of staying around with bureaucratic buffoons in the government. She would like trying reform Japan but the old fools are too stubborn to change. It is a similar story with Shinzo Abe.

6 ( +15 / -9 )

Throw in a free FAX machine to seal the deal.

4 ( +10 / -6 )

Luring is cheating.

7 ( +11 / -4 )

Although it’s difficult for Japan to lure the financial companies in Hong Kong, it’s easy for this kind of articles to lure the persons with daily frustrations.

-8 ( +5 / -13 )

yubaru:

But what the writer fails to note, in their rush to "promote" this far fetched idea, is that the PR coming from Koike and others is mainly directed to the domestic audience, and not Hong Kong or any other city or country in general.

So true. Either the Japanese government is delusional and/or, as is usually the case, they're doing this to make the Japanese think that Japan is some utopia that foreigners look at in awe. This, and TV programmes like that 'what are ユー doing in Japan' smack of desperation. I saw a bit of that programme at the gym the other day and I swear, some gaijin looked in amazement at how gooey natto was. Maybe the government can tout the benefits of natto to attract foreign businesses.

0 ( +8 / -8 )

tokyo-m:

The #1 thing that Japan could do to draw HK business would be to offer immediate permanent residence to HK nationals...

Well, we've all seen over the past few months how much that is actually worth now.

Border entry conditions in HK have been exactly the same for residents (not even permanent) as it has been for HK Chinese nationals. ie you can still come back, although everyone has to isolate for 2 weeks. Hell, PR even line up with locals - no difference. There are many residents with Indian, Pakistani and Nepalese nationality and they have never been shut out. Everyone is tested at the airport and contact tracing and testing is very strict. PR means different things in different countries.

-6 ( +4 / -10 )

Only the mentally infirm or the not so sharp expats who failed to make it to HK or London go for a PR in Japan. As pretty much everyone here has noted, the level between HK and Japan is massive and irreconcilable, only the non-professionals and unskilled come to Japan, the brighter ones go to HK or Singapore.

I am an ex expat and PR in Japan. Can you please define "failed to make it " ? I think I match your criteria for mental or stupid

-5 ( +7 / -12 )

Talking of the competiveness of Japan, the continuous refusal by Japan post for air shipments to over a hundred countries citing the pandemic has and continues to impact hundreds if not thousands of export reliant small businesses. You can ship by EMS and Air to Canada, By air to New Zealand but only by Sea to the U.S. and Australia, where as, there are numerous daily flights to Australia from Japan by ANA, likewise, Emirates is flying almost daily from Tokyo and Kansai yet shipment to UAE is only by sea while shipment to Qatar is possible by EMS and air, England EMS and Air is possible but only by sea to Ireland. Meanwhile you can ship to some smaller outlay island countries by air or ems such as Guernsey, Guadeloupe and Cook Islands etc. The don't-care attitude of the gov't and gov't controlled Japan post is mind-boggling. Meanwhile, the gov't and city tax offices continue to bombard with company, city taxes, health and medical insurance, when one is only left with the difficult choice of cancelling orders due to the inability to fulfill them. It doesn't seem like the situation will improve in the next six months. People out there thinking Japan can compete with China are dreaming or living on past glory.

0 ( +8 / -8 )

The government of Japan is living in a constant state of denial and wishful thinking. NOTHING will ever change in Japan until that mindset is slapped right out of that cronyism's DNA.

0 ( +2 / -2 )

The language issues, the visa and residency issues, the finding an apartment and key money issues, transportation issues, even family issues. Japan would have to almost become another country to make it somewhat attractive. I mean, just being a foreigner at a language or international school is one thing, but re-locating your entire company or business. Yikes! Politicians don't understand this at all. Oh, and don't forget about the long process of opening up a bank account and sending money overseas issue. What a paperwork and hanko nightmare!

3 ( +3 / -0 )

Oh, and don't forget about the long process of opening up a bank account and sending money overseas issue. 

Yea, talk about sending money abroad. Have an account with 7 & i bank that I used to send small sums of

money abroad through WU for purchases that I make, later I got bombarded with letters to provide MyNumber to be able to continue using WU. Just ignored the requests and stopped using 7 & i bank. It is clear that it was a directive from the gov't to tie remittance which is mostly by foreigner to the MyNumber system for easy monitoring.

1 ( +2 / -1 )

The ambush and treatment Goshn, reverberates loudly, why would a company want to set up shop here?

Excellent point.

There was also the Olympus executive whistleblower who was run out of the country.

If you were a Hong Kong business person, which would you chose?

Probably Singapore if you wanted to avoid the risk of secret police arresting you and transferring you to the mainland on trumped up charges.

2 ( +3 / -1 )

@gokai_wo_maneku

 Also, English is not a problem. There are several expat communities here in Tokyo where everyone in the stores and restaurants etc. speaks English. Plus nowadays, English speaking employees are not so difficult to find.

This is an interesting statement. Have you ever come here to Japan?

2 ( +2 / -0 )

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