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Economy

Japan eyes screening technology investments as small as 1%

With China in mind, Tokyo seeks to increase oversight of foreign capital in critical areas

The Japanese government is considering tightening restrictions on foreign investment in strategic industries such as semiconductor manufacturing to prevent technology from falling into the wrong hands.

TOKYO -- The Japanese government is considering tighter restrictions on foreign investment in industries it sees as key to national security, such as nuclear power and chipmaking.

At present, overseas investors must seek approval from regulators when seeking to buy stakes of 10% or more in Japanese companies that operate in strategic sectors. The proposed change would lower the screening requirement to purchases of stakes of 1% or more.

Authorities are also weighing a rule that foreign investors' board nominations at shareholders meetings will be subject to government review.

The plan seeks to bring Japanese regulations into line with those of the U.S. and Europe, which have tightened their own rules on foreign investment to prevent advanced technologies and confidential information from falling into the wrong hands, especially in China.

Japan's Foreign Exchange and Foreign Trade Act requires foreign investors to apply for government screening if they plan to acquire 10% or more in listed companies that run businesses with national security implications.

Industries subject to this requirement include arms-making, aviation, aerospace, power, gas, telecommunications, broadcasting, railways and mobile phone manufacturing.

In 2008, Tokyo invoked the law to halt a U.K.-based fund's attempt to raise its stake in Electric Power Development, which operates a nuclear power business.

The government plans to submit a bill to amend the act lowering the minimum stake that triggers screening to the extraordinary Diet session in October. It aims to introduce the amended act by the end of 2020. This would be the first major change to Japan's foreign investment rules since 1980, when the restrictions were loosened.

Under the government plan, foreign investors who already own 1% or more in the specified companies would not be subject to screening, but would be required to report to the government if they wish to further increase their stakes.

Under the Companies Act, shareholders in Japanese companies can present resolutions at general shareholders meetings if they own 1% or more of the company's shares.

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