Japan must allow more foreign investment to remain globally competitive, create jobs, and prevent Japanese manufacturing from moving overseas because of cheaper costs, according to a recent study commissioned by the American Chamber of Commerce.
Japan may still be Asia's business hub, but in 10 years or 20 years, Shanghai may take that spot, Kyoji Fukao, a professor at Hitotsubashi University in Tokyo and Tomofumi Amano who conducted the study, said yesterday.
"We don't have much time left," he told reporters.
Fukao, who is also a lecturer at Tokyo University, warned that Japan is losing out in the global race to attract investment.
Foreign direct investment was 1.1 percent of Japan's GDP, lagging far behind the US at 12.4 percent and 32.3 percent for China, the study said.
Japan's decades-old policy of discouraging outside investors, the existence of massive government-held companies and the misconception that Japan doesn't need foreign funds have stood in the way of luring investment, Fukao said.
Although foreign investment generally generates jobs and efficiency, many Japanese equate all foreign investment with "vulture funds" and mistakenly believe such investment benefits only urban areas or leads to stolen technology.
Vulture funds are investment funds that buy up a company's or a country's debt at cheap prices, and then sells it off quickly for a profit.
American Chamber of Commerce official Nicholas Benes praised Prime Minister Junichiro Koizumi's vow to double the amount of foreign investment here in the next five years.
But he said not everyone in the government is fully behind reform.
At the rate foreign investment is growing now, it will total about ?4 trillion (US$37 billion) after five years, far less than the ?9.4 trillion (US$87 billion) needed if Koizumi is to make good on his promise.
"The administration should focus on achieving that goal for the benefit of the people of Japan," Benes said.
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