The Japanese government is currently preparing a new bill related to Japan’s “economic security” within the framework of a new form of capitalism in order to submit it to the next Diet session in January 2022. Japanese Prime Minister Kishida Fumio has discussed and fleshed out so-called new capitalism as a key policy platform of his administration. He set up a panel to discuss the topic, which comprises related cabinet ministers as well as 15 representatives from the private sector, including Tokura Masakazu, chairperson of the Japan Business Federation (Keidanren), and Shibusawa Ken, a descendant of Shibusawa Eiichi, a historic Japanese industrialist who made essential contributions to the formation of modern capitalism in the Japanese society.
Notably, the new capitalism of the Kishida administration includes proposals for the enhancement of Japan’s economic security in response to the changing global security environment. Indeed, lawmakers of the ruling Liberal Democratic Party (LDP) have been working on the formulation of Japan’s economic security strategy as a pivotal part of Japanese economic and industrial policies. Nonetheless, Japan’s economic security policy in Kishida’s new capitalism has been regarded as an “extremely ambiguous and elusive concept” as observed by Keio University Professor Hosoya Yuichi, a distinguished researcher on diplomacy and international politics.
What is the nature and significance of Japan’s “economic security legislation” to be deliberated in the National Diet next year?
On November 19, a council to discuss Japan’s economic security legislation was launched by the Kishida administration with a view to drawing up a bill to strengthen Japan’s economic security and submitting it to the next Diet session. The economic security council is chaired by Prime Minister Kishida, Economic Security Minister Kobayashi Takayuki, Chief Cabinet Secretary Matsuno Hirokazu, Finance Minister Suzuki Shunichi, and Economy, Trade and Industry Minister Hagiuda Koichi. In the meeting, Kishida stated that “it is crucial to fundamentally strengthen our country’s economic security measures as countries are racing to secure strategically important parts and materials and obtain key technology.”
On November 26, a panel of experts on Japan’s economic security policy was set up – chaired by Aoki Setsuko, professor of Keio University – in order to enhance Japan’s economic security strategy, especially the resilience of supply chains of strategically vital goods, such as semiconductors as well as medical products.
In addition, the legislation is expected to facilitate research and development of artificial intelligence (AI) and other critical technologies. With regards to the protection of domestic digital infrastructure, the Japanese government has planned to disperse data centers to regional areas, as today nearly 80 percent of Japan’s data centers are concentrated in the vicinities of Tokyo and Osaka. Out of both economic security considerations as well as risk management for natural disasters, the Kishida administration would invest in the development of new data centers in rural areas of Japan. Furthermore, the new legislation would reinforce Japan’s cybersecurity measures for electric power companies, financial institutions, and other economic security-related critical infrastructures as pointed out by Miyake Kunihiko, a former Japanese diplomat and research director of the Canon Institute for Global Studies.
Notably, it was reported that the Kishida government would invest approximately 500 billion yen ($4.4 billion) and plans to support the domestic development of semiconductors in Kumamoto Prefecture of Kyushu area by subsidizing an international program with Taiwan Semiconductor Manufacturing Company. Japan’s concern for supply chain chokepoints as well as economic security cooperation with the Taiwanese company is understandable given growing tensions between Washington and Beijing over Taiwan. Likewise, Tokyo and Beijing have been at odds over technology transfer, intellectual property protection, market openness, and transparency, as well as other trade issues.
Previously, China decided to stop its export of rare earth materials, which are essential for the creation of high-tech products, to Japan in the wake of a bilateral diplomatic dispute over the Senkaku/Diaoyu Islands in the East China Sea. In response, Japan has considerably reduced its dependence on rare earth materials from China. The case of Chinese rare earth elements could be considered to be an example of Japan’s economic security response to the territorial conflict with China, as pointed out in an article by Igata Akira and Brad Glosserman, visiting professors at the Center for Rule-Making Strategies at Tama University. In essence, domestic production of dual use materials including semiconductors and the protection of supply chains are strategically vital for Japan’s economic security strategy.
Likewise, Tokyo is concerned about economic security related issues, such as intellectual property theft, technology leakage, and economic espionage vis-à-vis Beijing. These strategic concerns have been shared with policymakers and strategists of Washington, as observed by Matthew P. Goodman of the Center for Strategic and International Studies (CSIS). Japanese government officials and policymakers are also aware of the strategic implications of recent U.S. policies regarding semiconductors, large-scale batteries, rare earth elements, and pharmaceuticals under the Biden administration, as pointed out by Tokyo University Professor Suzuki Kazuto. Suzuki argued that the Kishida administration would have to take a comprehensive approach for the enhancement of Japan’s economic security by integrating an economic team of the National Security Secretariat with other related ministries of Economy, Trade and Industry (for supply chains), Health, Labor, and Welfare (for pharmaceuticals), Land, Infrastructure, Transport, and Tourism (for rare earth materials), and Agriculture, Forestry, and Fisheries (for food security) in the midst of the China-U.S. geopolitical competition.
At the same time however, it has to be noted that China has been and will remain Japan’s largest trading partner in the foreseeable future. Although Japan’s economic security strategy has been developed in response to the rising Chinese power and the China-U.S. geopolitical rivalry, Tokyo would not desire to jeopardize its economic and trading partnership with Beijing, which accounted for approximately 25 percent of Japan’s imports in 2020.
Moreover, China’s political influence over regional economic integration processes in the Indo-Pacific area cannot be underestimated. The Japanese economy has been dependent upon China, and Beijing could be a main beneficiary of the Regional Comprehensive Economic Partnership (RCEP), which will enter into force on January 1, 2022. Moreover, China has shown its interest in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), whereas the Biden administration has been cautious about rejoining the multilateral free trade framework.
In the regional economic integration processes in the age of China-U.S. rivalry, the Kishida administration is faced with the necessity of a swift enactment of Japan’s economic security legislation in the Diet deliberation in next year, as well as balanced economic diplomacy in the Indo-Pacific geopolitics.