As the Hong Kong crisis sees its bankers fretting for their future, the Japanese government is busy working out how it can use their growing anxiety to fulfil its decades-old dream of establishing Tokyo as an alternative premier financial centre in East Asia – without incurring the wrath of either Beijing or Washington. Visa waivers, tax advice and free office space could all be on offer for some of the 250,000-strong community of asset managers, traders, bankers and back-office workers if the Hong Kong crisis were to escalate and force them to look to relocate.
Earlier this month, in answer to a question from former cabinet minister Katayam Satsuki who now heads up the ruling Liberal Democratic Party’s (LDP) committee on foreign labourers, Prime Minister Shinzo Abe told the National Diet that Japan could take in Hong Kong residents employed in the financial sector or other specialised areas. Satsuki’s committee is now expected to put forward a draft proposal before parliament any day now that will outline ways of attracting high-skilled workers from abroad into Tokyo’s financial sector.
While she acknowledged that the proposal had been drafted with Hong Kong in mind, Satsuki was also at pains to point out that the need to attract foreign financiers to Tokyo was a ‘long-standing struggle’ that predated the current Hong Kong crisis; despite still being the world’s third-largest economy Japan has a dwindling and ageing population that has put pressure on the government to relax tight foreign labour controls. From a parochial Japanese point of view promoting Tokyo as a financial hub at the expense of Hong Kong is a means to an even more important end rather than the end in itself.
However, with other neighbouring financial centres with pan-regional aspirations of their own such as Singapore also watching Hong Kong closely China has begun hitting back with some success. Earlier this month, it formalised permission for Chinese businesses with primary listings overseas to raise funds through secondary IPOs on Hong Kong’s Hang Seng Index (HSI). Alibaba, the phone maker Xiaomi, the food delivery giant Meituan and China’s largest online retailer JD.com immediately took Beijing up on its offer.
Between a rock and a hard place
Back in Tokyo, meanwhile Abe, Satsuki and their LDP colleagues are also acutely aware that the escalation of the US-China trade war has put them in a tricky position. On the one hand, bilateral trade between Japan and China has grown from $1 billion to some $317 billion over the past 45 years and now represents more than 20% of Japan’s total trade. China’s rising middle class presents a welcome consumer market for a demographically stagnant Japan, which also provides essential components for companies like Huawei and many of the products that China assembles on behalf of companies like Apple. On the other hand, the further deterioration of relations between Washington and Beijing – which is ultimately a consequence of the long-term eastward shift of geopolitical power – has highlighted Japan’s position on the front line of East Asian security and it can ill afford to alienate its US allies.
Between them, these two issues are conspiring to put relations between Japan and China – often described as ‘hot economics, cold politics’ under considerable strain. Just how high or low the mercury has risen in recent months should become apparent when President Xi finally gets to Tokyo. A state visit was originally planned for April but had to be postponed due to the coronavirus situation.