Japanese politicians are upping rhetoric and efforts to capitalize on Hong Kong’s woes and revive the nation’s former glory in the financial sector. Will they be a viable replacement hub?
Prior to the national security law’s enactment last month, Japan’s Prime Minister Shinzo Abe said that its government was concerned about the situation and that the nation has been «welcoming foreign talent with specialized and technical abilities, including from Hong Kong, and will continue to actively do so».
Members from Abe’s Liberal Democratic Party (LDP) have since been even more active to further Tokyo’s financial hub ambitions and capitalize on opportunities from Hong Kong’s potential fallout.
«It's important for us to revive Tokyo as a finance center,» said Seiji Kihara, a member of the LDP's economic growth strategy group, in a «Nikkei» report (behind paywall) last month, specifically highlighting the situation in Hong Kong.
High Hurdles
Japan’s drive to become Asia’s financial hub is not without its challenges.
The primary hurdle is high taxes, with a rate of about 30 percent for corporates and a rate for the top income bracket of 55 percent, double and triple of Hong Kong’s rates, respectively. While Hong Kong does not tax capital gains, Japan defines it as income. And any attempt to dish out tax breaks to bankers and foreigners is expected to face resistance from its strongly egalitarian voters.
Many also believe that Japan will struggle to create enough critical mass to form a financial hub without a gateway into the closed mainland Chinese market. Some have suggested the establishment of a «stock connect» mechanism, akin to those formed in Hong Kong and London, but there are obvious questions about how or why Chinese regulators would support Japan’s efforts to dethrone them in the region.
Foreign Talent Drought
And despite historically being a top target for Hong Kong tourists, many of whom have great familiarity with Japanese culture, the country has not been a major choice for foreign talent. As of June last year, only 13,000 individuals with high-level professional visas were living in the country.
«If Japan had a lot of advantages, [foreign talent inflow] would already be happening,» said Satsuki Katayama, who heads an LDP panel on foreign labor, in a «Bloomberg» report citing high taxes and language barrier amongst the reasons.
Boosting Allure
Currently, Japanese authorities are considering various measures to improve the attractiveness of Tokyo as a base for global finance and as the favored exit strategy for financiers in Hong Kong. Visa waivers, tax advice and free office spaces could be offered as goodies to asset managers, traders and banks based in the city, according to a «Financial Times» report.
But beyond the hard factors for businesses and individuals to consider, Japanese politicians also underlined a major soft factor consuming Hong Kong – its rapidly changing environment.
«What Japan offers that Hong Kong doesn’t is freedom,» said Katayama. «If Hong Kong becomes the kind of place where people’s Facebook ‘likes' are being checked, will they put up with that? I think people want to live somewhere normal.»
Cold War Mentality
What does Japan have to gain from this invigorated pursuit? The economic benefits of replacing Hong Kong as a financial center in Asia are obvious, as it would help Japan create more high-paying jobs and tax revenue supporting financing efforts in a region with a much stronger relative long-term economic outlook. But there could be more to had if the country is successful.
«The more complicated answer is that being a regional financial hub would project Japanese influence in East Asia and win friends,» said Arcus Research analyst and veteran Japan watcher Peter Tasker.
«Any financial refugees from Hong Kong will by definition be on Japan’s side. In the new Cold War that is now taking shape, isolation is not an option. You want all the allies you can get.»
