 Look, it's my great pleasure to introduce our keynote speaker for the economic security session and after the keynote speech we'll have a panel discussion, so please get your questions ready. But it's my privilege and honour to introduce Professor Shujiro Urata, who's Chairman of Riety, the Research Institute of Economy, Trade and Industry. That's attached to the Ministry of Economy, Trade and Industry. But Urata sensei is well known to many of us here in Australia, but globally of course I'll just read out some of his current roles, that's a much longer list, but of course he's Professor Emeritus at Wasada University where he spent most of his career. He's also a special advisor to the Economic Research Institute for ASEAN and East Asia area in Jakarta, a visiting fellow at the Asian Development Bank Institute, a specially appointed fellow at the Japan Center for Economic Research, the Nikkei Center, distinguished senior fellow Institute of Developing Economies and many more. And we've asked Urata-san to talk about economic security in Japan because we're all trying to figure out what the front-runner in this field is doing and Japan is definitely a front-runner. And Urata sensei is the doyen of Japanese international economic policy and for me personally it's a privilege because Urata sensei was one of my thesis examiners for my PhD. You may not remember that, I hope he doesn't. But also to note that Urata-san did speak at the first Japan update 10 years ago, so it's wonderful to have you back at the update and please join me in welcoming Urata sensei. Shiro-san, thank you very much for a very generous introduction of myself and I'd like to thank Shiro-san and the Fujiwara-san, Hippe-san and Australia Japan Research Center for inviting me to talk about the economic security. I have to confess that I'm an economist by profession, but of course many people are now interested in economic security that's the same all over the world. And so I'm now kind of moving into this area, but I kind of hesitate to speak about this issue in front of experts like Michael Green and Tsueya-san and Opa-san and other experts in this issue, security particularly. And part of my talk comes from a joint study that I did with Shiro Armstrong. So if I make some problematic remarks, please, you know, ask him about why this is the case. And I'm given 20 minutes and I'd like to be efficient and effective, so I prepared some notes and usually I talk from notes, but like I said, I'm new in this area and I like to use this time effectively, efficiently, so I will read some of my, I mean, I'll read some sentences from my notes, okay, alright. First introduction, economic globalization, there's no need for me to explain this, but has progressed rapidly since the 1990s and brought about high economic growth throughout the world. But the momentum of globalization slowed as protectionist measures were implemented to protect against the negative effects of global financial crisis in 2007, 2009. In addition, the trade friction between the United States and China, that broke out in the latter half of the 2010s and the COVID-19 pandemic in 2020 and the military invasion of Ukraine by Russia in 2022, how further divided the global economy and the movement of goods, people has decreased significantly in recent years. So now people are, some people are talking about the end of globalization or de-globalization. In an uncertain situation where the complete end of the COVID-19 pandemic, the confrontation between the United States and China, the Russia-Ukraine war cannot be predicted. These around the world have a growing interest in economic security. There seems to be no established definition of economic security. So I kind of looked into this issue by reading some of the papers, and I found the paper by Matake Kamiya-san, he's, I think, an expert in this area. He has a definition of economic security, yes, this way. According to him, the economic security is defined as the ability of a state to protect its territory, independence, and the lives and property of its citizens from economic threats. So what are the economic threats? He has three types of economic threats. First type is a case in which unintentional disturbances in the international economic system adversely affect the domestic economy. High-chain disruption due to COVID-19, natural disasters such as earthquake, are the examples of this type. And the second type is when competitiveness or advantage of a country is acquired by an enemy country and then used to impose negative impacts on the economy or security of the target country. This is the second type. Examples include acquisition of a company holding important technology by inward direct investment. And certainly this is the issue that I'll be discussing more later, inward direct investment. The third type is a case in which enemy country uses its economic power to intentionally exert a negative impact on the economy or security of the target country. This type of conduct is referred to as economic caution or economic statecraft by hostile company. So in light of the changing patterns of globalization and growing attention on economic security, I'd like to review the globalization trend of Japan, of Japanese economy, and recent developments in economic security policy in Japan and then attempt to make some assessment of Japan's economic security policy. Japanese economy, what we are looking at is the trend of globalization in terms of trade and investment. Both two lines referred to a trade to GDP ratio, export imports, they are rising kind of trend. And the two lines bottom are the foreign direct investment and broken line represents outward foreign direct investment to GDP ratio which is increasing quite sharply. The foreign line represents direct investment, inward direct investment into Japan which as you can see is not growing, although it's slowly going up. So what is special about Japanese globalization is that in terms of trade, I think Japan is somewhat average compared to other countries, no peculiar trend, but when it comes to inward direct investment, Japan is very low. As you can see, inward direct investment GDP ratio is only 4.4%, whereas the other countries have a higher value. So one notable difference in the characteristics of inward direct investment in Japan compared to that of other developed countries, low level of mergers and acquisition, M&As, relative to green field investment. The share of M&A in total inward FDI was around 60 to 70% for many countries while in Japan it's about 40%. So this is a very serious issue for Japan because inward investment could contribute to the recovery of Japanese economy, which is very badly needed, I guess we heard from this first session from Mr. Kaizuka about the current situation, very low growth rate. Realizing the importance of inward foreign investment for Japanese economies to recover or to regain its competitiveness, Japanese government has introduced many policies to attract foreign investment, but the gap is still quite big. So this is the situation that we are looking at and we'd like to see inward direct investment to grow. Now let me quickly turn to economic security policy for Japan. The growing interest in economic security in Japan in recent years was enforced by the strengthening of the hardline stance toward China in the economic security policy under the U.S. President Trump. And in March 2019, the group of LDP politicians headed by Mr. Amari proposed to establish the Japanese version of the U.S. National Economic Council, NEC, as a control tower for economic security policies. In May 2019, the proposal was compiled and submitted to Prime Minister Shinzo Abe. Against this backdrop, Japanese government has advanced the creation of a system for formulating policies with focused on areas where the economy and security overlap, specifically Ministry of Economy, Trade and Industry, Ministry of Foreign Affairs, and other Ministry of Japanese Government set up a team or reorganized its organization to deal with economic security. In April 2020, the last two lines, the economic team was established within the National Security Bureau of the Cabinet Secretariat as a final stage of development of Japan's economic security system. Among various areas that they cover, the protection of advanced technology is one of the most important responsibilities. Technology targeted for acquisition by non-aligned countries include artificial intelligence, technology related to the fifth generation mobile communication system, 5G, and so on. And there are several conceivable methods of acquiring these technologies from Japan. One is acquisition of Japanese companies that own these technologies, which I will discuss in a minute. And the other method includes exploitation of technology from government and private companies through cyber attacks. Furthermore, technology leakage through joint projects with, say, Chinese universities and research institutes is also a serious problem. The Kishida administration, which was inaugurated in September 2021, has a strong interest in economic security. And they introduced the Act on Promotion of Ensuring Securities Through Integrated Economic Measures or Economic Security Promotion Act in May 2022, last year. And this law requires ensuring a stable supply of important goods, ensuring a stable provision of basic infrastructure services, supporting the development of important cutting-edge technology and non-disclosure of patent applications. So this is the very brief introduction of economic security policy in Japan. And let me turn to this revision of foreign exchange and foreign trade law. This is a part of a new economic security policy. And according to the Japanese government, the purpose of this revision is to curb foreign direct investment that threatens national security. While promoting healthy foreign direct investment, that contributes to the growth of the Japanese economy. The revision was passed in May 2020. The revision expanded the scope of investment to which foreign exchange law applies. Before the revision, foreign investors were required to submit prior notification to the government and were subject to review when acquiring 10% or more of the shares of listed companies. After the revision, the threshold for prior notification was lowered to 1%, from 10% to 1%. The reason for setting the shareholding ratio to 1% is that if an investor owns 1% of the issued shares, it is possible for them to exercise the right to propose agenda items and to exercise influence over management. On the other hand, like I said earlier, this law according to the Japanese government is to increase attractiveness of the Japanese company and Japanese marketing to foreigners. So in order to encourage the expansion of safe investment, a system of exemption from prior notification was introduced if certain conditions are met. In May 2020, the Minister of Finance released a list of stocks that require prior notification when acquiring shares of the 3,800 listed companies, 2,102 listed companies belong to this business industries. It's quite a large share. So in response to this revision, several concerns have been raised about the potential negative impact on indirect investment into Japan. One is the, let's see, many listed companies are now subject to prior notification, as I said earlier. And the prior notification is exempted if certain conditions are met, but the mere fact that the conditions must be met dampens investment motivation. As I discussed earlier, Japan has an extremely low level of indirect investment compared to other countries. Japanese government aims to expand indirect investment in order to revitalize this economy, but the tightening of regulations due to the revision of the foreign exchange law runs counter to this. In addition, tightening regulations on foreign direct investment will reduce competitiveness, competitive pressure on domestic companies, Japanese companies. So corporate governance reform, which is being expected, will be delayed and productivity improvement, which will play an important role in strengthening corporate competitiveness and revitalizing economy, cannot be expected. So I have discussed the globalization of the Japanese economy, recent developments in economic security policy in Japan. So we have, well, the Japanese government faces seemingly two conflicting objectives. On the one hand, they are interested in expanding direct investment in order to recover from long recession and to achieve high economic growth. On the other hand, the Japanese government is keen to restrict foreign direct investment for economic security reasons. So what should be done to achieve these two seemingly conflicting objectives? So these are my kind of own personal idea, nothing to do with reality or any other institutions that I may represent. So I'd like to see less restrictive policy, for example, to increase threshold for prior notification and do not list these companies which are, like I said, you know, 2,000 plus companies are listed as possible kind of companies where the application for investment is reviewed and so on. That's less restrictive policy. But that, of course, may have a problem on economic security. And for that, I think Japanese government needs to have research and investigation capability regarding advanced technology and foreign investors. The Japanese government has identified advanced and important technology, as I said earlier. But I may be wrong, but the Japanese government does not seem to have a list of companies which own this technology or the list of companies which are able to produce this technology. But Japanese government should have that kind of list. And they should not really disclose that list. They can use this list when they screen the application of foreign debt investment. So that's one thing, right? And the Japanese government needs to have a capability to monitor foreign investors' activities, to make sure that the foreign investors do not violate the conditions for getting approval for the entry, or make sure that the foreign investors do not really engage in, quote, unquote, kind of illegal activities. With that, these increasing capability in research and investigation and also capability in monitoring, we can, maybe, we are able to restrict negative impacts of foreign debt investment on economic security. And finally, if the Japanese government at the moment is not capable of doing so, Japanese government can really cooperate with other governments in this regard. And with this, I'd like to end my presentation. Thank you very much. Thank you very much to Urata-Sensei for introducing us to the issues, showing us how Japan has been ahead of, I think, a lot of other countries in identifying this issue explicitly, making machinery of government changes that you talked about, having a minister for economic security even, and coordinating across the various silos in the Japanese system. This, of course, comes from a recognition of a more complex, complicated external environment and the weaponization of trade and the weaponization of economic interdependence. This is where we had a question early about the definition of economic security, and maybe we can come back to this, and I want to come back to the foreign direct investment issue as well. Fundamentally, I think, economic security, everyone's throwing all sorts of things into it that they wish, but surely it's about preserving living standards and protecting against a threat to those. So that's where I come out on this anyway. But I think to follow up on Urata-San's presentation and tell us, answer some of these questions and see what's going on in the ground in Japan and with Japan's interactions with China and the rest of the global economy, we're joined by two panelists, distinguished panelists, who've flown in from Japan, and I'll give a brief introduction to panelists. The full bio is in the program, but first we've got Dr. Richard Dyke, who's owner and president of TGK Japan, and many more, you're on the board of many companies, you're on many boards, and that's all listed in the bio, but I think we've got you here, Rick, because you're a semiconductor man, and this is right in the middle of all the action in the technology decoupling between China and the United States, and, of course, we have Melanie Brock here who would be familiar to everybody, absolutely, who's, of course, chair emeritus of the Australian and New Zealand Chamber of Commerce in Japan and recently joined the board of Kawasaki Heavy, but is also on the board of Mitsubishi State SEGA-SAMI Holdings, but most importantly the advisory board for the Australia Japan Research Center. So with that, let me pass the microphone virtually to Rick and for some opening remarks. Thanks. Thank you, Shiro. It's a delight to be here. It's my first time in Canberra, and I felt at home. I felt walking around the area around the university and the town. I was like in Kenmore Square near MIT, except it's much cleaner and much more friendly, but thank you. Yeah, for Rata-Sensei's remarks, which are a bit different than I was thinking about, but one of the things that I also do is that for 20 years I've been involved with a private equity fund called Nihonsangyo Partners, which we've stayed pretty much under the radar screen, but I'll get into it, but with the divestiture of Hitachi's subsidiaries and now Toshiba, we're the main fund working on actually taking Toshiba private. So it gets sort of directly to some of the things that Rata-San is talking about. One thing I will say that in the change in governance in Japan, the fact that I've been on several Japanese boards and Melanie is on two Japanese boards, and actually all of the boards that I have been on have had other non-Japanese on the boards. So that's a real change. Also, one thing to discuss is increasingly on the boards we have the issue of activist shareholders. Some of them are Japanese, but located in Singapore, like the Murakami Fund, a Fissimo Oasis in Hong Kong. In English, they're called activist shareholders. In Japanese, they're called mono-yu kabunushi, which means just shareholders that say things. And many in Japan also say that's not a bad thing. And even on the boards that I'm on, we listen to those shareholders because in most cases, we find them constructive. There's a lot of interest in Japanese companies by overseas investors. And one of the reasons is the Japanese stock market is viewed as undervalued. And one of the examples of that is the price book ratio of Japanese companies. There's a huge number of companies on even the Tokyo Stock Exchange that have a price book ratio of under 1.0. That means that the market cap is below the value of basically the assets of the company, that you could liquidate the company and you'd have liquidation that is higher than the market cap. And that's a problem. And it's a problem in Japan. It's a problem for Meti. It's also a problem for the Tokyo Stock Exchange. There's a lot of pressure for companies to at least get their price book ratio above 1.0. So in a way, you're right. There's an inconsistency between lowering the threshold for having to disclose to the Japanese government and the interest to get more activity in the market. I'd just like to say something. There's been a sea change in Japan that perhaps has gone unperceived by the world. But Hitachi is a very good example. Hitachi, NEC, Fujitsu, these are all companies that have basically became huge by having as their customers NTT, Japan Railways, the power sector, basically heavily state-controlled companies. So NTT, which was until it was private, bought from four companies, NHOF, NEC, Hitachi, Okie, and Fujitsu. All of those four companies grew up with NTT, which they grew up with the buildup of the infrastructure in Japan after the war. Hitachi has now sold off their publicly traded subsidiaries. The list is huge. The list includes Hitachi Koki, which was a mechanical tool company, Hitachi Transport, Hitachi Chemicals, Hitachi Construction, Hitachi Metals, Hitachi Kokusai. These were all multi-billion dollar companies, which Hitachi has now divested themselves of. And they're taking that money to redirect Hitachi. That's a huge change. I was on the board of Hitachi Chemicals, but also our private equity fund was involved with the acquisition of Hitachi Metals, Hitachi Construction, and Hitachi Kokusai. The whole process was first of all mandated by guidelines which came from Meti on how to respect the rights of third-party shareholders. That is, Hitachi owned 52% of the companies. So those who own 48%, how do you protect the rights of those shareholders? It was a transparent process. You can go to the website of each of those Hitachi companies. You can know what went on, when it went on. And the whole transformation took place without what I would expect in the American context. There were no lawyers who were trying to sue on behalf of shareholders. There was a minimum of lawsuits, and it went relatively smoothly, quietly and smoothly. It's a huge transformation in Japan. But in a lot of cases, Hitachi Metals was bought by a combination of Bain Capital, which is a Boston company, and us, which is a Japan company. KKR bought Hitachi Koki, for example. KKR bought Hitachi Logistics. So there was the allowing of overseas private equity funds to take those huge stakes in Japanese companies in the market. So it's another kind of globalization. I will say that on the privatization of Toshiba, our private equity fund was approved, whereas a UK-based private equity fund was not approved, because there is in Toshiba a defense business, as well as nuclear business, and so forth. So it's a huge change taking place in Japan. And I think it's a healthy change, and I think it's a transparent change. And it's a sense. I'll also say that 70% of our investment in our private equity fund comes from US University endowments, with the leading being Yale Endowment, which is sort of the gold standard of endowment management. David Swenson, who unfortunately died prematurely about a year ago, but David Swenson was the person who really designed the Yale Endowment and their policy. In a discussion with Robert Rubin, who was Secretary of the Treasury in the Clinton administration, Rubin asked, David, where would you invest other than the United States? And he said, well, you can't avoid China, but China scares me. He said, people don't understand that Japan is a prime area for investment. And Rubin said, David, why Japan? He said, well, Japan has all the strengths that Japan has always had. Quality control, honesty, little corruption. But the Japanese are discovering capitalism. I took that dialogue and I said it to my friends in Meti. So this is the way that outside investors are now looking at Japan. Japan is discovering capitalism. It might be a different form of capitalism, but I think it's happening. I will stop there and continue in the discussion. Thanks, Rick. We'll come back to some of your dealings in China as well, because I know you're very active in China as well. Melanie, over to you. First of all, I'd like to congratulate you. I think the 10th is terrific and I started that applause before because I think it's well deserved and very much relevant. It's terrific to bring a bunch of people together, not only here in person in Canberra for people to attend for the very first time. And I can attest to the fact that Rick had Vegemite for the first time today, too, which I thought was terrific. But also, I think it's wonderful that there's such a strong online community here attending. I've had lots of comments from people already, so that's terrific. And congratulations to the Centre. The second thing I'd like to say is that it's great to see so many students here. Something that's happened in the Australia-Japan relationship, particularly in my case as well, is that we're all getting older and we really need to look at the next generation. It's terrific living in Japan because my own definition of old has changed compared to Australia, where at 59 I'd be really old. Whereas in Japan, in the case of Mitsubishi Estate, I'm the youngest member on the board, which I just love being so young. That's diversity in my view. So that works out very well. I was very interested to hear Urata Sensei's remarks about economic security, particularly because I know a little about it, but live in Japan. So I'm experiencing a very different experience. I experience things differently, I think, than if I lived in Australia. The mood is different, the focus points are different, albeit that we've got great connection between Australia and Japan. But if I think about the threats to an economy, not only should they be considered in defence and security regions, which Mike's going to talk to us later about how important they are, but I really would love Japan to have another pillar perhaps and look at perhaps the threat to the economic threat that's posed to Japan because it is unable to shift its policy around fertility, the birth rate, depopulation and also the ageing population and how that impacts on Japanese economy. I know that there were many scholars who look at this, so it's certainly not something that has been offered today as the first example of it. But I do know if we're going to look at the change that Japan has to take, has to consider, we need to consider the importance of family and the services and that flexibility that's provided to the family such that people can consider having another child. I have three grandchildren, so I'm already doing very well in Japan, thank you very much, but both of my sons would not consider having any more children because of the economic impact and the cost of having a child in Japan. The cost is also not measured in Japan in terms of women's economic input, and this is a really important discussion that I think has taken place in Australia recently, led by a good friend of mine, Sam Moston, looking at the impact of economic contribution by women in terms of their role here. So there are lots of things in Japan and I echo the comments made by Rick about the transformation and the changes that have taken place. Something that troubles me as an Australian is, well, lots of things trouble me, but the cost of a coffee here, man, oh man, that's expensive. But Richard will know how we at the AJBCC have worked tirelessly to have more written about Japan in Australian media and how little there is still written. Shiro does his best with various comments and I know others have been quoted this week, but we really need for the Australian business people and Australians in general to understand what the benefits of their closer collaboration with Japan could be if we understand what challenges Japan is actually undergoing. And I think the Bank of Japan overview is very interesting in that sense because it shows exactly where the role of women, the role of modern Japan, the role of innovation, and also your point about foreign direct investment I think is very relevant for where Japan is. Japan has changed a lot in the last five years potentially in terms of corporate governance, in terms of commitment to disclosure around ESG, in terms of diversity. And in fact I look forward to the 11th of September when the Japanese Prime Minister announces his new cabinet or is suggested to announce his new cabinet. Because I believe that Prime Minister Kishida will follow the rhetoric he has announced that 30% of women will be in the senior management roles. So surely he should have 30% of his cabinet as women. Who thinks that's going to happen? Okie dokie, let's not do a poll here. But in any case I do think that there's greater focus on the role of women and not just white women living in Japan because I think I know exactly what privilege is attached to my role. But we need to focus so much more on giving the roles, giving on a merit basis as Kazuka-san said before about women at the Bank of Japan, but we need to focus on ensuring that women are a key part of this next stage of Japan and that the flexible family practices that support that allow for men to take paternity leave as and when that is required. The Japanese, the Prime Minister has said that he would like 85% of male employees at Japanese companies to take paternity leave by 2030. Now that probably is very difficult to to push forward, but it is a change that has been highlighted and good on the government for indicating that that's the next step in their focus. I look at the things that Rick has said in terms of the disclosure, the roles of the monoyu kigyou, the activist positions taken and recently of course Norway's Sovereign Wealth Fund indicated that they will vote against Japanese board nominations to Japanese companies where there are no women on the board. So that's a big move by obviously an outside group, but those type of Gaiatsu style indications are important for Japan because they can be used as reference points for change. In my own case I was appointed to the Sekisami Board in 2019 and I was the first woman and first non-Japanese board member. Mitsubishi Estate asked me to join and I was the first non-Japanese but not the first woman. Kawasaki Heavy, the board numbers were increased and I am now neither the first woman nor the first foreign non-Japanese. So even in a period of five years, albeit in a limited pool, that change has been something that I have seen. And the next board that I join that hasn't been announced but that I will be once again neither the first foreigner nor the first woman. So that's a great sign for change and how that takes place. Having said that, we have a long way to go. But we have a long way to go in Australia too and I just mentioned Renee and I spoke earlier about the stat that was indicated in the FIN today that 82% of CEO pipeline roles held in Australia are held by men. So we really don't have the moral high ground to go to Japan and indicate to Japan what it should do. But together I'm sure we can think of service-based innovation perhaps that might help Japan in its digital transformation. There are certainly a range of different areas where I think we can do a lot of good work together and that hopefully that will fall into the economic security part of this conversation. Otherwise I've talked about something that has no relevance and I'll be booted out. Absolutely not. Thank you Melanie. It's good to hear about the transformation of Japanese companies. That's of course going to be vital for Japanese economic security and living standards. Japanese private sector that is navigating some of these constrained choices internationally but also needs to get its own house in order domestically. So I want to ask Rata-sensei about foreign direct investment and then come to Rick on semiconductors. I'm just putting everyone on notice. Melanie on energy. We're talking about energy security in the Australia relationship. I think we can't leave that untouched and then I want to come back finally to supply chain resilience before we open up to the audience. Rata-san just on foreign direct investment I guess two questions. One simple one is Japan considering restriction of outward FDI like the United States is and like Europe is considering or the EU is considering. But the more substantive question I think is you argued for less restrictive policies towards incoming foreign investment in Japan. Japan has made progress as you showed 4.4 percent now stock of FDI relative to the size of its economy. That's from my understanding second lowest in the world just above North Korea. Overtook North Korea five or so years ago becoming more restrictive now when we need Japanese companies to be competitive and for productivity growth. A question from me as an economist to another economist of course. Are these restrictive policies are they solely focused on ownership and is that where the risk is because surely as you mentioned monitoring is very important. But foreign direct investment has a peace dividend. You know I call it the gives a stake in another country in another company. And if you think about just very simplistically if you think a foreign company or country is going to blow up a bridge why don't you sell it to them first. Ownership can give a stake in another country. So does Japan have the power to confiscate assets foreign owned assets. And do you think Japan's got the capacity to regulate not just foreign invested firms but domestic firms from doing doing naughty things. Okay two questions. First one. Whether Japan Japanese government has any restrictions on outward foreign investment. As far as I understand it. Well Kai's got some may correct me if I'm wrong. I don't think Japanese government has introduced restrictions on outward investment. But there's a concern that the you know outward foreign investment is hollowing out of Japanese economy. I mean that's a kind of concern that some say especially local government have. But the one issue is whether outward foreign investment will lead to decline in employment in Japan or decline in the industry itself in Japan. And there has been some studies on this. As far as I understand it there's no I mean connection or if there's a connection or connections like this foreign companies which invest overseas are very active even inside Japan right. In other words foreign investment does not lead to lower employment in Japan. That's that's the kind of one of the I think interesting result of a study. But again if there's a concern maybe in the future there'll be concern on outward foreign investment because like the U.S. but so far outward foreign investment is a concern for some local governments because they may see these outward investment as a source of loss of employment opportunities in that region. And on second Japanese government has a power to confiscate the domestic as well as foreign companies right. In Australia we have the Defense Act which allows the government to nationalize foreign investment foreign owned asset. I have to check right extreme measures. I think again sorry I have to check the rules but I think all the government has that right or the power to do so I'm sure when the Japanese government has no exception if they find some investment or some illegal activities or unlawful activities by Japanese firms foreign firms. But again I have to check and let me report to you later. Thank you. Thanks. So Rick I didn't do your justice in the introduction. You do have a lot of interests beyond what you mentioned in fact we're going to hear about some of those tonight in the dinner when we talk about the legacy of Ezra Vogel. Rick was one of Ezra Vogel's first PhD students. But you do operate in China a lot and I know you worked with Ezra a lot in this regard but in the semiconductor world I guess really what I've got a large number of questions but to start with you know how have Japanese companies responded to these sanctions the US-led sanctions that the Japanese government has signed on to? Yeah it's complex because semiconductors it's a complex supply chain. You know I'm an American living overseas and to see the partisan divide in America right now is heart wrenching but the one thing that all Americans seem to agree on is that China is now the enemy and and and not only that it's often the Chinese Communist Party is the enemy and and that's not the way I mean Japan worries about China but when you say the the party is there obviously the party is is huge in China but if there's going to be reform in China I think it has to either happen in the party or the party is the demise of the party and I don't think we're going to see the demise of the party so by taking the party on like that I don't see how the US gets an off-ramp but anyway in in for some reason in all of this semiconductors have become sort of the target which has happened before in the United States it happened I saw I've been in the semiconductor industry forever it happened in the 70s it happened the 80s in both of those times Japan was the enemy because Japan was becoming strong in semiconductors for for uh Japan is no longer the leader in semiconductor devices but Japan does have 50 percent of the market share for materials related to semiconductors so Japan has the largest share of any place in the world and Japan has 30 percent of the market share for equipment used in making semiconductors the United States also has 30 percent and the rest is sort of divided up with actually the Dutch having a big share because of of ASML in lithography the the United States and Japan has handled the situation very differently for for several reasons one Japan beginning someplace in the early 2000s became disenchanted with China because of the anti-Japanese fervor the the riots against Japanese companies I have a I have a home in Shanghai with a Japanese restaurant nearby that restaurant got stoned and uh you they were vicious so I think beginning in the 2000s uh Japanese company the Japanese government became very wary of China but continued aggressively investing in China the United States continued its sort of honeymoon with China up until very recently so I think the Japanese were disabused of naivete about China long before the Americans were and as a result what the Japanese did in those cases was to hedge their bets in several ways the largest uh capital equipment semiconductor capital equipment company in Japan is Tokyo Electron Tokyo Electron manufactures their flat panel display equipment in China they have never manufactured any of their semiconductor equipment in China it's all manufactured in Japan for the materials company I was on the board of Hitachi chemicals which is one of the largest materials company uh we manufactured in China but in our factories in China for key parts of the process uh that was limited to Japanese engineers and I used to go on audit of the Hitachi chemicals factory and I thought that they were discriminating against Chinese don't you have to do more localization but they didn't they would maybe have one or two key long-term Chinese employees in a critical part of the process otherwise it was all Japanese engineers and even during the heavy lockdown during COVID those Japanese engineers stayed in China and put up with the onerous lockdown in China and that was true with with most of the materials companies so the the employment in China of Japanese companies is huge but in key parts of the process they limit that to to Japanese to protect IP the with the American companies especially the equipment companies they manufactured in China but they tend to manufacture through contract manufacturers just like Apple uh manufacturers through Foxconn and when you manufacture through contract manufacturers that means you're giving your manufacturing know-how to the contract manufacturers now a company that I worked for for 20 years a Boston company named Teradine that makes test equipment they were doing all their manufacturing in China in Suzhou through flex tronics and when it came time that even their shareholders were putting pressure on them to decouple they simply moved from a lecture from a flex tronics factory in Suzhou to a flex tronic factory in in in Penang so it made it easier to decouple but it also meant that they left behind a large number of of flex tronics employees in Suzhou who could go to the local competition so the Chinese are working as hard as they can to displace both the American companies and the Japanese companies because of the current situation Japanese companies did the same thing when they were competing with the United States so there's a lot of reverse engineering going on and the pressure that is being put on the Chinese companies I think in the end will just end up making a duplicate supply chain of Chinese companies in the in the industry I also say that when the United States goes on these things usually in semiconductor all of a sudden the United States say hey maybe it's time we had an industrial policy I mean Japan has had an industrial policy for years and Korea has had industrial policy so the so so all of a sudden you have the chips act and you're going to do more manufacturing in the United States but the semiconductor industry in its evolution has been divided between the knowledge intensive part of the semiconductor industry and the capital intensive part of the the knowledge intensive part is already in the United States the capital intensive part is in Taiwan and so now the United States is going to try to learn how to manufacture semiconductors it's no fun working in a semiconductor factory how you're going to get america's because you I mean it looks like it's cleat you have to suit up you if you go to the toilet you have to take your suit off you have to go it's it it's not a great environment how are you going to get people in Columbus Ohio to do that I don't know and in Arizona TSMC is already having problems now I'd like to say two things too the Japanese I think Japanese companies in general are better at policing their IP because key in that process in China is Jettro and so if you have the Japanese companies in Shanghai or Wuhan or wherever when they have a problem rather than going company to Chinese government they go from the Japanese company to Jettro and Jettro to the Chinese government the Koreans do the same thing they've they've copied Japan with Kotra so you have nine Jettro offices all over China and you have 11 Kotra offices that play that role in IP the company that is ruthless at protecting its IP in China is TSMC they will go after employees legally they will stop them they will they will stop anybody from China who's they suspect of ever getting into Taiwan they are ruthless because they're they understand the the Americans have actually been naive well one other thing at the Jettro office in Shanghai which is the biggest Jettro office in China you go into the lobby and you see this display of supposedly Japanese products even you see Honda motorcycles you see Amaha Japanese products all of those products are imitation and that's the display is in the office so that whenever a Chinese goes through there oh by the way here's what China is doing in imitating our products it's it's it's it's you don't see anything like that at the Department of Commerce office in Shanghai I mean that's that's a clever way of managing IP is it possible then for Japanese semiconductor firms in the supply chain to decouple from China one thing is what decoupling from China is because the United States is putting pressure for the high end but by the way it's not the high end that is used in the semiconductors in missiles it's 26 nanometers it's not seven nanometers devices it's 26 so there there's there there are new restrictions from METI and METI is trying to remain aligned with the United States so Japanese companies if they're exporting will have to go to METI to get licenses but chances are there will not be restrictions for the the the big part of the Chinese market which is 26 nanometers and and above thanks thanks rick we might come back to that but decoupling decoupling is more difficult for Japanese companies because they're they actually have the factories so Melanie will shift to the energy relationship and you know I think it's it's pretty well known to a lot of this audience just how important Australia is for Japan's energy security and when we used to think of economic security in Japan it was largely energy security you know Japan relies on about 90 percent of its energy from imported sources and Australia is about a third of that so rough rule of thumb thumb and we by far the most important energy supply to Japan coal and lng yet earlier this year when the Australian government introduced some new policies around gas safeguard mechanism for example and other policies you know we ran out of gas on the eastern seaboard in 2017 had to buy it back from Japan at a huge price basically policies trying to catch up with climate change action which we've been a bit slow on this caused a pretty big rumble may not have been too obvious to people but it was on the front page of the financial review a number of times it had the the CEO and chair of Inpex in Australia saying Australia's gas policies threaten world peace it was a bit extreme but there were a large number of grumbles like that what's happened here what's the concern we're still a reliable and secure supplier of energy are we not why do I get this question and no one else in there I was born and raised in western Australia so I have a very different sense of energy and resources etc it's a state that runs Australia basically Rick don't worry you can see it hasn't come out of me even though I live in Japan for 30 years but it's evident to me how different the circumstances are here and in a state like western Australia and they are in Japan Fukushima has been mentioned today and of course post Fukushima Japan post Ukraine Japan in terms of energy in terms of threats that Japan experiences are all clear and relevant are parts of the Japanese psyche and as you say the figure of the well the reliance on Australia is very very high I don't know that I particularly want to go into the nitty gritty of the concerns that have been raised and you know in media in using media too so that's something that has been quite different probably in than in the past but I would say that the pathway to net zero or that climate sort of the transition for Australia and also for Japan is very different because of those different circumstances and it's a very complex pathway but it isn't something that is going to happen overnight it won't happen with great without great change and shift and transformation within industry and within a number of different industries and so any shift to that is obviously something that's problematic and can raise a lot of concerns having joined Kawasaki heavy you know I'm on a learning curve I've only been there for nearly just over two months now and I just last Friday travelled to Shikoku and visited the hydrogen sphere I don't know what it's actually called in English but you know it's the NEDO funded hydrogen facility that is being tested for tank manufacturing obviously in the future to carry liquefied ammonia hydrogen vessel you know back and forth between the various markets and you know that's a 2.6 trillion yen investment and it relies on collaboration between Australia and Japan and it is going to work because of the strong connection between Australia and Japan I'm very convinced of that but you can imagine that in that pathway there will be different views and different concerns and I think sometimes that we as Australians so far away from Japan sometimes underestimate the proximity Japan has to China for example and all of the issues that Rick has raised it and and the China US issues that are raised at the moment so certainty of supply is obviously guaranteed but I think we need to communicate better between each other and not use the media well the media probably is the last place that you want to have any of these issues raised so do we have stronger collaboration at government level in terms of regular energy dialogue do we have do we institute as different structures that support that type of communication do our institutions become involved in learning more about what it is in fact that Japan is doing the other thing I think is really important to understand is that the role that Meti plays in many cases some as well in some cases Australians might dismiss a particular company as pushing forward its own barrow on a particular product or a particular energy stream but in Japan's case it's an all Japan almighty Meti driven Meti funded taxpayer by me and you led initiative or discussion so it's very important that we see it for its in its entirety now I've skirted around the issue but I have I do think that increased dialogue and the Japanese expression about having your listening ears is important for both Australian side and the Japanese side and I think we'll probably be able to conquer it by listening more thanks Melanie some pretty good advice as both countries decarbonise and there are going to be a lot more policy changes in both both countries so try to build up that institutional linkage much more to avoid stumbles and unnecessary episodes but let me open it up now I promised a question on supply chains but I might come back to that I'll open up for questions and not comments questions and very short so we'll go in the middle here and then over here can you wait for the microphone can we run a microphone up here to the middle just behind the camera jet I have two questions I think there seems to be recite into voices for the carpeting saying market is big but shouldn't there be more voices discussions and government policies to promote decarboning because of political risks and second question is I think there are many more tasks like I think Japan is not buying foreign investment on buying land or large swaths of land or there seems to be no counter espionage law because recently there was like some foreign technology transfer to foreign entity who was working in research institute so do you think there needs to be some measures for counter espionage thank you can I just take the very quickly they are on the issue of land acquisition by foreign nationals currently there is no restriction or legislation that that prevents that but at Mitsubishi estate in at the last board meeting we looked at some of the ownership and purchasing data for mostly condominiums you know apartments in the kanto region and it showed that at this stage it's mostly purchases by what they call in Japanese you know individuals who are both working and who are buying higher priced apartments and it's not necessarily that that push in condominium purchases and pricing isn't necessarily driven at this stage by external sources however I agree that there needs to be some kind of register or at least some kind of restrictions in terms of what will happen yeah sorry yeah right so you suggest that there should be more policy kind of really discussions between other across maybe countries like Japan US Australia and so he's up with I mean two decoupled from China is that what I think the first point you made and I'm sure that there have been discussions intergovernmental or across countries and well that maybe that should be maybe enhanced more but I I'm sure that there are quite active dialogue between among these government Australia Japan US Canada and so on even if decoupling were possible without causing huge economic fracture and damage to all our economies is it even sensible I would have thought a China that is less integrated into the global economy would pose more risks yes there are several number of studies which try to estimate the cost of decoupling using economic models if I remember correctly IMF has done that and the WTO has done it some depending on how strict the decoupling is it may lead to maybe five or eight percent decline in world GDP so decoupling itself is very costly to other countries I guess other than China including China that that is a I think very important point to be made so I think the the the kind of framing has shifted from decoupling to de-risking to Rick or Ratasan when you want to tell us what de-risking means I mean in the private sector surely you're mitigating and managing risk all the time yeah that's systemic risk across the economy yeah or what's there's a new euphemism in the United States for this so so off-shoring on-shoring anyway as I said decoupling for Japanese companies is difficult but I think new investments large investments generally Japanese companies are just trying to stay clear of China but we we acquired Olympus' camera business and Olympus had actually taken their entire manufacturing operation from Shenzhen in China and moved it to Ho Chi Minh City in Vietnam so all of the you know what we use for health so it was it was huge it was very difficult because the infrastructure in Ho Chi Minh City is not yet at the level of Shenzhen you can't get the platers and the various suppliers even logistics is complex but they did it and and so they that they they they decoupled the the other thing you mentioned and I'm not really sure what is being done in Japan about this but in the like in the engineering and science faculties of most even national universities including Todai Tohoku Dai Kyushu Dai Gaku at the at the graduate level a large number of the graduate students are Chinese and and in fact I think in many cases you you the Japanese University would have a problem without the Chinese students and how they protect the IP which obviously you're you're training students so they're getting the the knowledge is an issue and that I don't know how exactly it's being handled and Hichachi chemicals our central research lab actually the head of the lab was a Chinese PhD lady and very trusted and and a valued employee so we'll take two questions once yeah go right first you know Japanese government introduced or methi introduced several measures to diversify Japanese investment out of China to like ASEAN countries and that's one program and the other program is reassuring they provide subsidies to reassure i'm Japanese companies to assure their activities away from China back to Japan according to many studies like economists agree that diversification is very important to the risk but the reshoring is back to Japan is not really recommendable because Japan is prone to earthquakes and so on so putting everything back to Japan is not really a good policy but to diversify you know investment away from say trouble come like China to ASEAN that's been I think considered very favorable just one other point Japanese Ministry of Education I think asked the university to report the number of Chinese graduate students to to make sure that they know how many are in you know engineering and so on and also I didn't mention this in my talk but beginning in 2020 to a Japanese government requires disclosure of information on presence of foreign funding for government funded research projects so they are now more sensitive to these possible takeover I mean acquisition of technology by foreign funded companies or institutions just before I go to the next two we'll take two questions at once those subsidies for on-shoring and the subsidies for expanding into Southeast Asia were taken up very quickly by the private sector I mean it seemed like it was free money my understanding is Japanese companies were already shifting to Southeast Asia because of higher wage costs and you know two billion dollars worth of subsidies onshore flew in the face of 12 billion dollars of Japanese investment into China in the same year so it is not that big I mean right yeah so it's an additional kind of marginal effect but the thanks so go question there Kent and then Orba Sun and then Helen we're going to we're going to take two questions get a quick quick two questions responses and then two more questions and then we'll wrap up so yes oh thank you very much my name is Mr Tsuka from Keio University I'm now a visiting fellow here at the end here I'll have a question on the economic security discourse because it seems to me that there are divisions and confusions and different groups of people are saying different things and there is a mutual sort of suspicions complaints for example on the one hand the security experts are saying that all business people are looking only at money and complaining about that and but business people are saying that of course business is business and business is important so the but the business community and economic economists are no stranger to political risks so you have been doing a political risk analysis and the country risk analysis so what I'm wondering my question is from your perspective particularly from economist perspective and business community perspective what's the biggest difference between more traditional country risk and political risk considerations and economic security things because the many companies are becoming more cautious about doing business in China or with China but not for the sake of security and defense but for the sake of business interests so what's the biggest difference between traditional considerations and economic security thank you thanks and Kent thank you Cheryl thank you for the panel Kent Anderson from University of Newcastle we haven't talked about cyber security at all and thinking about my university as an operational entity the risk of cyber security both state sponsored and non-state sponsored is much greater than the traditional economic security of IP we you know we know what to do with IP the cyber risk and the amount of money we're spending on it is much much greater the second risk probably is the one mentioned around just having a very diverse community of researchers and research students and we do that through foreign interference and we're getting better on that but I would love to expand the conversation with economic to include the cyber consideration all right let's take those two questions we'll come back for two final questions let me first respond to Tsuroka-san's comment I think it's a matter of degree I mean you know it's the risk has been there for many years but in recent years as China kind of emergence of China as a bigger threat that I think leads to great attention to economic security or political security so it might be a matter of degree I think the nature of characteristics I don't I don't think have changed that that's my own personal view about cyber security I mentioned in my talk but it is very difficult where I think to deal with you know I think the government needs to really get control of I mean like information so I don't know I you're correct about the increasing importance of cyber attacks but I really don't know how the government is I accept that that they're trying to deal with that but that's that's all I know and I don't know exactly how they're trying to do so okay well I just said that one of the on one of the boards I'm on the an auditor a woman who was a former employee of the game of game short and the national police agency she has been appointed because of her understanding of risk and so she helps other board members and management understand the changing nature of the risk albeit that I agree with you Ratas and a lot of the risks are in fact something that's been around but she has particularly picked up on cyber security obviously you know in in various places um also the discussion amongst the board I think changes to a degree by the nature of the board member and their expertise we're very lucky at Mitsubishi estate to have the former governor of the bank of Japan in Shirakasen and he quite often speaks about the risk of depopulation in Japan and so I guess those those those risks are raised at the board level how they impact on the board's business on the company's business to a certain degree by the various board members themselves but it is open discussion and there is a key focus on the nature and the changing nature of risk Rick if you'd like to optional well on cyber security I'm far from being an expert on cyber security I just know that all of the organizations I'm involved with have gone to these upper levels upper levels of cyber security which makes it for the user the user interface becomes extremely complex whether it's effective or not I don't know on the issue of political risk for example when the water started being released from Fukushima Japanese employees in China started getting harassed and so one company I'm on they sent out a notice on what to do about the harassment that you'll get from your Chinese neighbors because you're Japanese and you're releasing this water it's I mean I got calls on to my phone from Chinese numbers complaining about Japanese about Fukushima so and in fact the Tokyo Tokyo Metropolitan Government and in the first three or four days had 36,000 calls from a barge obviously complaining about the release of water so and to your point Rick I think a lot of the employees were told to keep their Japanese-ness under the radar like don't speak too loudly don't speak in Japanese in public etc etc so there's some of the greater issues and of course the impact in Japan has been quite intense since the release hasn't it you know in terms of supporting Fukushima. Yeah on the some of the responses to the cyber security issues Rick I mean the university IT security is so intense we can't use half the services now but we've got two questions from the audience and I have one final question online but first to Professor Oba. Thank you very much so I'm from the Kanagawa University I have two questions the first one is a semiconductor so now Japanese government tried to push and encourage the domestic production on the semiconductor so but and I heard that the five big companies in Japan so work together so and to to construct the one one one company to push this project but taking into account Japanese companies business companies culture I think I'm so doubted that this business succeeded so because for example so the speed or decision-making so of such a company there's originally so the people coming from the five companies and their own business culture and then they merged into the one company but so maybe the decision-making system is very different among them if so so but semiconductor business require the speed and a decision-making to to invest a huge finance so if so so I'm doubted so how to what extent the such a business so succeed so of course I know the the semiconductor is very important for the day listing but on the other hand so I'm so doubted so how do you think about that so second question is that so hydrogen facility so yes I'm so interested in this new project so but on the other hand so the we are we have to consider the energy security but energy industry is a business so it means that the energy energy business should be promoted by the private company that we saw so they need the profit stable profit so do you think that the prospect of the hydrogen facility so will it stand will it or can can it stand as a business so this is my question and Helen on sim we might take another couple of quick Helen Mitchell Australian National University and thank you panel Urata sensei offered us such a balanced I think approach to thinking about economic security protecting against some threats but weighing that up against for example in Japan's case the huge benefits of inward investment so my question is just where or if the Japanese government is weighing up these kind of economic security decisions for example are you aware that the national security team you talked about Urata sensei modeled on the US NEC is that the approach they're taking in other countries for example it tends to be more of a threat based approach a bit less of a consideration of the positive benefits and the peace evident that she don't mentioned so that's one question each and just a final one from professor Jenny Corbett online I found the insights on the changes in Japan from Melanie and Rick very interesting this is a corporate sector I think but I wonder if these changes make Japanese people feel more secure or less so so one and a half questions each go ahead Rick can I do the Jenny Corbett hello Jenny nice to see you I think I think they do I think those people who feel less than secure probably feel less secure for other reasons as well their own merit based engagement etc so there are a lot of people who might feel threatened by changes but it's how it's incorporated I also think that for such a long time young people in Japan have been overlooked as a group and as they take on less of a I mean in terms of voting we've seen incredible commitment by young people in the last couple of elections but of course the bulk of people are in the in my category and so so it's skewed to the to the older but so I do think that people it's great for young people to see that there is a chance and that the change will bring them opportunity I'll leave the hydrogen one until I can think better yeah I agree it's a general generational differences as to the how they feel secure or not typically of course old people do not feel secure as the more foreign influence is you know increased but as I agree the young people they are more acceptable to you know these changes or increased foreign presence in many areas including companies and so on so there's a generational difference and on the I guess economic security issue NEC is the I think the like I said control tower so to speak of the issue but the NEC consists of of course their own people but the same time like Meti maybe Minister of Finance Mofa they send their stuff to NEC so it's more kind of cooperation but again as far as I understand NEC and Meti are very influential in deciding the policy of regarding economic security in Japan. Thanks Rika final word from you. A couple of things. Oba sensei on semiconductors I agree with you I'm very skeptical if you're talking about the new factory in Chitose as most of my friends in the set in fact my very good friend Koike San is in charge of that factory most of my friends in the industry are very skeptical but TSMC has amazing manufacturing technology but overwhelmingly depends on the Japan supply chain they depend on the Sahi glass JSR Hoya glass the relationship between TSMC and Japanese suppliers is amazing that has not even been replicated by UMC and other Taiwan companies so I think that eventually the answer is the new TSMC factories in Kumamoto because TSMC TSMC has to find an alternative to Taiwan for various reasons if if that works in Kumamoto and the local governments in Kumamoto they're going to take 300 Taiwanese families to Kumamoto if they can provide a welcoming home for TSMC it could be that that will be Kumamoto and there's a strong relationship between Taiwan and Japan anyway so there's a lot of effort going in to making Kumamoto welcome to TSMC which is not working in Arizona for them I just like to make one last thing you know these changes and is it making Japanese what Melanie talked about is trying to create gender diversity with work-life balance and the problem that Japan has had is that men have sacrificed family life for the company and in a sense that contract has not been upheld from the company side and I'm on the evaluation committee for JETRO JETRO has achieved 20 percent Buczo and above female but they've done it by not only maternity leave but paternity leave if only women take maternity leave then they're looked down upon but if men also take paternity leave then it's equal and the men love it and they're taking it and they so it's the sacrifices if you if you have a company or an organization that has the right balance for females it will also have the right balance for males and it will be a better place to work and I think that's happening I think it's happening in fact one of the conversations we had with some Japanese colleagues last night at the embassy was about exactly that point and we indicated that you know quite often in the morning I see a lot of men on their mama chari or papa chari shall we call them or you know delivering the kitties to daycare and yeah taking them you know the left front center but they're not as many men picking them up afterwards of course because it's harder to ask for permission to scoot off at four o'clock or to pop in to see the undokai or whatever it is for men and that's why I think that young young people will lead that charge on the issue of hydrogen I definitely agree it has to be a business it is a business and it needs to continue to be tonight actually to the japan update we have our Kawasaki's newly arrived actually she's only a week in Japan who is the acting general manager for the hydrogen company that will work in Victoria and she will attend the dinner so maybe I'll ask you to talk to her about the actual business viability but in any case I think that the hydrogen business in Japan is a koksaku and however we say that in English I don't know so it has to be given it has to have that research and development and innovation push from government but it must also have be viable otherwise we're talking about and the same issue is being discussed in Australia if you read the paper this week there's a lot of reference to whether in fact some of the green industries will in fact be viable and be businesses that are economically feasible so I agree with you and I think the boards on these Japanese companies other the boards of these Japanese companies will be holding people to task but what I do see very briefly in conclusion is having seen from Western Australia and Northern Territory the incredible shipment of LNG to Japan to know that a Japanese company was pivotal in the production of those LNG tankers for example that's the type of collaboration that Australia and Japan is is terrific at and those type of things need to obviously be be supporting business too well thank you Melanie that's a nice place to end and the questions thank you for the questions they were dominated by men initially but then we had three women at the end and now Better Lake than Never in Japan's in the same space I think Better Lake than Never but I hope that was useful for you was extremely useful for me in trying to think these issues through we invited economists trade economists and two people from business because I think this economic security issue has been kind of dominated by non economists initially and we need to understand also what's going on in the ground on the ground sorry with the company so I think it raised a lot of questions legitimate questions we have to think through instead of running full speed ahead with some of these policies so hopefully that's been as useful useful to you as it has to me and again please join me in thanking the excellent panel thank you