Includes how major projects are financed and gives examples where relevant. Explains activities of the multilateral development banks in and other aid-funded projects where procurement is open to U.S. bidders.
While some large U.S. companies in Japan enjoy strong relationships with the larger Japanese "city banks," most medium and small-sized U.S. firms report that it is difficult to secure the specific type of trade financing services needed for importing and distribution. In Japan, credit evaluation is heavily asset-based, and real estate is still favored as collateral. Moreover, a firm's ability to borrow may be more influenced by its personal relationships and rapport with bank officials than would be the case in the U.S. where credit-worthiness is the key factor in making lending decisions. Some smaller firms report that they have been forced to secure needed financing from offshore sources. For U.S. companies with operations in Japan, teaming up with Japanese partners in a joint venture has been effective as a way to receive more favorable treatment from Japanese banks.
While most U.S. banks operating in Japan engage in lending to subsidiaries of U.S. companies (especially their home market clients), many of them focus on higher value-added lines of business rather than conventional credit products. When a Japanese bank extends credit to a foreign-owned company in Japan, it generally evaluates the financial status of both the borrower and its parent company. Even in cases where the Japanese subsidiary is financially strong, the parent company is often requested to guarantee the obligation (although a “Letter of Awareness” may be accepted in lieu of a guarantee).
Types of Export Financing and Insurance
The Government of Japan's programs to promote imports and foreign investment in Japan include tax incentives, loan guarantees, low-cost loans to Japanese and foreign investors for import infrastructure through the Development Bank of Japan (DBJ) and other loan programs. Underscoring the Government's emphasis on import promotion, the Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) have established import divisions.
Four major public financing corporations, the Japan Bank for International Cooperation (JBIC), the Development Bank of Japan (DBJ), the Japan Finance Corporation for Small Business and Nippon Export and Investment Insurance (NEXI, formerly known as EID/MITI) offer low-interest loans to encourage imports to and investment in Japan.
The Japan Bank for International Cooperation (JBIC) is a governmental institution that encourages exports, secures access to energy resources, promotes direct overseas investments and improves Japan's external imbalances through financial assistance to the trade and investment activities of Japanese companies. It was created in October 1999 as a result of a merger of the Export-Import Bank of Japan (JEXIM) and the Overseas Economic Cooperation Fund (OECF). The financial facilities offered by JBIC include export loans, import loans, overseas investment loans and untied loans.
JBIC's import credit program for manufactured goods aims to provide support for the import of manufactured goods from developed countries to Japan. Five-year secured or guaranteed loans with up to 70% loan-to-value, and credit lines at preferential interest rates are available to importers, distributors and retailers incorporated in Japan who plan to increase their imports of manufactured goods (excluding food products) 10% or more over the previous year. Direct 70% loan-to-value long-term loans are also available to foreign exporters for the purchase of manufactured goods to be exported to Japan under deferred-payment terms, as well as to foreign manufacturers and intermediary financial institutions for investment in production facilities and equipment to be used to produce goods for the Japanese market.
The Development Bank of Japan (DBJ) offers loans designed to increase imports into Japan. These loans are available to Japanese companies with at least 33% foreign capital or registered branches in Japan of non-Japanese companies for 40 to 50% of project costs for the expansion of business operations in Japan. Although the DBJ is currently 100% owned by the GOJ, it plans to reduce its ownership stake by 50% over the next 10 years.
The Japan Finance Corporation for Small Business expanded their programs to facilitate import sales. The programs aim to provide support to small-scale retailers, wholesalers and importers in Japan for investments to increase imports to Japan.
No insurance for U.S. exporters is available from the Japanese Government.
Japan has been a member of the Multilateral Investment Guarantee Agency (MIGA) since it was established in 1988. In addition to the investment loan programs from Japanese Government-affiliated lenders described above, prefectures and municipalities offer various incentives, including construction, land acquisition and labor hiring subsidies, special depreciation of business assets, tax deferments for replacement of specific assets, exemption from special land-owning taxes assessed by municipalities and prefectural and municipal real estate acquisition, enterprise and municipal property tax reductions. In addition, most prefectures offer loan programs to encourage companies to establish local operations.
Under Prime Ministers Abe’s so-called “third arrow” the GOJ is seeking to support greater financing for innovation, including start-ups and small and medium enterprises. For example, there is now a ¥10 million tax incentive for start-ups that are less than three years old. In 2015, Japan also amended the Financial Instruments and Exchange Law to permit crowd funding which will permit smaller firms to raise capital more easily, including through the internet.
Japan's venture capital specialist funds are estimated to be only half the size of those in the United States. Traditionally the top Japanese venture capital firms have acted more like quasi-banks. Also, Financial Services Agency guidance to brokers to set tough standards for companies seeking to go public results in even the best companies taking up to a decade to get a listing on the over-the-counter stock market. Japan's electronic OTC market was established in October 2010 by integrating Hercules, JASDAQ and NEO platforms.
Types of Projects Receiving Financing Support
On May 21, 2015, the GOJ announced its “Partnership for Quality Infrastructure: Investment in Asia’s Future.” This $110 billion facility combines resources from a variety of sources, including Japan’s ODA facilities and cooperative lending with the Asian Development Bank (ADB). This lending anticipates acting with partners, including public-private partnerships, and targets “quality” infrastructure projects in such areas as railways, and other national infrastructure projects in emerging regions of Asia outside of Japan.
JBIC also provides loan guarantees to private financial institutions, short-term loans designed to finance the external transactions of the governments of developing nations (bridge loans), and equity participation in the overseas projects of Japanese companies. JBIC's international financial operations focus on projects in developing countries where local financial institutions cannot provide financing on their own. As JBIC's mandate is the support of internationalization for Japanese companies, its loans can be distinguished from Overseas Economic Cooperation operations, which target the economic development of developing countries.
Regional Development Support
The Japan Regional Development Corporation (JRDC), a government-affiliated organization which, in cooperation with local governments, promotes regional development outside of major metropolitan areas, and the Regional Economy Vitalization Corporation of Japan (REVIC) both provide support for certain types of regional projects within Japan.
Overseas Investment Loans and Overseas Project Loans
These loans are typically granted via JBIC and extended to Japanese corporations for overseas investment activities and overseas projects. Overseas investment loans can also be made to overseas joint ventures involving Japanese capital and to foreign governments for capital investments or loans to joint ventures involving Japanese capital.
Extended to foreign governments, foreign governmental institutions, foreign financial institutions (including multilateral development banks), and foreign corporations for high-priority projects and economic restructuring programs in developing countries. These loans are not tied to the procurement of goods and services from Japan but are restricted to the specific purposes designated for each loan. These loans are managed by JBIC.