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Masahiko Hosokawa

【#786】Rakuten and Government Required to Address Tencent Issue

Masahiko Hosokawa / 2021.04.28 (Wed)

April 26, 2021

I have pointed out concern over economic security regarding investment in Rakuten Inc. by a subsidiary of Chinese information technology giant Tencent Holding Ltd. in this column since the deal was announced in March. Rakuten has dramatically changed statements on the deal in an apparent bid to sweep away such concern. The Japanese government has been prompted to come up with plans to monitor the deal, according to recent media reports. But the concern has never been swept away. Rakuten and the government have major challenges they should address.

Rakuten should be held accountable

At a press conference in March, Rakuten stated that it would positively discuss its strategic partnership with Tencent. As the concern about the treatment of personal information relating to the partnership with Tencent was pointed out, however, Rakuten dramatically changed the explanation. It has begun to explain that Tencent’s investment is a pure investment that would not be accompanied by any business partnership. Such change may lead the company to be criticized for being two-faced.

A common wisdom is that it is inconceivable for Tencent, which is not an investment company, to pay as much as 65.7 billion yen (about $600m) in pure investment without expecting any business collaboration. Rakuten should provide reasonable explanations.

On March 30, Rakuten convened a general meeting of shareholders. As a matter of course, how Rakuten would explain at the meeting was attracting attention. However, it ended in 38 minutes with the number of shareholders’ questions limited to three, without explanations about the Tencent investment. It is doubtful if Rakuten has achieved accountability.
Revise foreign investment regulations again

The government has also been required to address the Tencent investment issue. The government has amended the Foreign Exchange and Foreign Trade Act in a bid to toughen foreign investment regulations. Nevertheless, Tencent’s investment in Rakuten has been treated as immune from prior notification for screening.

In the U.S., there is fear that Tencent might leak personal information to the Chinese government. Rakuten’s business operations include telecommunications and other security-related business that handle personal information. Why has such Chinese company’s investment in such Japanese firm been treated as immune from prior notification for screening even under the toughened foreign investment regulations?

Then came a media report on April 20 that Japan and the U.S. would jointly monitor Rakuten to check information leakage to China. The report said the Japanese government would regularly interview Rakuten under the Foreign Exchange and Foreign Trade Act and share relevant information with U.S. officials.

As a matter of course, the government should do what it can under the present system. Even if the investment deal is treated as immune from prior notification for screening, the government should seek an ex-post-facto notification and reports as necessary to check any concern. Regrettably, however, there are limitations on such efforts. It is unreasonable to use the word “monitoring” only to appeal that the matter would be handled with no problem. How the government can conduct effective monitoring even without intelligence capability?

When the Foreign Exchange and Foreign Trade Act was amended, the government boasted that foreign investment regulations in Japan became as tough as those in the U.S. Hence the government may not want the amended law to be criticized as ineffective. However, it should frankly admit and correct institutional defects. It should also prevent the U.S. from doubting the reliability of Japan’s foreign investment regulations.

Masahiko Hosokawa is a professor at Meisei University and a former director-general of the Trade Control Department at Japan’s Ministry of Economy, Trade and Industry. He is also a Planning Committee member at the Japan Institute for National Fundamentals.