RAKUTEN’S PARTNERSHIP WITH CHINESE FIRM REVEALS LACK OF SENSE OF CRISIS
When the world undergoes a sea change, with new realities ruthlessly replacing the old, it is crucial to determine a plan for survival and then take action to put that plan into practice without fail. For that purpose, three steps will be necessary: 1) correctly analyzing the present situation; 2) exploring ways to resolve problems; and 3) putting the plan that has been determined into action.
Is Japan capable of doing this? This was the subject my two guests and I tackled last Friday (March 26) on my weekly “Genron” Internet tv news show. We decided to take up two concrete topics—Prime Minister Yoshihide Suga’s pledge to make Japan carbon neutral by 2050, and the ongoing program under which Japan Post Holdings Co., China’s Tencent Holdings Ltd., and Walmart would invest a total of US$2.2 billion in Rakuten Inc., Japan’s leading e-commerce and entertainment group.
My guests were Tadae Takubo, a strategy specialist and deputy director of the Japan Institute for National Fundamentals (JINF), a privately-financed conservative think tank I head in Tokyo, and Masahiko Hosokawa, a former Finance Ministry bureaucrat now teaching at Meisei University in Nagoya, Aichi Prefecture. Environmental Minister Shinjiro Koizumi was instrumental in getting Suga’s carbon neutral proposal approved by the cabinet. If the decarbonization plan should progress as envisioned by Koizumi and his backers, however, the competitive power of many Japanese manufacturers would be significantly slashed, possibly pushing Toyota, for example, into bankruptcy. For the details of what we would face if Japan should become “carbon neutral,” please watch my news show on the Internet.
In this column, I will concentrate on the implications of Rakuten’s capital injection program. Hosokawa was the one who publicly questioned the plan ahead of anyone else in Japan. Similarly, JINF disseminated pertinent information at home and abroad based on the following facts.
On March 12, Rakuten announced a plan to receive a US$2.2 billion capital injection through a share sale headed by JP Holdings, Tencent, and Walmart. But I must say this move by Rakuten is quite odd in view of the growing international concern with the behavior of Chinese communications and information businesses.
Former President Trump, strongly alarmed by the aggressive action on the part of China’s communications companies, signed an executive order last November, banning American investment in 31 Chinese corporations tied to the Chinese military. The Department of Defense moved quickly to blacklist Alibaba and Tencent, too. Although the Department of Treasury narrowly stepped in to intervene, concerns about Chinese companies have yet to be dispelled in the US under the Biden administration.
Rakuten to Control Vast Customer Data
Presumably, the sheer size of the two giant Chinese companies prevented the US government from blacklisting them. Their combined aggregate market value is currently estimated at US$1 trillion. The net income of Tencent alone passed US$25 billion at the end of last year.
This giant Chinese IT corporation has chosen to invest in Rakuten. Its initial investment—US$660 million, which is a pittance for it—was made on March 31. JP Holdings gave Rakuten US$138 million two days earlier, on March 29. JP Holdings, which registered US$1.5 billion in ordinary profits in 2020, is effectively a state-owned big business with 56.87% of its capital from the central government and various municipalities. It has three subsidiaries—Japan Post Co., Japan Post Bank Co., and Japan Post Insurance Co.
Last December 24, JP Holdings and Rakuten reached a basic agreement on a comprehensive business alliance in the logistics field. The alliance also is open to financial services. This means Rakuken will have access to an abundance of the customers’ personal data from Japan Post Bank and Japan Post Insurance—a “treasure trove of personal financial data” JP Holdings controls.
With JP Holdings, a virtual state-owned corporation, investing in Rakuten, there is every possibility of its entire private and corporate data being freely accessed by the latter. This alone is a serious matter. But Tencent makes the matter more complicated.
With an estimated 1 billion Chinese daily reportedly using its popular WeChat app, it can easily be assumed that Tencent is monitoring almost everything about the Chinese people: what they say, what they do, and what they buy. The CCP is aggressively enhancing surveillance of citizens through various means, with Alibaba and Tencent functioning as its indispensable and extremely powerful tools for national surveillance. All the more reason for the party to tighten control over them.
Should the vast amount of personal information in the possession of JP Holdings flow unchecked to Tencent via Rakuten, the CCP will naturally utilize it freely. How can such an outrage be allowed? The Japanese government must immediately block Tencent’s capital injection into Rakuten, if at all possible.
As it turned out, after my news show aired Rakuten CEO Hiroshi Mikitani ended up calling on the government and the US Embassy in Tokyo to claim that there is no problem with his plan. I have no idea to what extent Hosokawa’s argument influenced Mikitani’s action. According to sources, Mikitani told government and US Embassy officials that Tencent is only interested in injecting capital into his business—nothing more, nothing less. But Hosokawa asserted:
“At a news conference on March 12, Mikitani said he would further consult with Tencent about their business alliance come April, citing e-commerce as a possible area of cooperation. And yet, when the Japanese authorities began viewing his plan as a problem, he explained that the Chinese company is merely interested in investing in his firm. That just doesn’t sound right. He’s speaking out of both sides of his mouth—what more is there to say?”
Government Powerless to Intervene
I wish to emphasize here again that the government should have prevented Rakuten and Tencent from forming a partnership in the first place. A senior government official who asked not to be identified confided meekly that the existing foreign currency law does not allow the government to intervene at this juncture, making it impossible to rescind the deal now that Tencent has gone ahead with its first fund transfer to Rakuten. The only thing the government can do is attach certain conditions, such as Tencent cannot access the personal information Rakuten manages. We all know that the Chinese side is prone to empty promises and that there is absolutely no way they can be trusted.
What is there for we Japanese to do, then? Are we to sit idly by and let China steal vital information on our nation and people at will? I asked this question of a government official who keenly recognizes the importance of protecting our national interests. I was surprised by his answer: “There’s nothing the government can do about that. We’ll have to ask America to do something to help us.”
This is the problem. Our government does not have the legal basis for undertaking vital national missions; i.e., the authority with which ordinary democracies safeguard their national interests. It may come up with appropriate plans to protect Japan’s security, but most of them sadly cannot see the light of day as the government remains virtually powerless, deprived of the authority to enforce them. That is the reality of Japan today.
Even under a state of emergency declared twice since early last year to stem the Wuhan virus, Japanese law forbade the government from restricting people’s movements and other freedoms. The most the government could do was “ask” citizens to cooperate with no legal repercussion for those who failed to comply. Similar structural problems exist across the board. In that sense, Japan is not a mature democracy—at least it is not a normal nation.
Rakuten has taken part in America’s campaign to shut China’s Huawei out of the US market. Although the US government has so far viewed Rakuten as a “clean” Japanese corporation, one not tied to China, its recent involvement with Tencent could not fail to negatively affect its US operations. That of course is a problem for Rakuten to address. Japan knows it will have no choice but to maintain and strengthen its ties with the US amid the fierce clash between the world’s two biggest economic powers. It is clear that America, not China, is and will remain Japan’s irreplaceable strategic partner. Therefore, it definitely is in Japan’s interest to avoid business partnerships with China like that between Rakuten and Tencent, under which information on Japan and the Japanese surely and easily will be extracted by the Chinese. The fact that the Japanese government is powerless to deal with this sorry situation is truly a serious crisis for Japan.
(Translated from “Renaissance Japan” column no. 945 in the April 8, 2021 issue of The Weekly Shincho)