Press Conference by Shozaburo Jimi, Minister for Financial Services
(Friday, September 3, 2010, from 11:53 a.m. to 12:42 p.m.)
[Opening Remarks by Minister Jimi]
At an informal gathering with Cabinet ministers after the Cabinet meeting today, I reported on the results of my trip to China from August 27 to September 2.
I visited Beijing and Hong Kong during this trip. On August 28, I, together with six other ministers, attended the Third Japan-China High-Level Economic Dialogue and, on August 29, I met with Premier Wen Jiabao in Zhongnanhai and also met with People's Bank of China Governor - the Chinese central bank governor, as you know - Zhou Xiaochuan and also officials at the helm of supervision in the fields of banking, securities and insurance in Beijing. They are all officials responsible for supervision and are very high-ranking members of the Communist Party of China. I also had a chance to meet the State Post Bureau Director-General.
Then, in Hong Kong, which you must recognize is Asia's second largest financial market and is also home to the world's sixth largest stock market, I met with Chief Secretary for Administration Henry Tang, the number two figure there (in Hong Kong), and Hong Kong Monetary Authority Chief Executive Norman Chan. I also visited Hong Kong's stock market, which is a Hong Kong company, and met and talked with its Chairman.
That is all.
[Questions & Answers]
In connection with your trip to China that you have just described, please let us know if there was any specific proposal in relation to Japan in the area of financial services when you met with China's leading figures, including Premier Wen Jiabao.
All right. Allow me to give a little more detailed account - when I met with Premier Wen Jiabao, I requested, from the standpoint of further promoting mutually beneficial cooperation between Japan and China in the area of financial services as well, that a flexible stance be taken in relation to Japanese financial institutions in enforcing the requirement on the loan-to-deposit ratio, or the so-called LDR, so as to facilitate further support from Japanese financial institutions in financing Chinese companies.
If I may elaborate a little more, the percentage of loans that a bank is allowed to make relative to the total amount of deposits is also called LDR in Japan. Currently, domestic banks in China are actually required to maintain this ratio at or below 75 percent but foreign banks are exempted from this requirement until, I believe, next year. Currently, a total of approximately 26,000 Japanese companies are operating in China. As all of you know, those Japanese companies that entered the Chinese market each do business with Japanese banks, many of which have in turn set up branches in China but have difficulty attracting deposits in China in the same way that Chinese banks do. For example, I heard from branch managers of Japanese banks in Beijing that their LDR is 110 percent, 90 percent or something like that, as they make more loans than the deposits that they have accepted in China. Seen from another angle, the Chinese economy is extremely hot now and, accordingly, Japanese companies that went to China have very high demand for financing. As it is also not easy for those Japanese companies to borrow money from Chinese banks right after they arrive in China, what they quite commonly do, naturally, is to do business with banks that they are familiar with back in Japan. I explained those circumstances to Premier Wen Jiabao.
Let me add that Premier Wen Jiabao replied that he would absolutely guarantee that funds Japanese-affiliated companies in China need be made available.
Notably, Mr. Wen Jiabao said that China regained its strength through its fiscal measures after the Lehman shock in the U.S. two years ago, as you know, and is aiming to achieve economic growth of 11.9 percent for the first quarter, 10.3 percent for the second quarter and 8 percent for the entire period of this year. While talking about the Chinese economy, he observed that in the wake of the Lehman shock, Asia is now indeed on track to become the economic center in the current global context. He also pointed out clearly that since Japan and China together make up 17 percent of the global GDP, economic interactions between Japan and China in a mutually beneficial relationship based on common strategic interests are now taking place on a private-sector level. The leading role in any economic interaction is played by companies, which could not operate well without sound and robust financial institutions. In that and other senses, a variety of points were made at the Japan-China High-Level Economic Dialogue, including the fact that the Chinese economy is extremely strong in the current global context and that an increasing number of Japanese companies operating in China excel particularly in the field of technology, including those with highly advanced anti-pollution, global environmental, or energy saving technology. I believe that this issue also made it to the list of agreements and, judging from the fact that Premier Wen Jiabao replied that he would absolutely guarantee that funds that Japanese-affiliated companies in China need be made available, I feel that I have successfully delivered a certain level of outcome as the Minister for Financial Services.
During the talk, I requested the listing of Japanese investment trust funds on the Shanghai Stock Exchange - funds that are thus to be called ETFs (exchange-traded funds). A request that Japanese investment trust funds be listed in Shanghai means that, if that is met, more people in China can own shares of Japanese companies by purchasing those exchange-traded funds because, through such trading, they are buying Japanese shares with their own money. In other words, this would bring about transfers of capital back and forth. The fact is that we are quite far from seeing such a situation, but I implored the person responsible for regulation and supervision to allow the listing on the Shanghai Stock Exchange so as to get underway towards making it a reality.
With respect to China's foreign investment restriction, I also requested emphatically that the restriction be eased, seeing as the maximum allowable stake is currently only 20 percent in the case of securities companies.
On a related note, China's compulsory automobile liability insurance market is actually not open to foreign insurance companies. While foreign insurers do have access to the voluntary non-life automobile insurance market, the compulsory automobile liability insurance remains not open to them. Accordingly, I strongly requested the opening of the market.
Moving on to my next question - now that we are in September, the month in which the Basel Committee on Banking Supervision is, according to its statement, scheduled to have a meeting to reach a final agreement on numbers and other matters associated with capital requirements for international banks, please tell us once again about Japan's standpoint on this issue, together with any prospects regarding future debates or other related points, considering that you have mentioned that, having visited the U.S. the other day, you will pay attention to U.S. reactions, among other things.
The meeting of the Group of Central Bank Governors and Heads of Supervisors held in July clearly stated in its announcement that the requirement standards and phased-in arrangements will be examined again at a meeting to be held this month.
I spoke with FRB (Federal Reserve Board) Chairman Bernanke two weeks ago and also had a chance to speak with People's Bank of China Governor Zhou Xiaochuan this week. Frankly speaking, this is, as a matter of fact, a kind of issue to be decided on by the global forum of the G20, as it relates to stability of financial institutions worldwide and, at the same time, the definition of capital adequacy, and the quality and quantity debate, among other things. A dozen years or so ago, Japan was hit by a financial crisis. When I was previously a minister, I witnessed something similar - the failure of the Hokkaido Takushoku Bank - which resulted in a credit crunch and credit withdrawal that, as many of you must remember, indeed caused a large number of companies to go under one after another. In that sense, it is not necessarily a positive thing to make a capital adequacy ratio higher and higher. Thus, I myself learned the hard way that in addressing such issues, one must put into perspective the need to boost the economy as well. Bearing those points in mind, I give credit to the fact that the argument that Japan was pressing for has been accepted to a considerable extent in the work of examining the definition of capital adequacy and other matters, as the resultant measures reflect consideration of the circumstances that have actually taken place in Japan.
In that sense and others, striking a balance between all those factors is critical - while peace of mind and security do matter in financial services, adhering excessively to such qualities could, as I have just pointed out, result in a credit crunch or oppressive debt collection and thus create impediments to the growth of truly healthy companies or the growth of a healthy economy, which is why the financial sector is so vital. This time around, I reaffirmed in talks with people like Mr. Bernanke and Mr. Zhou Xiaochuan that harmony or a balance between those factors is extremely important. Having spoken with financial regulators in both the U.S. and China, I am now even more convinced of this idea. In any case, the Financial Services Agency (FSA) is aware of the importance of paying proper attention to any impact of the new requirements on the current situation and corporate reform efforts in Japan - a point that applies to not only Japan but also the G20 nations that each have their own lay of the land - while they will, put simply, contribute to a higher level of soundness of Japan's financial system over the medium to long term. From this viewpoint, I do see that Japan's argument has increasingly received global approval to a considerable extent, while I am committed to continuing to advocate Japan's position in a proactive and resolute fashion.
Given the current situation where the yen still remains high even after the Bank of Japan launched an additional monetary easing measure, could I please have your comment on how you view the situation as the Minister for Financial Services?
In answering your question about how I view the high yen and low stock prices that we currently have, let me say that, judging from the recent movements in financial and capital markets - a topic that is currently drawing very considerable attention - I am quite aware of what we are witnessing now: the progressive appreciation of the yen coinciding with large fluctuations in stock markets.
The FSA intends to continue following any movements in exchange and stock markets, etc. and, from the perspective of whether the financial intermediation function is fully exercised, is trying to take steps, including comprehending the actual state of corporate financing practices. That is the basic stance.
Additionally, economic policies are also very weighty, which is why the "Basic Policy for a New Economic Stimulus Package" was announced on the 30th day of last month. The FSA understands that in this "Basic Policy," announced on August 30, financial support for small and medium-sized enterprises (SMEs) is listed as a specific measure intended to secure jobs, considering the grave economic condition due to the high yen and other factors that currently exist. The FSA will continue to watch the movements of exchange and stock markets and take steps to address given economic and financial conditions in a timely and appropriate fashion from the standpoint of whether or not our function - the financial intermediation function - is working to its full effect.
I am Inoshita from Toyo Keizai.
On the subject of Basel, you have just mentioned that Japan's argument was accepted to a considerable extent, but this relates only to details of the ongoing decision yet to be finalized. If there is any specific issue about which you still have concern regarding the requirements being shaped, or any point that you pay particularly close attention to in the prospect of those requirements, can you please tell us about it?
The negotiation is indeed still going on but I do find that, in general, Japan's argument has been accepted to a considerable extent. For example, deferred tax assets were not initially on the agenda when the current negotiation started, but I believe that it is now pretty much a certainty that financial institutions will be allowed to include 10 percent or more holdings of common stock of other financial institutions and deferred tax assets in Tier 1 capital up to a limit of 15 percent in the aggregate. Another example of Japan's argument successfully being accepted is the correction of unequal treatment in relation to computer software and other assets accounted for as intangible fixed assets due to differences in accounting standards, as has, I believe, been announced.
Yesterday, the Metropolitan Police Department arrested several people, including a Nigerian man, for a case of violation of the Anti-Organized Crime Act. This case reportedly involves suspected organized money laundering, and the inadequacy or other shortcomings in the system of checks by financial institutions in Japan is said to be one of the grounds for such acts. Please give us your thought, if any.
I am aware of press reports on a case involving funds illegally sent from a U.S. bank but, as you know, I would like to refrain from making any comments, considering that it is a case currently under investigation by the police.
I am Namikawa from Toyo Keizai.
The U.S. says in its financial reform act, etc. that it will no longer use taxpayers' money. Given the current condition of the U.S. economy, however, many people still suspect that at the end of the day, it will likely become necessary to spend taxpayers' money. Seeing as you have just visited the U.S., what was your impression in this regard?
The U.S. is a free country, and I also see the U.S. as a country of extremely fast changes and also of an extreme diversity - a country of diverse values, indeed. Those qualities pushed the U.S. to embark on regulatory reforms that led to, notably in the area of financial services, advances in financial engineering in the last 20 to 30 years that were most prominent on Wall Street. Helped also by the fact that global investment money, of which there was so much, was just poured into the U.S., Americans explored a new field by exerting their characteristic frontier spirit. However, things escalated to the point where it became impossible for companies to take risk on their own, resulting in, as you know, the failure and bankruptcy of the Lehman Brothers investment bank. This brought about the global financial crisis because the world's economic center was, all in all, the U.S. The question is whether the cost is going to be passed on to taxpayers in the end. When I went to the U.S. last September, 90 percent of the senior government officials that I talked to voiced their disapproval of greedy financial capitalists on Wall Street. As a result, a financial regulatory reform bill, which included the Volcker Rule, was passed in the U.S. by both houses of Congress and was signed into law by the President, and has now become a voluminous law.
In my view, this whole development naturally reflects one aspect of the U.S., a gigantic democratic nation. One frank view that I heard firsthand from the American Bankers Association Chairman was that there are a large number of regular commercial banks, but they - "we" from his perspective - were not engaged in high-risk, high-return investment much and were therefore quite inconvenienced by the stricter corporate management requirements, or something along those lines. That is also one American voice.
Judging from this and that, I do think that this nation called the U.S. does swing wildly, here and there, and back and forth, but, in that light, the fact that the financial regulatory bill has recently been passed makes me think that it is important for the U.S., a country whose position as the financial center remains unchallenged, to act responsibly as such.
One more thing - you announced the New Growth Strategy in, if I remember right, June and you recently made a reference to some plan to establish a conference dedicated to acting on that as part of economic stimulus measures. It is not very clear to me, though, how this New Growth Strategy has been addressed thus far since it was announced in June. When I asked you about it once in the past, you said that the FSA would work firmly on the part related to financial services - however, it is not clear to me what in the world has been done in this respect at not only the FSA but also other ministries in the last several months. Can you please fill us in about it once again?
As you know, there is a plan to expand financial services themselves under the "New Growth Strategy," for which we have come up with some specific ideas, including that of a comprehensive exchange, and we are of course doing our best now. As Toyo Keizai must also be aware, however, this matter is quite frankly an issue concerning multiple ministries. Be that as it may, we will proceed resolutely under a politician-led initiative and would like to have some more time to address the matter of a comprehensive exchange. We are working behind the scenes.
Now, allow me to go back to one of the questions today, as I think that my answer was a little lacking. The question implied the possible weakness of money laundering regulation in Japan but my understanding is that, according to the press, the case at issue involved an illegal transfer of funds by a U.S. bank. In any event, we have requested financial institutions to develop a suitable system by describing points of focus, etc. in addressing the issue of money laundering in our guidelines for supervision and inspection manuals, and believe that financial institutions have been working on developing a required structure.
I am Sonoda from Hokenmainichi Shimbun.
Also on the subject of China, where I believe an increasing number of financial institutions are being privatized now, I would like to ask whether or not there was any talk about an impact that such a turn of events has in the domestic context or on Japanese companies or financial institutions.
Specifically, as I just explained, I brought up the subject of the opening-up of the compulsory automobile liability insurance market to foreign insurance companies, among other things.
In order to protect our relationship of trust with China, I would like to refrain from specifically revealing what reactions China had on our requests during the meetings, but my impression is that we were able to have constructive debates leading to a stronger financial relationship between Japan and China in the future.
As you know, Chinese society is becoming increasingly diverse and, for that and other reasons, I believe that insurance is a growth area in China. Given, as you know, the considerable extent of reform and opening-up amid the current economic growth in Chinese society, cities will attract more and more people as a result of reform and opening-up efforts and, in this light, insurance will most likely be an area of future growth, while the fact remains that geographical ties and family ties are still much stronger in their society than in Japan. In that sense, I did get the impression that representatives of the Chinese supervisory authorities are also well aware of a very high level of significance that insurance will likely gain in the future.
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