Jan 7, 2013

Japan's Government Pushes New Business Role in Myanmar

Taro Aso, a week after becoming Japan's new finance minister, put aside pressing domestic issues for a trip to Myanmar to cement Tokyo's role in the largely untapped market, part of an effort to diversify from Japan's exposure to China.

During his three-day stay, the 72-year-old Mr. Aso held talks with decision makers including President Thein Sein.

Mr. Aso confirmed to Mr. Thein Sein that Japan would waive much of its ¥500 billion ($6 billion) in debt claims and would offer ¥50 billion in fresh loans, building on a commitment from the previous Japanese government, despite concerns from some Western countries that it is acting too hastily to build ties with Myanmar's military-dominated government. "Myanmar was extremely grateful for Japan's role in resolving its external debt problem. I am satisfied," Mr. Aso told reporters.

The action on the loans is expected to give Japanese companies a leg up in the race to win a share of the emerging market. The speed and determination with which Japan has re-entered the Myanmar market also reflect heightened worries among officials in Tokyo about the country's economic outlook amid a continuing territorial dispute with China, Japan's largest trading partner. The Japanese economy has been contracting for the past two quarters and has fallen into monthly trade deficits as its export engine sputters.

Southeast Asia has traditionally been a stronghold for Japan, but Tokyo's dominance is now under challenge from China and South Korea. The U.S. has also pushed aggressively into Asian markets as it seeks to increase its exports.

Government support is seen as crucial in establishing a presence in countries such as Myanmar, where rules on corporate governance are still evolving and investment risks remain high.

Japan is using its official yen loan programs to help Japanese businesses crack open the market.

Last month, Japan won a contract to develop Thilawa, one of the three pioneer special economic zones in Myanmar.

A sense of urgency has grown among Japanese officials after South Korean President Lee Myung-bak made a surprise visit to Naypyitaw, the capital, in May, the first by a Korean leader in nearly three decades.

To win the contract, Japan has promised Myanmar to complete in 2015 a quarter of the project: to create an industrial hub on a 2,400-hectare (5,900-acre) greenfield site on the outskirts of Yangon, the largest city, in time for the next presidential election.

Industrial infrastructure is largely nonexistent around Thilawa, located on the shore of the Yangon river. Standing at Thilawa's small port terminal, Mr. Aso looked across the giant river to the surrounding countryside of untouched land. In that, he saw opportunity.

"Did you find any transmission lines in the skies of Myanmar while we were driving around?" he later asked reporters traveling with him. "I didn't see any. This country doesn't have enough electricity. And stable power supply is essential for any business."

He found virtues in some of the smaller aspects of ties between the two countries. He noted that Yangon is safe, even at night, mirroring Japan's famously low crime rate, and said he was pleased that officials appeared for meetings on time, another element considered important in Japanese society.

"We are not abandoning the Chinese market. We cannot afford to," a senior Japanese trade official said. "But many Southeast Asian economies, such as Thailand, Vietnam and Myanmar, have a sizable population and large consumer markets. We need as many alternatives as possible."

Source: The Wall Street Journal