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Japan’s ‘new capitalism’ sounds a little like China’s ‘common prosperity’

November 2, 2021, 11:40 AM UTC

Japanese Prime Minister Fumio Kishida’s Liberal Democratic Party scored a stronger-than-expected victory in parliamentary elections Sunday, preserving the party’s legislative majority and awarding Kishida a solid mandate for his political and economic agenda.

But the shape and direction of that agenda remain a matter of considerable puzzlement despite—or perhaps because of—Kishida’s efforts to explain it.

Kishida, a soft-spoken former banker, became prime minister last month when LDP colleagues chose him to replace Yoshihide Suga, who was widely criticized for bungling the pandemic and plowing ahead with the Tokyo Olympics even as the virus spread.

In the weeks before he took over, Kishida proclaimed his determination to forge a “new capitalism” that would raise taxes for the rich and stop coddling big corporations and their shareholders. He vowed a new capital gains tax and spoke of bold measures to “redistribute” income to ensure that the benefits of growth are shared by a broader swathe of Japanese society.

In an interview with the Financial Times days after taking office, Kishida delivered a blunt attack on the economic policies of Suga and his predecessor Shinzo Abe. “Abenomics clearly delivered results in terms of gross domestic product, corporate earnings and employment,” Kishida told the FT. “But it failed to reach the point of creating a ‘virtuous cycle.’…I want to achieve a virtuous economic cycle by raising the incomes of not just a certain segment, but a broader range of people to trigger consumption.”

In the interview, Kishida also decried the evils of excess regulatory reform, “neoliberalism,” and what he called “market fundamentalism.”

Kishida’s rhetoric provoked alarm among global investors—and infuriated many Japanese business leaders. The Japanese stock market, which usually rallies on the appointment of new prime ministers, tumbled into an eight-day swoon that was quickly dubbed the “Kishida shock.”

Does [Kishida] even understand how capitalism works?” tweeted Hiroshi Mikitani, chief executive of Japanese online retail giant Rakuten.

On social media some critics suggested Kishida’s comments sound almost as if they were cribbed from recent speeches of China’s President Xi Jinping—a Japanese echo of the Chinese Communist Party’s call for “common prosperity.”

Kishida later backed off on his proposal for a capital gains tax, saying it would have to wait until the economy is stronger. He’s also toned down his criticisms of Abenomics. (Abe remains a powerful force in the LDP, and it’s telling that Kishida appointed Sanae Takaichi—who served as Abe’s economy minister and was Abe’s preferred candidate in the party’s leadership race—as the party’s policy chief.)

The consensus among political experts in the post-election press coverage appears to be that Kishida is unlikely to diverge radically from his predecessors’ economic policies, at least until an election in Japan’s upper house of parliament next year.

Turnout was low for Sunday’s election. Still, Kishida’s populist posturing seems to have played well with voters. Japanese media had predicted that the LDP was in danger of losing its simple majority in the lower house. Instead, the party claimed 261 seats—a decrease from the 276 it held previously but enough to retain control of the 465-seat lower house even without its coalition partner, the Komeito.

Paradoxically, Sunday’s victory may ease pressure on Kishida and the LDP to push through a big year-end stimulus package to bolster the economy. The Komeito had pushed during the election for 100,000 yen cash handouts for every household member aged 18 or under.

Japan’s economy is not, by any meaningful definition of the term, “neoliberal.” The reality is that tackling the primary challenges that confront the world’s third-largest economy—an aging, shrinking workforce, and the lack of domestic demand—can’t be solved by raising taxes or backtracking on deregulation, and remain far more complicated than its new prime minister’s campaign fulminations suggest.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Nicholas Gordon. Reach him at nicholas.gordon@fortune.com.

Eastworld News

COP26

World leaders are in Glasgow for the 2021 United Nations Climate Change Conference, though expectations for a bold agreement to tackle climate change were lowered before the event began. Australia pledged to achieve net-zero carbon emissions by 2050, but it plans to focus on technological development instead of limiting fossil fuels. China’s Xi Jinping is not attending and instead delivered written remarks that made no new climate pledges. But one Asian country made a surprise announcement. India promised to achieve net-zero emissions by 2070—potentially a tall order, given the country’s reliance on coal. BBC

COVID controls

China continues to battle a new outbreak of the Delta variant. China’s aggressive COVID containment strategy means officials inflict harsh measures in response to even one new case, including mass testing and partial lockdowns. One positive case led Shanghai Disneyland to test all 33,000 visitors on Sunday, leading to surreal scenes of patrons getting tested as fireworks erupted overhead. While China’s tough measures have controlled outbreaks before, they have economic repercussions: the country’s manufacturing activity contracted for a second straight month in October, in part due to disruption to factories. The Wall Street Journal

Diversification

Tencent announced Friday that it was buying a 6.86% stake in Kadokawa, a Japanese media conglomerate with interests in publishing, video games, and animation. Kadokawa said it would funnel the investment towards content creation. Tencent’s investment is the latest global foray by a Chinese developer: its competitor NetEase is also shopping internationally, acquiring game studios and poaching top talent. These moves come as China tightens the regulatory screws on Chinese video games, instituting playtime limits and reportedly slowing down game approvals. Nikkei Asia

Reopening gambles

Thailand will allow vaccinated travelers from over 60 countries to enter the country without quarantining in a bid to revive its tourism sector. Over 40 million tourists visited Thailand in 2019, but arrivals have plummeted during the COVID-19 pandemic. Thailand’s reopening is the largest in a series of similar decisions across Asia. Australia opened its border to international travel on Monday, while Singapore has negotiated travel lanes for vaccinated travelers from almost a dozen countries. Late on Monday, the Nikkei reported that Japan would ease quarantine requirements for short-term business travelers. Fortune

Moving past the crackdown

After months of uncertainty about the extent of China’s crackdownincluding concerns that the market may be “uninvestableit appears that global investors may be thinking the worst is over. HSBC predicted that China’s equity markets would soon return to growth and is advising clients to start buying again. Greater clarity around “common prosperity” may also be giving analysts a better sense of which companies to avoid, allowing for investments with less political and regulatory risk. Financial Times

Skipping the second dose

Even as India celebrates administering one billion doses of COVID vaccines, health experts are increasingly concerned about a growing problem: missed second doses. 100 million Indians have skipped their second dose, which limits their protection against COVID-19, especially against the more transmissible Delta variant. COVID cases are already starting to rise in a few states that relaxed pandemic restrictions for festival season. Fortune

Markets and Movers

Singles Day — The world's biggest shopping event is getting even bigger as retailers like Alibaba and JD.com start their sales events before the "official" date of Nov. 11. Singles Day now spans three weeksnot including an October presales period. The tactic appears to be working: Alibaba's TMall platform crashed due to shoppers trying to take advantage of an earlier start time for preorders on Oct. 20.  

Paytm — The IPO of One97 Communications—the parent company of Paytm, a digital payments platform—opens on Nov. 8. The listing will likely be India’s largest at $2.4 billion, greater than the previous record of $2 billion set by Coal India’s IPO in 2010. A successful IPO may encourage investors to see India and its tech firms as legitimate alternatives for investors looking to diversify away from China.

Kuaishou — Su Hua, Kuaishou’s CEO, announced his resignation from the Chinese livestreaming company on Friday. Su is the latest tech CEO to step back from a corporate leadership role this year, after Pinduoduo’s Colin Huang and ByteDance’s Zhang Yiming. Kuaishou raised $5.4 billion in its IPO earlier this year, yet shares have fallen by 76% since their peak amid a broader slump among China’s tech stocks.

LianBio — Shares in the biotechnology firm fell by 14% in its U.S. trading debut on Monday. LianBio raised $325 million in a rare U.S. IPO by a China-focused firm. U.S. listings of Chinese companies have slowed after Beijing targeted Didi following its blockbuster IPO earlier this year; LianBio’s weak first day of trading shows that U.S.-based investors are still wary of political and regulatory risks for companies operating in China.

HK quarantine — Hong Kong is tightening its COVID controls even further by removing quarantine exemptions offered to some corporate executives, bankers and diplomatic staff. Such groups, like the vast majority of inbound travelers, must now quarantine for two to three weeks in a designated quarantine hotel. The city’s COVID zero strategy is frustrating international business, who see tough quarantines as limiting their ability to operate in the city.

Novavax The Maryland-based vaccine manufacturer won emergency authorization for its vaccine in Indonesia on Monday, the first of “many authorizations that Novavax expects in the coming weeks and months," according to Novavax CEO Stanley Erck. Despite receiving support from Operation Warp Speed, Novavax has fallen behind its competitors due to manufacturing delays.

Netflix — The streaming service removed two episodes of Australian spy drama Pine Gap for Filipino viewers after it received complaints that they contained a map with China’s “Nine Dash Line” that mark China's claims over the South China Sea. The Philippines movie classification board deemed the episodes “unfit for public exhibition” in late September.

Final figure

6 pounds

Fortune reporter Yvonne Lau got a personal look at the supply chain crisis when she tried to buy a turkey for a Canadian Thanksgiving dinner in Hong Kong. Caterers in the city are struggling to get enough turkeys in time for American Thanksgiving in late November, as labor shortages constrain production in the U.S. and logistics bottlenecks lead to delays. In the end, Yvonne was able to find a 6-pound "turkey crown" without legs or wings. Given the current shortage of everything, she was "thankful for any turkey at all."

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