By Makiko Yamazaki
TOKYO (Reuters) – Japan’s finance ministry plans to close a loophole in foreign investor reporting requirements under the Foreign Exchange and Foreign Trade Act, in an effort to prevent intelligence leaks to foreign governments.
The move comes as countries look to tighten control over their economic supply chains following global shocks, including trade tensions between the United States and China.
The planned change, proposed at a finance ministry panel on Thursday, would require advance notice to any foreign investors who might cooperate with foreign governments in intelligence gathering. The requirement begins when such a company attempts to buy 1% or more of companies considered critical to Japan’s national security.
While the panel did not name any countries in its proposal, the plan is most likely to affect Chinese companies, which are required to cooperate with national intelligence under Beijing’s 2017 Intelligence Law.
Currently, prior notices for state review are not required for general investors if the stake purchased is less than 10%, with no plans to become involved in management.
The regulatory change could prevent cases such as Chinese tech giant Tencent Holdings’ ( OTC: ) acquisition of a 3.65% stake in Japanese e-commerce company Rakuten Group in 2021, which was exempt from prior notification requirements.
Japan’s ruling Liberal Democratic Party (LDP) called last year for a review of the exemption criteria to strengthen oversight of foreign investment in certain industries.
The revised regulations could enter into force in the first half of this year after a public consultation.
