“Money matters”
Reinventing Tokyo as the leading financial hub in Asia is no easy feat. Management consultant and government advisor Tak Umezawa highlights the potential stumbling blocks
Tak Umezawa – a partner with A.T. Kearney and chairman of Cambridge Innovation Center Japan – would like to see Tokyo become Asia’s leading financial hub. He sits on a number of government committees, including those on creative industry development, innovation and taxation, and believes that Tokyo becoming the major financial player in the region would benefit the entire country. It would increase the growth rate of the economy, create a more diverse workforce and help domestic consumption, he says. “But becoming the region’s leading financial hub requires so much more than simply becoming a regional leader on culture and the economy.” Here are the five hurdles Umezawa believes Tokyo has to overcome.
“Becoming the major financial player in Asia would increase the growth rate of the economy, create a more diverse workforce and help domestic consumption”
The competition
“The current financial hub in Asia is Hong Kong, but Hong Kong is changing and many financial institutions are considering getting out of the territory. The question is, what are the alternatives? I don’t believe mainland Chinese cities can be an alternative so the contenders are Singapore, Taipei, Seoul and Tokyo. When it comes to lifestyle, Tokyo can be the most attractive alternative. Like London and New York, it enjoys the brand image of a very vibrant city with lots of things to do, lots of cultural offerings, and great food. Its reputation is greater than most other Asian cities.”
The tax
“Many non-Japanese executives like to visit Tokyo but working as a financial institution professional is another thing. Quality of life is not the primary factor for those in the financial sector when they select their next destination. Money matters. They care about tax rates – income tax, inheritance tax and, of course, corporate tax. However, Japan has the highest inheritance tax rates amongst most developed countries. The marginal income tax rate is not low either and the corporate tax rate is higher than Hong Kong, Singapore and Korea. So without significantly closing that gap in the tax rates, I don’t believe that the main financial institutions or wealthy investors would be willing to live in Japan. I think that’s the single biggest hurdle.”
“Money matters. They care about tax rates – income tax, inheritance tax and, of course, corporate tax”
The politics
“Many politicians understand the benefits of making Tokyo the region’s main financial hub.”
“Many politicians understand the benefits of making Tokyo the region’s main financial hub. But it’s really hard for them to advocate significantly lowering tax rates for wealthy people or foreign financial institutions. The ruling LDP, however, is reportedly developing a special tax treatment to attract foreign financial institutions. It will be a key move if designed properly.”
The infrastructure
“Another hurdle is the administrative system. If Tokyo becomes the region’s leading financial hub, it has to be a place where any financial institution can submit documentation in English and can be processed without translation. Right now it doesn’t happen that way but the Financial Services Agency is said to be preparing for the launch of such a service in Tokyo. We probably need to have more skilled workers with expertise in the financial sector working in English and we need to attract more non-Japanese skilled workers in the sector, but once we get the moment of becoming Asia’s leading financial hub, I think it’s going to happen naturally. We have some advantages. If you are a postgraduate skilled worker it’s quite easy to get a permanent residency. Everybody knows that the country is short of workers in general; we need to attract more foreign workers to sustain and upgrade the economy, and to do that the system needs to be easier for them.”
Time
“I would say the window for opportunity is two to three years. If any city, including Tokyo, wants to make it happen it should take action right now. If the city and the country become really serious about it, they could make it a possibility. But it’s not going to be easy.”