Japan on the 29th (local time) launched and put into operation the Japan version of the Committee on Foreign Investment in the United States (J-CFIUS), designed to screen foreign investment through a national security lens. The committee is jointly led by the Ministry of Finance and the National Security Secretariat (NSS), with the Ministry of Economy, Trade and Industry and the Ministry of Defense participating, to preemptively block acquisitions of corporations targeting advanced technology and supply chains by Chinese capital.
Bloomberg said the J-CFIUS launched by Prime Minister Sanae Takaichi's government is an organization for multiple ministries to jointly review acquisitions of Japanese corporations by foreign capital from a security risk perspective. In Japan, until now, foreign investment funds had been screened only by the Ministry of Finance and the ministry in charge of the relevant industry. But after a series of economic security incidents in Japan, the Foreign Exchange and Foreign Trade Act (FEFTA) was revised to create this committee.
By design, J-CFIUS reviews foreign investment in general. However, Japan is seen as having rolled out the system with Chinese capital in its sights. Recently, the Ground Self-Defense Force was found to have used USB drives infected with a China-linked virus for about a year, causing controversy. Separately, according to Nikkei, a Chinese organization connected to a chemical firm based in Wuhan used a company established in Nagoya as a base to direct smuggling of fentanyl precursors bound for the United States from Japan through July 2024. Chinese criminal organizations have also used Japan as a detour route to smuggle semiconductor chips. The Keelung District Prosecutors Office in Taiwan said on the 21st of last month that it caught three people attempting to export Supermicro servers containing Nvidia AI Semiconductor chips with falsified documents and seized about 50 servers. The seizure totaled $15.6 million, or about 23.8 billion won at the day's exchange rate. It is the first case in which prosecutors targeted AI Semiconductor smuggling routed through Japan.
The problems are not limited to smuggling and theft. Chinese capital is absorbing advanced technology through the legal route of acquiring corporations. A paper by the National Bureau of Economic Research (NBER) tracking 161,773 corporations in 159 countries found that the total overseas asset holdings of corporations owned by Chinese capital grew from $551 billion in 2012 to $2.5 trillion in 2021. Of that, $2.1 trillion, or 84%, is under effective Chinese capital control. Over the same period, overseas asset under China's control increased an average of 20% annually, outpacing the United States' growth rate of 7%.
Analyzing 456 large Chinese nonfinancial conglomerates with at least one large overseas subsidiary, the research team found that in the first year they acquired a developed-country corporation for the first time, the parent company's average patent applications surged 204%, from 21 to 64. In particular, Chinese state-owned corporations jumped 4.4 times, from 15 to 83. By contrast, patents at the acquired local corporations did not increase meaningfully. Their return on asset (ROA) even fell by 1.1 percentage points. The National Bureau of Economic Research cited this as evidence of a "reverse flow of innovation," in which technology and innovation outcomes do not remain locally but flow back to Chinese headquarters.
To prevent such developments, Japan expanded, simultaneously with the committee's launch, the scope of pre-screening for foreign investment to include indirectly held equity stakes. When high-risk investors such as foreign governments or state-controlled corporations conduct a transaction with Japanese corporations, authorities can now review sectors that previously were not classified as sensitive. Under the previous law, a foreign activist fund could buy up to 10% of a corporation's equity without government review. After the revision, the threshold was lowered to 1%. The move is seen as an intention to apply stricter standards to capital seeking to exert influence over domestic corporations targeted for acquisition.
This is also a pledge that Prime Minister Takaichi has long emphasized. Before assuming the premiership, Takaichi served as head of the Liberal Democratic Party's Cybersecurity Headquarters and from 2022 to 2024 as Minister in charge of economic security. As Minister, Takaichi led legislation to protect supply chains, infrastructure, and technology from international risks. In a 2024 book, "Japan's Economic Security: Protecting the Nation and the People," Takaichi wrote, "When strengthening supply chain resilience and information security, we must not forget China's presence."
The trend of applying stricter standards to China money is appearing not only in Japan but in other economies as well. SpaceX, a U.S. space corporation, said on the 12th that it would not accept funds from investors in mainland China and Hong Kong in its Nasdaq initial public offering. It is the first case in which Chinese and Hong Kong investors were completely excluded from a major U.S. initial public offering (IPO). The European Union (EU) finalized a strengthened foreign direct investment (FDI) screening framework ahead of Japan. The law designates investments in EU corporations related to semiconductors, AI, and critical raw materials as common review targets and expands the scope to review roundabout investments routed through subsidiaries within the EU. Germany separately blocked Chinese investment in two domestic semiconductor corporations. Canada, based on the Investment Canada Act, also ordered Chinese corporations to divest their equity in Canadian critical mineral corporations. The United Kingdom, using a revised screening law, blocked a Hong Kong corporation's acquisition of an electronic design corporation..
Akira Igata, head of the Economic Security Research Program at the University of Tokyo, told Bloomberg, "Prime Minister Takaichi is actually implementing the economic security policies that policymakers, bureaucrats, and academia have been advocating in recent years."