Article – Japan to pursue reforms in six economic zones

by 12 June 2014

28 March 2014
Jonathan Soble
Financial Times

Japan has unveiled a list of cities and regions that will be granted special powers to deregulate everything from medical care to agriculture as part of the drive by Shinzo Abe to make the economy more competitive.

Promotion of the “national strategic economic zones” is a core element of the prime minister’s “Abenomics” growth agenda, but one whose contours – like those of many of his other proposed structural reforms – have remained vague.

A perception that reform efforts are faltering has taken hold among many investors and has been blamed in part for a sluggish Japanese stock market, where valuations have hardly changed since last May following a surge in the first few months of Mr Abe’s premiership.

Under pressure to show concrete progress, Mr Abe has promised more details between now and June of the supply-side initiatives that he says will raise Japan’s potential growth rate and complement the aggressive fiscal and monetary stimulus that has been the hallmark of Abenomics since the prime minister won power in late 2012.

“We’re now in a position to operate the drill that will break through the rock of vested interests,” Mr Abe said at a meeting of cabinet ministers and economic advisers, where the list of six economic zones was approved on Friday.

The list includes the big population hubs centred on Tokyo and Osaka, as well as Fukuoka on the southwestern island of Kyushu, the islands of Okinawa and a pair of cities in the agricultural prefectures of Niigata and Fukui.

Much remains to be decided. Each zone will be allowed to loosen regulations in a particular industry or economic sector, though precisely which rules – and the specifics of the ones that will replace them – will be the subject of negotiations between the local governments and Tokyo.

The zone encompassing Osaka and the nearby cities of Kobe and Kyoto, for instance, has been named a special zone for advanced medical technology. Officials there are lobbying for exemptions to national legal limits in a number of areas, including hospital bed numbers and the hiring of foreign doctors.

Fukuoka will be allowed to experiment with employment regulations and Okinawa is to be designated as a tourism zone. Tokyo’s mandate is the least specific, but potentially the broadest: it will be a laboratory for regulatory reforms designed to promote foreign investment. Changes to rules that limit the scale of property developments in the city are among measures being considered.

Some economists have questioned the impact of such regional programmes, which have been tried before under previous governments with little noticeable benefit to growth. Mr Abe and his supporters counter that the latest incarnation of the idea will be more effective because it targets big urban areas and industries, such as medicine, where successful experiments can be replicated nationwide.

“The shape of the economic zones initiative is becoming clearer, but there is still a lot of work to be done,” said Mio Uemura, an analyst at Mizuho Research Institute. “Ultimately, these measures will need to be expanded to the whole country to be truly effective.”

Courtesy of the Financial Times

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