National

Japan mulls financing body to boost weapons exports

by Tim Kelly and Nobuhiro Kubo

Reuters

The central government is considering the creation of a financing arm for weapons exports, a move that would accelerate Prime Minister Shinzo Abe’s shift away from the country’s pacifist past and strengthen its regional security ties as China’s military power grows.

As a first step, the government plans to convene an advisory panel to consider specific proposals to create a way to finance military sales by Japanese firms and fund defense industry cooperation abroad, according to four people involved in the matter.

One possibility to be considered is for a government-backed body to provide concessional financing for military projects modeled on the self-financing Japan Bank for International Cooperation (JBIC) and the Japan International Cooperation Agency (JICA), the sources said.

They asked not to be identified because of the sensitivity of talks on a move that would likely upset China, where memories of Japan’s wartime past run deep. China has already criticized Abe’s decision in April to end a decades-old ban on arms exports.

The Defense Ministry declined to comment on the matter. “We are considering a number of options in regard to defense equipment, but as of yet, nothing has been decided,” a spokesman said.

Abe dissolved the Diet last week and called a Lower House election for Dec. 14, which his Liberal Democratic Party and its coalition partner are expected to win.

The advisory panel would meet after the election. It would comprise about 10 members, including a legal and a banking expert as well as academics and defense industry executives, people involved said.

“The panel will look at everything from finance to finding deals, the negotiating process and maintenance and support,” one of the sources said.

JBIC issues its own bonds to finance energy projects. Overseen by the Finance Ministry, it also helps domestic industrial companies to expand abroad by providing loans for overseas customers to buy Japanese machinery.

JICA is the Foreign Ministry’s main conduit for dispersing much of the nation’s $17 billion in annual overseas development aid. The agency builds schools and hospitals and finances agriculture and health projects, often involving Japanese engineers, nurses and other experts.

Other ideas under consideration include adding a financing arm to a defense procurement agency planned for next year or to expand JBIC’s remit to cover military projects.

Kawasaki Heavy Industries, which builds aircraft and submarines, said last year it had approached JBIC about the possibility of financing foreign sales of a civilian version of its C-2 military transport plane.

A number of potential deals under discussion in recent months could benefit from concessional financing from Tokyo. They include a possible sale of state-of-the-art submarines to Australia, US-2 patrol seaplanes to India and the development in Japan with foreign companies of a troop-carrying helicopter.

Defense bureaucrats are also looking at joint development projects with Southeast Asia that would build military industrial ties that in turn would strengthen security cooperation and act as a counterweight to China.

Such officials have already traveled to Indonesia and Malaysia to assess the potential for deals, the sources said.

Abe’s government in September also invited representatives from the region to a seminar in Tokyo to promote defense industry cooperation. The diplomats were taken to a shipyard near Tokyo where minesweepers are being built, one of the delegates told reporters. Despite the enthusiasm from Abe’s government, many Japanese corporations have been reluctant to push into overseas deals for weapons systems, people involved said.

At the start of the year, Mitsubishi Heavy Industries entered a tentative agreement to build a rear fuselage component for Britain’s BAE Systems, one of the companies building the Lockheed Martin Corp. F-35 stealth fighter jet.

Talks, however, collapsed because the Japanese firm was worried about potential losses on a tightly priced deal without government backing.

In Japan’s highly fractured defense industry, few companies rely on military sales for more than a few percent of income and firms that make military equipment rarely publicize such business lines.

Among them: ball-bearing maker Minebea also makes 9 mm pistols. Daikin Industries, a leading maker of air conditioners also fabricates rifle grenades, and Komatsu Ltd., which sells its yellow excavators around the world, builds armored vehicles.

“It’s not up to us to promote our defense business, the government has to decide what it wants to do, and it has to be something that Japanese citizens are comfortable with,” Hideaki Omiya, chairman of Mitsubishi Heavy, said last month. “We are not proactively going overseas to sell our products.”

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