STUDY SAYS GOJ AMENDMENTS TO URBAN PLANNING LAWS ARE THE

UNCLAS SECTION 01 OF 02 FUKUOKA 000023

SIPDIS

SIPDIS

STATE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON EIND EINV PGOV SOCI JA
SUBJECT: STUDY SAYS GOJ AMENDMENTS TO URBAN PLANNING LAWS ARE THE
WRONG MEDICINE FOR KYUSHU CITIES


Sensitive But Unclassified -- please protect accordingly.

SUMMARY


1. (SBU) A recent report by the Kyushu Economic Research Center
(KERC) argues that the Government of Japan's (GOJ) proposed
amendments to two of the three Urban Planning Laws ("Machizukuri
Sanpo") will actually do little to revitalize urban centers in
the Kyushu/Yamaguchi region. The GOJ proposals are intended to
restrict large retail stores in suburbs and concentrate more
such business in declining urban cores. However, the KERC
report notes that problems facing Japanese city centers go
beyond suburban growth to include population decline, decreasing
office demand, changing consumer behavior, and the rapid
expansion of online shopping. The key to urban revitalization
is to redefine the functions of urban areas rather than regulate
the size of suburban stores. Meanwhile, some local initiatives
in Kyushu to restrict suburban commercial development are more
political posturing than serious regulation. End Summary.

KYUSHU: MOST URBAN CENTERS ARE DECLINING...


2. (U) KERC, Kyushu's premier economic think tank, recently
analyzed the health of urban centers in major cities of the
region. According to their report, except for Fukuoka City,
retail sales in urban commercial centers have been sluggish or
declining. In small-medium cities, downtown retail sales fell
on average about 40% from 1997 to 2002. Even in central
Fukuoka, traditionally the "shopping center" of Kyushu, growth
in retail sales has leveled off. Some key factors behind this
trend were a dwindling youth population in most areas, and the
growing number of large stores located in suburbs. These now
account for about 78% of the region's very large stores, defined
as those with over 15,000 square meters (sq.m.) of floor space.
KERC also attributes some of the decline to the rapid expansion
of on-line shopping, which for Japan as a whole shot up by over
1000% in value terms from 2000-2004. Retail sales at department
stores and supermarkets contracted by over 10% during the same
period.


3. (U) Demand for urban office space has also declined across
the Kyushu/Yamaguchi region, except in the cities of Fukuoka and
Kagoshima. Kagoshima continues to benefit as the southern
terminus of the new Kyushu Shinkansen line, the first leg of
which opened in 2004. Meanwhile, economic growth in northern
Kyushu pushed demand for new office space in Fukuoka to 89,100
sq.m. from 2000-2004, a level three times that of Nagoya.
Corporate restructuring and consolidation, particularly in the
financial services sector, depressed demand in other parts of
the region, according to KERC.

...BUT DON'T BLAME IT ALL ON SUBURBAN STORES


4. (U) In a purported effort to curb the exodus of shoppers to
the suburbs, the GOJ is proposing to amend portions of Japan's
Urban Planning Laws, in particular the City Planning Law. (The
other two pieces of the Urban Planning Laws, or "Machizukuri
Sanpo," are the Downtown Area Revitalization Law, and the Large
Store Location Law.) Under the proposed amendments, new zoning
restrictions would limit the types of land on which large stores
(defined as 10,000 sq.m. floor space or greater) could be
constructed in suburban areas. However, because of the variety
of factors outlined in its report, KERC is very skeptical that
such restrictions will contribute much to urban revitalization.
Rather, large-scale demographic changes, as well as changing
consumption patterns - such as greater spending on services vs.
goods - will have a more profound impact on the fortunes of
urban retailers, KERC believes.

REDEFINING THE ROLE OF URBAN CENTERS


5. (U) According to KERC, the seeds of rejuvenation are emerging
as some urban areas transform themselves from "consumption" into
"production" centers. Venture and personal services businesses
are beginning to fill vacant commercial space, and the
population in some urban districts is gradually rising with new
condominium construction. KERC suggests that even as Kyushu's
urban cores lose their role as merchandising centers to the
suburbs, they can find new life as 1) residential space
(especially for seniors and working families with small
children); 2) incubation zones for venture businesses; 3)
centers for arts and education; and 4) home to knowledge-based
industries. On this last point, KERC noted that in
Kyushu/Yamaguchi there are now 103 customer service call

FUKUOKA 00000023 002 OF 002


centers, accounting for over 20,000 new jobs. About 80% of
these are in urban districts. They include main call centers of
U.S. firms AIG Group and Dell in the cities of Nagasaki and
Miyazaki, respectively.

LOCAL INITIATIVES: POLITICS OVER SUBSTANCE


6. (U) Among Kyushu jurisdictions, Kumamoto Prefecture in
particular has drawn attention for issuing its own guidelines in
December 2005 on the opening of large stores (over 10,000
sq.m.). Kumamoto said it crafted the measures as a follow-up to
the GOJ's March 2005 amendments to Guidelines for Article 4 of
the "Large Store Location Law." These national guidelines
mention the "social responsibilities" to the community of large
stores (more broadly defined as over 1,000 sq.m.),but don't
specify what these responsibilities are. A Kumamoto official
told post that the local guidelines are not geared at
restricting store size or location, but are rather to suggest
specific ways in which the store can contribute to the community
(such as joining the local chamber of commerce, supporting local
events, promoting local products, etc.). Within four months of
submitting an application to build a new large store, for
instance, companies are asked to submit a "community
contribution plan" to the prefecture and hold an explanatory
meeting for affected communities.


7. (SBU) While large retailers have criticized the GOJ's
proposed amendments as contrary to Japan's structural reform
drive, their reaction to the Kumamoto initiative is that it is a
political gesture which will have little substantive effect on
business plans. Prefecture officials emphasize that the
guidelines are non-binding, and a local industry contact
dismissed them as a purely political gesture in response to
pressure from local legislators and their constituents
(especially local chambers of commerce and small business
associations). In fact, Kumamoto officials assure post that
they welcome large retailers as a boost to the local economy,
even though they are hesitant to say so publicly. The floor
space of large suburban stores opened since 1995 already
surpasses that of central Kumamoto retailers, and Japanese chain
Aeon plans a new "mega store" in the area this fall.

COMMENT


8. (SBU) While some of the most vocal advocates of restrictions
on large suburban stores are often downtown small business
owners, the true position of these owners is more complex. A
retail industry contact in Miyazaki told post that small
retailers may publicly voice concerns, but many of the owners
live in the suburbs and regularly shop at the large stores they
are protesting against. Aging family owners of many small shops
have no successors to carry on the business, and their own tight
financial situation drives them to shop at big discount
retailers. As KERC's study shows, simply imposing limitations
on suburban stores will do little for urban revitalization in
the face of these wider trends in Japanese society. Rather, a
paradigm shift in the nature of urban centers will be necessary.
End comment.
WONG