UNCLAS OSAKA KOBE 000646

SIPDIS

NFATC FOR LISA FOX
NFATC FOR BARRY BLENNER

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EINV EIND JA
SUBJECT: HYOGO PREFECTURE NUMBER ONE IN ATTRACTING NEW
BUSINESSES IN JAPAN



1. (SBU) In the fierce competition over business
promotion subsidies among Japanese prefectures, the gap
between successful and unsuccessful prefectures is
growing in western Japan's six prefecture Kansai
district. Hyogo Prefecture got 57 new business cases,
which is the largest number in the first half of 2006
in Japan, and almost half of the region's total 125
cases. Osaka had 19 cases, and Kyoto had 12 cases in
the same period. Osaka Prefecture lost its most
hopeful candidate, a new research institute for Osaka-
headquartered Takeda Pharmaceutical Company. Despite
the USD 170 million (20 billion yen) subsidy offered by
Osaka (more than double the amount offered by Kanagawa
Prefecture), Takeda decided to locate in Fujisawa City
in Kanagawa. Although Wakayama Prefecture also
introduced a new incentive, a maximum USD 86 million
subsidy available for new businesses, it attracted only
4 new businesses in the first half of 2006. Wakayama's
poor infrastructure and weak distribution links offer
at least a partial explanation for such dismal results.


2. (U) The subsidy race in the Kansai heated up after
Osaka-based Sharp Corp. set up a new LCD plant in
Kameyama City, Mie Prefecture in 2002. Former Mie
Governor Masayasu Kitagawa is said to have been
successful in drawing the firm out of Osaka by offering
the equivalent of a USD 77 million subsidy.


3. (SBU) In economics as in war, it looks like a case
of planners preparing to fight the last war. 40
percent of new businesses in Hyogo only used a small
fraction of the subsidies offered, in order to offset
rental fees, turning down the much larger portion of
subsidies aimed at covering land purchases. A manager
of the Kansai branch of the Development Bank of Japan
said that the speed of service, ability to meet
customer needs, and availability of capable local
employees are often more important to attract new
businesses. Large grants or tax breaks aren't deal-
clinchers any more.


4. (SBU) Undeterred, Osaka Prefecture and Sakai City
have started cooperation to attract Sharp's new solar
battery plant to a former Nippon Steel plant site in
Sakai with a total of USD 86 million in combined
subsidies. According to one of Osaka Prefecture's
senior industrial researchers, Takumi Hirai, Japan
produces half of the world's solar batteries, and Sharp
itself has a 30% global share. Hirai is bearish about
the growth opportunities of the solar battery industry,
so he thinks the prefecture is wise to try to invest in
this renewable resource technology. The cost savings
in infrastructure presented by the old plant may turn
the tide toward Osaka this time. Osaka was unable to
keep local giant Matsushita Electric from locating its
first new plant built within Japan in 40 years within
Osaka's borders (the plant went to Amagasaki in Hyogo).
Given the looming public sector debt problem, governors
who do not bring home juicy investment deals to their
prefectures are certain to face the wrath of voters and
business leaders.

RUSSEL