JAPANESE HELP FOR SMALL BUSINESSES: ENCOURAGING EXPORTS?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000605950001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: March 7, 2011
• Sequence Number: 1
• Publication Date: April 15, 1986
• Content Type: MEMO

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DATE
DQC NQ
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P&PD I
Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
15 April 1986
Japanese Help for Small Businesses:
Encouraging Exports?
Summary
The Japanese measures enacted in February to help avert the
bankruptcy of small firms hurt by yen appreciation were largely an
extension and broadening of existing programs. But the government's
rapid action reflects the political clout of small and medium-sized firms as
well as their economic importance as subcontractors and as employers in
certain regions in Japan. The new measures have the potential to allow
small firms that are still close to a break-even point at an exchange rate
of 180 yen/dollar--such as chemical companies--to maintain export sales.
Because the measures are limited in scope, we doubt they will make much
difference in sectors such as textiles and leather that have been kept alive
in recent years by the yen's weakness.
This memorandum was prepared by I (Office of East Asian Analysis.
Information available as of 15 April 1986 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, Japan Branch, Northeast Asia,
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Support for Small Firms: The Economic and Political Rationale
Japan, like other industrial nations, promotes the development of small
businesses. A 1973 law charges the government with helping small and medium-sized
firms--those with less than $500,000 in capital and no more than 300 employees--to
rationalize their operations and become more technologically advanced. During the
1980s, Tokyo has tried to reserve almost 40 ercent of gove
rnm
ent
contracts for such 25X1
companies and to provide low-interest loans
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Tokyo has a strong economic motivation for maintaining the health of small
businesses, which provide three-quarters of the jobs in the Japanese manufacturing
sector and are the core of such industries as leather. Although small companies
account for only 13 percent of Japanese exports directly, the serve as subcontractors
for the major firms that dominate Japanese overseas sales.
Because small firms are an important constituency for the ruling Liberal
Democratic Party, Tokyo has found compelling political reasons to bail out firms in
trouble. For example, small businessmen--acting through several umbrella
organizations--are reported by the media to be an important source of campaign funds
for Finance Minister Takeshita, who is one of the front-runners to succeed Prime
Minister Nakasone. Small firms also play and important role in Takeshita's home district
of Shimane; the health of small high-tech firms contrasts with the prefecture's generally
poor overall economic performance.
Given the importance of small and medium-sized firms, MITI was quick to
propose measures to help companies hurt by the yen's rapid appreciation. According to
press reports, a survey of 138 small firms showed over one-quarter have suffered at
least a 60-percent drop in export earnings in the first quarter of 1986, when compared
with the previous year. The measures, intended to help firms avoid bankruptcy, were
passed in February by the Diet and will remain valid for two years:
? Financial institutions will provide small businesses with an additional $1.5 billion
in subsidized loans. Interest rates were lowered from 6.8 to 5.5 percent in
February and cut another 0.5 percentage points in mid-April in an effort to keep
pace with market rates.
? Funds for credit insurance, which helps small businesses hurt by natural
disasters, remain unchanged from the previous year, but Tokyo has reduced the
fees for insurance and increased the amount of coverage.
? Tax breaks are slated for some firms to help them regain competitiveness lost
with yen appreciation. Small businesses will now be exempt from some real
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estate taxes on new facilities and will get additional tax exemptions for research
expenses. In addition, the government reinstituted a tax law permitting small
fib to write off exchange rate losses stemming from trade financing.
All the measures have the potential to lower costs and to allow companies to
maintain exports despite the yen's appreciation. Whether these measures actually will
end up doing so, however, will depend largely on conditions within each industry. Some
sectors, such as leather and textiles, are so uncompetitive at current exchange rates that
the new programs will not help their export performance much. Subcontractors for
some major export firms such as automakers will ht
ed more by the situation of
their parent firms than by government measures.
Other industries, such as chemicals and electrical parts, are probably close
enough to the break-even point that government subsidies could help them maintain
export sales. It is, however, too early to tell if this will occur. We expect government
loan funds for these industries to subsidize exports regardless of the official conditions
attached.
But the firms must compete with many
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others for government funding and are by no means assured a certain share. Moreover,
the actual subsidies promised by the new measures appear fairly modest.
Notwithstanding foreign criticism of these programs, we believe it highly unlikely
that Tokyo will ignore any future pleas of small business for help.
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MITI officials believe the measures will become a permanent part of 25X1
Tokyo's small business policy. If the new programs are kept and the yen weakens again,
the importance of these measures to exports may grow. 25X1
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Typescript "Japanese Help for Small Businesses: Encouraging Exports?
Distribution:
1 - Joseph Massey, Assistant USTR for Asia
Central Intelligence Agency
1 - Office of Legislative Liasion, 7B-14
1 - NIO/EA, 7E-62
1 - NIO/Economics
1 - C/PPS/DO (DO 1)
1 - C/EA/0 5E-18
1 - OGI/FSIC/PI
1 - OEA/NEA/Korea Branch
1 - OEA/NEA/STI Branch
1 - OEA/NEA Division
1 - OEA/China Division
1 - OEA/SEA Division
1 - D/OEA, 4F-18
1 - C/Production/OEA
1 - FBIS Analysis Group
1 - DDI
1 - Senior Review Panel
1 - PDB Staff, 7F-30
5 - CPAS/IMC/CB, 7G-07
1 - CPAS/ILS, 7F-50
1 - C/PES, 7F-24
1 - NIC/AG, 7E-47
1 - DDO/EA Division
5
1 - OCR/EAD/AB, 1H-18
1 - Chrono
2 - Author
OEA/NEA/J/F-----~15Apr86
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