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Japan to Restrict Foreign Tech Investment on Security Fears

The Japanese government is set to restrict foreign ownership of domestic firms in key tech areas on national security grounds, in a move which echoes America’s recent attempts to restrict Chinese companies.

Announced on Monday, the new rules will add the manufacturing of chips, telecoms equipment, mobile phones and other sectors to already restricted areas like nuclear equipment and arms.

From August 1, foreign companies wanting to buy more than 10% of a Japanese firm in one of 20 IT-related sectors will need prior approval from the government, according to updates to the foreign exchange and foreign trade control law.

“The importance of securing cybersecurity has been increasing in recent years for the industry pertaining to specific acquisitions … that require prior notification based on the provision of Article 28 paragraph 1 of the Act,” the government noted.

“In view of the appropriate prevention of situations that may seriously affect Japan's security, such as the outflow of technology important for security and the loss of Japan's defense production and technology base, integrated circuit manufacturing industry, etc. we decided to take necessary measures.”

Although China is not named specifically, the order was issued as Prime Minister Shinzo Abe discussed trade with Donald Trump yesterday.

It could be viewed as an alignment with the tough stance taken by Washington on Middle Kingdom businesses, which it argues are a national security risk and unfairly subsidized by the Beijing.

In China, strict laws force foreign investors to partner with local companies if they want to enter its vast, lucrative market. This had led to accusations of forced tech transfers to the domestic firms, ultimately enabling the country and its hi-tech champions to catch-up with their Western rivals.

Earlier this month, a Presidential Executive Order effectively banned foreign companies deemed a national security threat from competing in the US market. A separate Entity List will prevent US firms from selling key components to Huawei once a temporary license expires in around 90 days.

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