Japan's patient capital lesson for China

Japan's patient capital lesson for China   By Kazuyuki Motohashi | China Daily | Updated: 2024-09-26 07:15 [Photo/VCG] Japan's economic success is often attributed to a blend of economic, cultural and social factors, with "patient capital" playing a pivotal role. "Patient capital" refers to long-term, stable investment, which enables companies to achieve sustainable growth in the long run. This approach is in sharp contrast to the short-term profit maximization often seen in Western economies, where the management almost always is focused on ensuring stockholders get handsome returns in the short term. Japan's unique model of patient capital has significantly contributed to its industrial competitiveness, particularly in high-tech manufacturing sectors such as semiconductors and automobiles. In Japan, patient capital is deeply embedded in the economic institutions, such as the main banking system, and long-term business relationships. Historically, the keiretsu system — a network of interlinked corporations that typically include manufacturers, suppliers and banks — has led the economic development in Japan. The cross-stock ownership among keiretsu members has almost disappeared, but every large corporation in Japan has its own main bank, not only as a lender but also as a business partner. The main banking system is based on contingency governance, where a bank intervenes only when a borrower faces financial difficulty. In such a situation, the main bank sometimes takes over the borrowing company's management in order to revitalize it by injecting more capital into it. The fact that the main bank is powerful, and efficient in corporate governance makes the role of the stockholder relatively weak in a company's corporate financial structure.