Table Speech

Initiation Speech

September 21, 2011

Mr. Katsuhiro Nakagawa
Mr. Nobuhiko Seki

Mr. Katsuhiro Nakagawa
Chairman, Institute for International Economic Studies

Speech on Automobiles

 Over 5 million workers in Japan work in the automobile-related industries, ranging from parts, materials, sales, maintenance to transportation etc, which accounts for 8% of the total workforce. According to the Ministry of Economy, Trade and Industry report, the GDP growth from 2000 to 2007 generated 13 trillion yen in Japan, half of which was achieved by the auto industries. Auto industry has huge spillover and multiplier effects on the economy.

 Domestic automobile demand is declining sharply, however, and sales of new cars today dropped to the level of 35 years ago. GDP growth achieved by the auto industry has been propelled by “car exports.”

 Car exports that have supported the Japanese economy suffer from serious damage caused by excessive appreciation of the yen today. The new government must take positive economic measures to conquer deflation and correct the yen appreciation, to prevent overseas transfer of auto plants.

 Auto markets in Europe and Japan have matured and demand has weakened. Population in the US is increasing, due to immigration, and demand for cars is still growing. Emerging economies, including China, India and Brazil, enjoy sharp demand growth. And increasing number of developing countries has achieved motorization year by year, following the developed nations.

 A contrasting phenomenon unfolds among the younger generation in developed nations, which is “detachment from cars,” most conspicuously seen among the Japanese youth. This phenomenon is triggered by stagnant consumption and the declining number of younger generations. What is more, the young people today are more interested in PCs, mobile phones, games or animated cartoons, while they are less interested in cars. Such tendency is observed even in the automobile-dominated USA, where increasing number of youth are choosing to live in the city and commute on foot without using cars.

 Turning our eyes to the future, cars could become a simple and practical tool of transportation, with minimum functions and options. Compact-sized single passenger vehicles are likely to become popular in the aging society.

 Growing concern over the environment calls for the development of fuel-saving eco cars to replace the conventional gasoline-powered vehicles. Development and diffusion of electric vehicles are currently accelerating. Development of advanced lithium-ion batteries that have better energy efficiency and last longer is essential. Such development could be costly and needs to get government subsidies. I do sincerely hope a technical breakthrough will achieve the advancement of automobiles.

Mr. Nobuhiko Seki
Managing Director, Investment Banking Division, Citigroup Global Markets Japan Inc.

Capital Market and the Telecommunications/ Information Technology Sector

 I have been engaged in the investment banking sector since 1996, specializing in business finance and fund-raising of the telecommunications/ IT industry. Today, I would like to share my views on how the fast-moving IT industry could affect business finance and capital markets.

 The fortunes of the IT sector are so volatile that companies in leading positions frequently change. Prominent investor Mr. Warren Buffett is famous for not investing in the IT business, because the sector has not met his investment criteria to have the potential for raising share values over 30 years. It is true that hardly anybody can predict which company would be the leader 5 years from now.

 Let me quote some figures on market capitalization. Apple Inc. has the largest market capitalization in the world of 27 trillion yen today, exceeding Microsoft by 10 trillion yen. In 2002, market capitalization of Apple Inc. was just 700 billion yen, while Microsoft totaled 30 trillion yen. Who could have imagined then that Apple Inc. would overtake Microsoft?

 Apple’s high growth has been supported by its two striking features, in terms of business finance. First, it does not borrow to cater for the fickle and transient fashions in consumer product markets. Secondly, it has achieved speedy cash recovery by complete fund-raising reform.

 Microsoft and IBM, on the contrary, keep paying out their profits to their investors in cash. For example, IBM has returned cash to its shareholders by re-purchasing over 40% of its issued shares, worth 7 trillion yen. In addition, it pays dividends of 300 billion yen each year. IBM stocks have gained confidence in the stock market and the share price has risen by 35% even after the Lehman shock.

 Microsoft made the news when it started to pay dividends in 2004, as this growing company was recognized to have reached maturation. Microsoft first got listed in 1987 as a software company. IT businesses are usually started by venture capitalists, without possessing any assets. As the business grows, it is listed on the emerging markets to procure funds for further business expansion. Then it starts to issue convertible bonds, followed by procurement by straight corporate bonds. As the business becomes successful, it reaches the stage to issue dividends to shareholders and conduct stock buybacks.

 IT sector is a precious source of information for business finance, as it demonstrates the transition of corporate capital and financial policies from inception into a growth phase and then maturity in a relatively short run.