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RR RUEHKSO RUEHNH
DE RUEHKO #2733/01 2742258
ZNY CCCCC ZZH
R 302258Z SEP 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 7619
INFO RUEHMO/AMEMBASSY MOSCOW 2546
RUEHNH/AMCONSUL NAHA 2497
RUEHOK/AMCONSUL OSAKA KOBE 3882
RUEHKSO/AMCONSUL SAPPORO 0715
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002733 
 
SIPDIS 
 
E.O. 12958: DECL: 09/25/2013 
TAGS: ETRD EINV ENRG PREL RU JA
SUBJECT: JAPANESE ATTITUDES ON BUSINESS WITH RUSSIA REMAIN 
CAUTIOUS 
 
Classified By: Ambassador J. Thomas Schieffer for Reasons 1.4 (b), (d) 
 
¶1. (C) SUMMARY: Japanese business sentiment toward economic 
opportunities in Russia remains cautious.  Japanese business 
and government interests note concerns about the risks of 
doing business in Russia, continued uncertainty following 
Russia's invasion of Georgia, problems with the transport of 
goods inside Russia, and lack of GOR working-level movement 
on several proposed investment opportunities as obstacles to 
increased Japanese economic engagement.  While traditional 
energy and autos trade relations remain strong, Japanese 
penetration into other Russian consumer markets as well as in 
the development of Russia's Far East remain sluggish.  END 
SUMMARY. 
 
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PUSH FOR INVESTMENT BEYOND MOSCOW AND ST. PETERSBURG 
--------------------------------------------- ------- 
 
¶2. (C) Ministry of Economy, Trade and Industry (METI) METI 
Trade Policy Bureau Director for Russia, Central Asia and the 
Caucasus Noriaki Kojima noted the difference he saw in 
perceptions between Russian and Japanese participants when he 
made a presentation at an annual Japan-Russia investment 
forum in St. Petersburg in early September.  Kojima noted 
several Russian regional government and business 
representatives sought to emphasize business opportunities, 
while the Japanese participants seemed to be attending the 
forum out of a sense of obligation.  According to Kojima, the 
Russian government decided this year's central theme would be 
expanding investment opportunities outside Moscow and St. 
Petersburg.  METI Senior Vice Minister Sanae Takaichi led a 
delegation of around 250 Japanese government and business 
representatives from the auto, energy, telecom and finance 
industries.  Responding to Emboff's questions about the 
timing of the event, Kojima said it was originally proposed 
for June, but because many Japanese firms have shareholders' 
meetings at that time, it was rescheduled, prior to the 
Russian invasion of Georgia, for September. 
 
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JAPANESE WARY OF POOR INFRASTRUCTURE 
------------------------------------ 
 
¶3. (C) Kojima identified four negative perceptions of the 
Russian investment climate among Japanese companies: (1) 
complicated and time-consuming administrative procedures; (2) 
sometimes incomprehensible regulations; (3) insufficient 
infrastructure; and (4) the poor quality of Russian 
manufactured goods.  Russia's infrastructure is a particular 
weakness, Kojima said, explaining bottlenecks in Russia's 
saturated ports hurt efficient distribution of Japanese-made 
automobiles throughout Russia.  Japan and Russia have had 
several high-level meetings on developing the Trans-Siberian 
railroad for transporting Japanese exports from Siberia 
westwards to European Russia, but Kojima said the Russian 
side's expectations of Japanese involvement are unclear. 
Kojima also said many Japanese firms, including Toyota, are 
wary of transporting sensitive and fragile high-tech goods by 
rail. 
 
¶4. (C) Shunsuke Nakagawara, Director of Mitsui's 
Russia-CIS-Baltics Business Development Center and a key 
figure in the trading house's corporate strategic planning 
for the Russian market, echoed Kojima's sentiment.  In a 
subsequent meeting with Emboff, Nakagawara noted Japanese 
perceptions of the Russian business climate have changed 
significantly over the past several months.  Talking about 
the annual investment forum, he said many Japanese 
participants did not know how to react in the immediate 
aftermath of the Russia-Georgia conflict.  Over the past 
month, Japanese industry has been following U.S. and E.U. 
reactions to events in Russia and Georgia very closely.  As 
far as the forum's theme of investment prospects outside of 
Moscow and St. Petersburg, Nakagawara and Mitsui Senior 
Counselor Takehiro Togo said the Russian Far East continues 
to have promise as a destination for Japanese investment. 
(Bio note: Togo was Japan's Ambassador to Russia from 
1996-1999).  Mitsui is participating in the Sakhalin II 
project, which should make its first LNG delivery in 2009, 
and Togo is encouraged by Gazprom's participation in the 
venture as a guarantor of stability.  Mitsui also concluded a 
MOU with Russian Railways (RZD) and Russkaya Troyka to 
develop a weekly "all Japan block train" cargo shipment to 
Moscow and St. Petersburg starting in early 2009. 
 
TOKYO 00002733  002 OF 002 
 
 
 
¶5. (C) Itaru Otowa, Vice Director of the Institute for 
Russian and NIS Economic Studies at the METI-affiliated Japan 
Association for Trade with Russia and the NIS (Japanese 
acronym ROTOBO), also said Japanese industry is closely 
watching U.S. relations with Russia.  Otowa said Japanese 
companies operating in Russia are customarily risk averse. 
Otowa points to recent investments by auto manufacturers, 
including Toyota's commencement of production of passenger 
vehicles in St. Petersburg in December 2007, as a turning 
point toward additional Japanese foreign direct investment, 
with other manufacturers likely to follow suit.  However, 
difficulties in adapting the Japanese just-in-time system to 
prevailing conditions in Russia as well as a lack of 
sufficiently trained local employees and a historic lack of 
consumer-oriented quality control are obstacles to expanding 
Japanese engagement in Russia's manufacturing sector. 
 
¶6. (C) COMMENT: By the numbers, Russia remains a significant 
Japanese trade and investment partner in the traditional 
sectors of autos and energy.  In the first half of 2008, 
autos, which account for 76% of Japan's total exports to 
Russia, rose 68% year-on-year, while crude oil imports from 
Russia rose nearly 39%.  Russia remains a growing export 
market for transportation amid declining global sales, and 
some manufacturers, such as Komatsu, which began building a 
hydraulic shovel plant in Yaroslavl in July, continue foreign 
direct investment in anticipation of sustained future growth. 
 However, an apparent lack of momentum coming out of the 
September investment forum plus a wait-and-see sentiment 
related to events in Georgia and the response of U.S. 
government and business may temper Japanese economic 
expansion in Russia.  END COMMENT. 
SCHIEFFER