Photo/Illutration Construction has yet to begin for a bullet train station in Dallas, Texas, under a project supported by the Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN). (Asahi Shimbun file photo)

Most of Japan’s so-called public-private investment funds have suffered from mismanagement and are now nearly entirely controlled by the central government.

The government’s investment ratio averaged about 80 percent for eight representative public-private funds, an Asahi Shimbun study found.

The ratio exceeded 90 percent for five of them.

The public and private sectors jointly financed these funds to support investments that would be too risky for the private sector alone. The private sector is supposed to take the lead in identifying investment opportunities for the funds.

However, inefficient management has prevailed, resulting in a series of investment failures.

The government has underwritten most of the additional capital pumped into the funds, greatly increasing the ratio held by the public sector.

Fourteen public-private funds were subject to inspection by the Cabinet Secretariat as of the end of March 2023.

Eight of the 14 funds are financed by “fiscal investment and loans” based on the premise that the funds will be repaid to the government after the investment is completed.

The Asahi Shimbun examined the investment status of these eight funds, which were established between 2009 and 2022.

Six of the eight funds were equally funded by the government and the private companies when they were established. The two exceptions were the Japan Investment Corp. (JIC) and the Cool Japan Fund Inc. (CJ), both under the jurisdiction of the economy ministry.

The government does not set a ceiling on the ratio of its investment in the funds.

According to a senior Finance Ministry official, the 50-50 split between the government and the private companies was often used in keeping with the “public-private” structure.

At the time of its establishment, the CJ requested a loan and financing from the government, explaining it expected “about the same amount of investment from the private sector as from the government.”

However, as of the end of fiscal 2023, the average government investment in these eight funds had risen to 80.2 percent.

Of the six funds that started with a 50-50 stake, the government’s share has increased in five of them.

The state’s investment ratio exceeded 90 percent in three funds: the Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN); the Agriculture, Forestry and Fisheries Fund Corporation for Innovation, Value-chain and Expansion Japan (A-FIVE); and the Fund Corporation for the Overseas Development of Japan’s ICT and Postal Services (JICT).

When these funds increased their capital for business expansion, the government underwrote much of the expansion while the companies contributed only a small amount.

For example, JOIN bolstered its capital by 265.1 billion yen ($1.72 billion) in total, of which more than 99 percent, or 264.6 billion yen, was provided by the government. Private companies contributed 500 million yen.

If a fund is effectively run and controlled entirely by the government, losses incurred by the companies in the event of an investment failure will be reduced. Under these conditions, the company will likely lose its incentive to check on the management of the fund.

Most of the funds in which the government holds more than 90 percent of the equity have accumulated losses exceeding 10 billion yen, and they are in urgent need of a management overhaul.

“The private sector is only investing in these funds out of courtesy, and the ‘public-private partnership’ is nothing more than a name,” Hideaki Tanaka, a professor of public finance at Meiji University, said. “Deficit-ridden funds should be eliminated, and the government's investment ratio should be limited to about one-third in order to allow the private sector to take the lead in management.”

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