Japan: One step forward, two steps back

MILESTONES

TAKING NOTE

When the Japanese government left construction company Sato Kogyo

Analysts agree that the government's need to soothe the country's powerful construction industry was one reason that Tobishima received a $78 million bailout by Fuji Bank and then merged with fellow building contractor Taisei.

"The construction industry in Japan is huge. They pour more concrete there than they do in all the United States," says William T. Breer, holder of the Japan Chair at the Center for Strategic and International Studies, a Washington, DC, think tank.

Breer says Prime Minister Junichiro Koizumi and his reformers want to shrink the industry to a manageable size. But confronted with angry Diet politicians from the rural areas where much of the construction takes place, he can only move so quickly. So it's two steps forward, one step back. In December, another mid-size general construction firm, Aoki, had been allowed to collapse.

Koizumi may also have been intent on crafting an image of reform by letting Sato Kogyo-one of Japan's leading contractors, with offices in the United States, France, and throughout Asia-- go bankrupt. Everyone from President Bush to international investors has been pressuring Japan to force its banks to write off their nonperforming loans and stop lending money to bankrupt companies.

The troubled bank loans are one reason why Japan has been in and out of a recession for the past decade. Construction companies, many of which bought property for redevelopment in the late 1980s, are among the country's most troubled businesses as they sit on properties worth far less than the highly inflated purchase prices of the late 1980s.