Osaka loses incentive to spruce up
Bloomberg News Service
Osaka, Japan — More than 600 homeless people live in the park around the four-century-old castle in central Osaka. Weeds poke through the stones lining the castle's moat. Bushes that used to be kept trim grow wild.
This wasn't what officials expected in 1995, when they spent 7 billion yen ($56 million) to refurbish the Osaka landmark. The project was supposed to help lift the local economy and become a centerpiece for Osaka's bid for the 2008 Summer Olympics.
Instead, attendance at the castle has slumped to half its peak level. And on Saturday, Beijing won the 2008 Games, delivering another blow to Osaka's hopes of pulling itself out of a skid that's made it one of Japan's most depressed areas.
"Osaka's got big problems that need to be fixed," said Makoto Matsuoka, an official at the city's chamber of commerce. "The Olympics could have been a big help."
Osaka, Japan's second-largest metropolitan area after Tokyo, mirrors the country's decade-long malaise. The number of manufacturing jobs has dropped as companies move production abroad to cut costs.
Yet because it hasn't attracted enough new business, particularly in emerging technologies and services, to replace the jobs that have left, Osaka has been hit harder than most Japanese communities.
It lost 13 percent of its jobs between 1991 and 1999, compared with a 2.1 percent decline nationally. Its unemployment rate is 6.6 percent, versus Tokyo's 5.0 percent and the country's 4.8 percent. Osaka's growth rate in consumption, production, exports and new construction are all below the national average.
Some residents fear the region, which three decades ago contributed more to the country's gross domestic product than any other area, is becoming Japan's equivalent of a "rust belt" — the name given to fading U.S. manufacturing hubs in the 1980s.
"Some neighborhoods haven't changed in 30 years," said Jun Kawada, an Industrial Bank of Japan manager who grew up just miles from the bank's Osaka branch. "Osaka's losing its spirit."
How Osaka fares matters because of its size. With a metropolitan population of 20 million, its 21.8 trillion yen in annual production is more than four percent of Japan's total and almost twice that of Hong Kong.
"Osaka can't recover without the rest of the country — and vice versa," said Yasuhisa Katsuta, president of Daiwa Bank Ltd., the city's largest lender.
The castle illustrates the city's struggles. First built in 1583, the wooden structure was burned, bombed and struck by lightning before being recast in concrete in the 1930s.
Beginning in 1995, Osaka restored decorative elements and earthquake-proofed the castle as part of a two-year renovation that added elevators and interactive history displays.
Still, annual attendance has dropped to about 1 million, down from 1.3 million before the remodeling and peak attendance of more than 2 million in 1983, said Hatsuo Kitano, an official in the castle office.
City officials also saw the Olympics as a way to revive Osaka. As part of its bid, on which it spent 4.5 billion yen, Osaka promised to spend 700 billion yen extending subways and building a sports complex on three man-made islands in Osaka Bay.
It forecast a 9 trillion yen economic boost from the event over a decade, including 500 billion yen in spending on hotels and shopping by 2 million Games visitors.
An International Olympic Committee evaluation in May failed to recommend Osaka, citing concerns the Games would burden the city's finances. On Saturday, Osaka was the only one of the five competing cities eliminated in the first round of voting.
Now the city hopes to package existing facilities as an "Asia Sports Paradise" and may try to bid again for the Olympics, said Fumio Sakaue, a member of Osaka's invitation committee.
Osaka may have one notable success: Universal Studios Inc.'s 133-acre amusement park, which opened in March on land once occupied by a Sumitomo Metal Industries Ltd. factory and a Hitachi Zosen Corp. shipyard. Partly financed with $32.26 million in city financing, the $1.4 billion park expects 8 million visitors in its first year.
The Universal park alone can't combat a continuing decline in the manufacturing and finance jobs that long have buttressed the Osaka economy, economists say. The city's Tennoji district, an area known for small manufacturers, has shed 19 percent of its jobs since 1995.
Tokyo's lure
Sumitomo Metal, one of the industrial firms that dominated the waterfront for generations, has cut employees by a quarter in the past three years, to 1,300.
Matsushita Electric Industrial Co., maker of Panasonic-brand products, moved some production to Malaysia, China and other countries. The company declined to say how many people it employs in Osaka.
Japan's pharmaceutical industry, once based mostly in Osaka, also has shriveled. Takeda Chemical Industries Ltd., Japan's largest drugmaker, has cut employees in Osaka by a third to 2,800.
Competition from Tokyo is hurting Osaka as well, officials said. New firms, as well as long-time Osaka companies, want to take advantage of Tokyo's government agencies, larger population and Internet-related businesses, the chamber of commerce's Masuoka said.
"Companies might start in Osaka but they move to be part of the Tokyo scene," he said.
Vacant space
Mergers and cost cutting have accelerated such moves by financial companies. Sumitomo Bank Ltd., Nomura Securities Co. Ltd., Nippon Life Insurance Co., and Sanwa Bank Ltd. — all founded in Osaka — have either moved headquarters or most operations to Tokyo.
More recent combinations threaten to leave gaps along Osaka's tree-lined Midosuji street, known for showpiece offices of banks and big companies. One prominent corner is already empty after Joyo Bank Ltd., a major regional lender, pulled out.
Meanwhile, the city budget has shrunk with a 29 percent drop in tax revenue over the last 11 years, hampering Osaka's ability to provide services and amenities — like well-maintained parks — that attract companies and tourists.
Partly to offset the revenue decline, total borrowing by the city and related agencies has more than doubled to $39 million since 1990. Rating and Investment Information Inc., a domestic rating agency, cut Osaka's credit rating to "AA-" from "AA" in February.
"There's no question (spending) cuts could come that would make the city less and less desirable," said Takeshi Tsuruoka, an economist at Sanwa Research Institute.
