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Treatment of Indirectly Owned Enterprises in Direct Investment *1

November 2004
Maiko Wada*2

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  • *1 I would like to express my thanks to my colleagues at the Bank of Japan's (hereafter, the Bank) International Department and Research and Statistics Department for their helpful comments. Views expressed in this paper are, however, solely those of the author and not those of the Bank, the International Department, or the Research and Statistics Department. The original Japanese-language version of this paper was released on September 8, 2004.
  • *2 International Department, E-mail:


  • The IMF Balance of Payments Manual, fifth edition (hereafter, BPM5) defines direct investment in the Balance of Payments (BOP) and International Investment Position (IIP) to include indirectly owned enterprises as well as directly owned ones, as provided by internationally accepted guidelines (referred to as the "Fully Consolidated System" or FCS).
  • However, the compilation of accurate data based on FCS may prove difficult; Japan and a large majority of other countries/regions have not yet adopted FCS. Consequently, the coverage of indirectly owned enterprises varies across countries, giving rise to the following significant issues: (1) international comparison of statistical data is hindered, (2) when indirectly owned enterprises are not adequately covered, statistical data do not appropriately reflect direct investment activities of enterprises.
  • The IMF, as well as other international organizations and national agencies in charge of statistics are currently working of the revision of the BPM5. Among a large number of issues to be tackled in the revision process, the way of applying FCS is one of the most important issues to be discussed. The ongoing discussions have focused on reviewing the chain of direct investment enterprises without over-simplifying the reality of corporate activities.
  • Major countries of continental Europe, which have not yet adopted FCS similarly to the case of Japan, are currently reviewing their data collection systems for statistical compilation. This indicates that the coverage of direct investment enterprises in the direct investment statistics of these countries might be expanded in the future.
  • Against this background, it is relevant that statistics compilers in Japan consider introducing statistical reporting and compilation methods, as soon as possible, which include indirectly owned enterprises in direct investment enterprises. The suggested study covers the feasibility collecting data on indirectly owned enterprises and adopting concrete measures to include such data in direct investment statistics. This needs to be balanced with reporting burden.