Asia courts capital through reforms and tax breaks

Japan pushes companies to deploy $1.8 trillion in idle cash while Hong Kong expands incentives for hedge fund managers.

Asian policymakers are stepping up efforts to make their markets more attractive to investors, with Japan and Hong Kong unveiling initiatives aimed at unlocking capital, improving returns, and strengthening their positions as leading financial hubs.

While the measures target different parts of the investment ecosystem, both reflect a broader trend of governments seeking to attract capital in an increasingly competitive global market.

According to a recent Reuters report, Japanese regulators are mulling revisions to the country’s governance code designed to encourage companies to make better use of the $1.8 trillion cash reserves accumulated on their balance sheets.

The reforms are intended to encourage management teams to improve capital allocation, whether through higher dividends, share buybacks, increased investment, or strategic acquisitions.

For activist investors, the changes could create additional opportunities to push companies toward shareholder-friendly actions and unlock value that has long been trapped on corporate balance sheets.

Japan's efforts build on a years-long campaign to improve corporate governance and raise returns on equity, initiatives that have already contributed to a rise in shareholder activism and a growing willingness among boards to engage with investors.

Activist investors filed an all-time-high of 139 shareholder proposals at Japanese companies during the 2026 proxy season, with Oasis Management, Elliott Investment Management, Dalton Investments, and AVI leading the way.

Meanwhile, Hong Kong is pursuing a different strategy focused on attracting investment professionals and asset management firms.

The city is reportedly planning to cut the tax burden on performance-based compensation for hedge fund managers and other alternative asset managers, broadening incentives that were previously available primarily to private equity and venture capital funds.

The move forms part of a broader effort to reinforce Hong Kong’s position as a leading finance hub in the region as competition intensifies from Singapore and Dubai.

By reducing the tax burden, policymakers hope to attract additional hedge funds, private credit firms, and alternative asset managers while encouraging existing firms to expand their local operations.

Taken together, the developments underscore how competition for capital is evolving.

Governments are no longer focused solely on attracting corporations and public listings; they are increasingly competing for investors, asset managers, and activist shareholders.

In Japan, the objective is to unlock value from existing corporate capital and improve shareholder returns. In Hong Kong, the focus is on attracting new pools of investment capital and the professionals responsible for deploying it.

Both strategies reflect a growing recognition that capital allocation, governance standards and investment incentives are becoming increasingly important determinants of economic competitiveness.

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