Shinzo Abe’s government has decided to offer subsidies to 87 companies to move production to Southeast Asia and expand operations within Japan. The grants total to $653 million, indicating the first step towards decoupling from the Chinese economy.
The Covid-19 pandemic revealed the global reliance of supply chains on China and the structural issues that emanate from such dependence. Japan’s automobile industry, for instance, was alarmed with the city of Wuhan being the epicentre of the novel virus because it is a major hub of the auto parts industry. The pandemic, coupled with the ongoing trade war between the US and China, are possible motivations for Japan’s policy of wooing Japanese firms to step out of China.
Toyota, however, a leading Japanese automobile manufacturer, has maintained that it has no plans of leaving China. The company released a statement saying, “Toyota has no plans to change our strategy in China or Asia due to the current situation,” and added, “We understand the government’s position, but we have no plans to change our production.”
Companies such as Iris Ohyama Inc, Sharp Corp, and stand to receive $536 million in subsidies from the government if they are to re-locate their operations. Thirty firms will obtain money from the Japanese government to make investments in Myanmar, Vietnam and Thailand, to diversify supply chains. Concerns appear to be rising in China, with the local government of Shandong Province hosting events to promote China-Japan trade cooperation. The province hosts about 1300 Japanese manufactures and is “working hard to lure Japanese investment.”
Experts believe that Japan’s move to diversify its supply chains arises from a broader strategic context. David Arase, Professor of International Politics at the Johns Hopkins University, argues that the geopolitical and geoeconomic implications of Japan’s policy would be impinged “on whether Abe links the move out of China to his Free and Open Indo-Pacific (FOIP) strategy”.
Japan’s policy may also be a possible response to the ongoing US-China trade war. An expert on China from the Centre for Strategic and International Studies (CSIS), Scott Kennedy, stated that “Washington needs to better understand Tokyo’s actions and adapt its own approach if it wants a true partnership with Japan in managing the challenge posed by China”.
Damien Ma, Director of the MarcoPolo think tank, opines that “supply chains by definition come with ever-present risks, with or without a pandemic”. He argues that the East Asian supply chains have survived the pandemic far better than the West, and hence it would not be easy to decouple economies. In line with Ma’s argument, a survey conducted by Japan External Trade Organisation (JETRO) in April found that 22% of Japanese companies with investments in China planned to expand their business and only 5.6% companies plan to relocate from China.
Aside from the US-China trade war, Japan’s policy can also be interpreted as an attempt at conserving its national economy by making its supply chain resilient and re-think global production. An official from Japan’s Ministry of Economy, Trade and Industry (METI) emphasised that “it was unrealistic to bring all production home,” and added that unlike the US, Japan did not believe that the “era of offshoring is over”.
Japan Plans to Diversify Supply Chains Away From China
The coronavirus pandemic has laid bare the world’s dependency on China.
August 5, 2020
President Donald Trump with PM Shinzo Abe and President Xi Jinping at G20 Summit 2019 SOURCE: GETTY IMAGES