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Japan to fund its manufacturers to shift production out of China after coronavirus disrupts supply chain

This decision could, however, strain the ties that had been recovering lately and affect Prime Minister Shinzo Abe’s years-long effort to restore relations with China

Japan is said to be willing to fund its companies to shift manufacturing operations out of China. According to a report in Bloomberg, Japan was forced to rethink, after the supply chains between the trading partners were disrupted by the coronavirus pandemic.

As part of its economic stimulus package, Japan has earmarked $2.2 billion to help its manufacturers shift production out of China. Of this amount, 220 billion yen ($2 billion) has been kept aside for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries.

China is Japan’s biggest trading partner under normal circumstances, but imports from China declined to almost half in February as the COVID-19 forbid the factories from functioning, as a result starving Japanese manufacturers of necessary components. This compelled Japan to rethink its reliance on China as a manufacturing base.

Japan exports a far larger share of parts and partially finished goods to China than other major industrial nations. A February survey by Tokyo Shoko Research Ltd. found 37% of the more than 2,600 companies that responded were diversifying procurement to places other than China amid the coronavirus crisis. 

“Having this in the budget will definitely provide an impetus,” Shinichi Seki, an economist at the Japan Research Institute who predicted that there would be a shift in the coming days as there already was renewed talk of Japanese firms reducing their reliance on China as a manufacturing base, told Bloomberg.

However, companies, such as car makers, which are manufacturing for the Chinese domestic market, will likely stay put, he said.

Speaking about future investments, last month, the Japanese government’s panel had discussed the need for manufacturing of high-added value products to be shifted back to Japan, and for production of other goods to be diversified across Southeast Asia.

This decision could, however, strain the ties that had been recovering lately and affect Prime Minister Shinzo Abe’s years-long effort to restore relations with China.

The coronavirus has brought life to a near standstill in almost every part of the world. The virus, which has originated in central China’s Hubei Province has claimed more than 20,000 lives so far and continues to adversely affect more than 150 countries globally.

The Wuhan coronavirus reportedly started in China’s wildlife and seafood markets. China’s demand and consumption of wildlife have contributed significantly to a number of species being driven to the brink of extinction. The negligence and cover-up of Chinese authorities have pushed the world to battle a pandemic that has claimed thousands of lives and impacted global economies heavily.

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Staff reporter at OpIndia

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