Japan To Spend Billions Relocating Production Out Of China

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by Tyler Durden
Thursday, Apr 09, 2020 - 09:40 PM

Japan has allocated $2.2 billion (US) of its $993 billion emergency stimulus package to help manufacturers relocate production out of China amid the COVID-19 pandemic which began in the communist nation.

According to SCMP, $2 billion (US) will be set aside for companies shifting production back to Japan, while roughly $223.5 million will be spent on helping companies move production to other countries, according to SCMP.

Under normal circumstances, China is Japan's largest trading partner - however imports from China plummeted nearly 50% in February as the coronavirus pandemic resulted in closed factories and unfilled orders. Meanwhile, a planned visit by Chinese President Xi Jinping to Japan early this month - the first such trip in a decade - was postponed with no date rescheduled.

It remains to be seen how the policy will affect Prime Minister Shinzo Abe’s years-long effort to restore relations with China.

We are doing our best to resume economic development,” Foreign Ministry spokesman Zhao Lijian told a briefing Wednesday in Beijing, when asked about the move. “In this process, we hope other countries will act like China and take proper measures to ensure the world economy will be impacted as little as possible and to ensure that supply chains are impacted as little as possible.” -SCMP

China's production trainwreck has revived discussion among Japanese firms over reducing their reliance on China as a manufacturing base - while the government's panel on future investment recommended last month that manufacturing of high-value products should shift back to Japan - while other goods should be diversified across Southeast Asia.

"There will be something of a shift," according to Japan Research Institute economist Shinichi Seki, who noted that Japanese companies were already considering moving out of China. "Having this in the budget will definitely provide an impetus." That said, certain industries such as automotive will likely stay put.

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

In an early sign of mended fences, Japan provided masks and protective gear to China at the beginning of the outbreak - with one shipment even accompanied by a fragment of ancient Chinese poetry. Beijing praised the gesture, and later declared an antiviral produced by Japan's Fujufilm Holdings to be an effective treatment against the coronavirus despite its lack of approval by Japanese authorities.

Still, Japanese citizens have largely blamed China for fumbling the ball during the early stages of the outbreak, while Prime Minister Abe has been blamed for not restricting inbound travel from hina sooner.