87 companies to shift manufacturing out of China . . .
Japan’s Ministry of Economy, Trade and Industry (METI) announced on July 17 a list of 87 companies selected to receive subsidies to shift production out of China to Japan or Southeast Asia. In an effort to lower its overreliance on China and diversify supply chains, Tokyo will spend C$876 million to support 57 companies coming back to Japan and 30 moving to Southeast Asia. The subsidies come from the April supplementary budget, in which Japan earmarked over C$2.7 billion to help its companies move their factories out of China.
Pandemic reveals the risks of relying on China . . .
As China became the epicentre of COVID-19 early in this year, factories in Japan were forced to temporarily halt production due to a shortage of parts from China. Meanwhile, Japanese medical gear manufacturing companies in China found themselves unable to export their products back to Japan as China tightened its export control over personal protective equipment. These supply chain disruptions underscored Japan’s reliance on China. According to METI’s 2018 survey, there are at least 7,400 Japanese companies operating in China. The subsidies prioritize companies that produce goods needed during emergencies.
China a big producer as well as consumer . . .
Many Japanese firms, however, are reluctant to relocate out of China, which has become not only a key producer, but also a significant consumer. A different METI survey found that Japanese manufacturers in China sold C$338 billion in goods in 2018, of which 73 per cent was sold in China and 17 per cent was exported back home. Japanese companies, as well as multinational companies from developed countries, have expressed reluctance about leaving China, which shows that ‘decoupling’ may not be as simple as it seems.