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To avoid various risks associated with heavy dependence on production in China, such as anti-Japan protests, rising wages, and their tariff war with the United States, Japanese companies have turned to the Association of Southeast Asian Nations for obtain alternative production bases under the “China plus one” strategy.
ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
In another effort to strengthen supply chains, the government will spend 220 billion yen to promote domestic production of items that are currently largely imported from certain areas. Also included in the stimulus, the subsidies will financially support the relocation of overseas production sites of Japanese companies to their home countries.
The program will also target manufacturers of essential items for the Japanese to “lead a healthy life” in the midst of the outbreak, including face masks and alcohol disinfectants. They can receive subsidies when they open new factories or increase their existing production capacity in Japan.
The subsidies will cover up to two-thirds of the investments to boost national production of essential items for major companies, and three-quarters for small and medium-sized companies, according to the ministry.
According to the Japan Hygiene Products Industry Association, about 80 percent of the face masks in the country in 2018 were imported, mainly from China. Such masks have become rare since the virus outbreak, prompting Prime Minister Shinzo Abe to launch a program for the universal distribution of two cloth masks in the country.
Disbursements for the two grant programs were included in a supplemental budget of 25.69 trillion yen for the financial year 2020 that the Diet cleared on Thursday to finance the stimulus.
According to trade data from Japan’s Ministry of Finance, China’s auto parts accounted for 36.9 percent of Japan’s total imports in 2019, while neighboring Asian phones accounted for 85.5 percent of total value. of imports.
Takahiro Fujimoto, a professor at the University of Tokyo Faculty of Economics, said the subsidy programs are “somewhat reasonable” from a long-term perspective, as they will encourage Japanese manufacturers to strike a better balance of production between Japan, China and Asean. .
But Fujimoto, who knows Japanese companies ‘supply chains well, said diversification and localization of their global production bases should not be promoted if it could end up hurting the companies’ cost advantages.
“It is important to make your production systems competitive and adaptable to disasters,” he said.
