Government to Provide Fund for Companies to Move Production Out of China

The Japanese government has allocated funds to aid companies to shift production away from China

move production
Machinery in a factory

As part of its economic relief package, the Japanese government has set aside ¥243.5 billion to help manufacturers to move their operations out of China as the coronavirus pandemic disrupts supply chains.

Compiled as a measure to offset the damaging effects of the pandemic, the additional budget includes ¥220 billion to aid companies that decide to move production back to Japan and ¥23.5 billion for those planning to relocate to other countries.

Coronavirus outbreak forces company action

Under regular conditions, China is Japan’s largest trading partner. However, imports from China declined by almost half in February when factories had to shut down to stop the spread of the coronavirus. This left many Japanese manufacturers struggling to get vital components needed to make their products.

In response to the current situation, companies have begun to make plans to reduce their reliance on China as a manufacturing base. Just last month a government panel on future investment discussed the need for manufacturing of high added-value products to be moved back to Japan, and for production of other goods to be spread throughout countries in Southeast Asia.

Data for the panel revealed that Japan exports a much larger share of parts and partially-finished goods to China than other major industrial countries. A recent survey by Tokyo Shoko Research Ltd. found that 37% of over 2,600 companies claimed to be diversifying procurement to places other than China as a result of the coronavirus crisis.

While many companies are making the shift to countries in Southeast Asia, some have made the move back to their home country in a bid to promote the “Made in Japan” brand

Initial response showed thawing China-Japan relations

At the onset of the coronavirus outbreak in Wuhan, the frosty relations that existed between China and Japan seemed to thaw. Japan sent aid to China in the form of masks and protective gear, for which it received praise from Beijing.

China later claimed that Avigan, an anti-viral produced by Japanese company, Fujifilm Holdings Corp., was an effective treatment for the coronavirus – although that has yet to be approved as a COVID-19 medication by the Japanese.

Despite the friendlier political relations, many people in Japan blame China for mismanaging the outbreak in the early stages. They also criticise Prime Minister Abe for not banning Chinese visitors from entering Japan sooner.

Some companies began to move production pre-virus

A number of Japan’s top companies had already started to shift their operations away from China before the virus hit. Companies such as Sony Corp., Ricoh Co. and Asics Corp. began looking for alternative production locations like Vietnam and Thailand to try to avoid U.S. tariffs imposed on China during their trade war.

While many companies are making the shift to countries in Southeast Asia, some have made the move back to their home country in a bid to promote the “Made in Japan” brand. Makeup giant Shiseido opened its first domestic factory in over thirty years in Otawara at the end of last year.

What do you think of big companies shifting their production out of China? Let us know your thoughts in the comment section.

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