Dependent on China? How Japan wants to tackle the coronavirus disruption

Japan will launch a subsidy programme to encourage domestic manufacturers to transfer their overseas production bases to Southeast Asia, as the coronavirus pandemic has greatly disrupted their supply chains heavily dependent on China.

The 23.5 billion yen (US$220 million) programme, incorporated into the government’s emergency stimulus package to ease the economic fallout from the pandemic, will help firms diversify their supply chains by financially assisting the construction of production facilities as well as feasibility studies in Asean countries.

The initiative came after many carmakers and other manufacturers experienced a shortage of parts produced in China after the new coronavirus outbreak was first detected late last year in the central Chinese city of Wuhan.

“Even before the virus outbreak, there has been a growing need for Japanese firms to set up production bases in the Asean region,” an official of the Ministry of Economy, Trade and Industry said. “(The subsidy scheme) will help our country build better relationships with Asean countries, too.”

To avoid various risks associated with a heavy reliance on production in China, such as anti-Japan demonstrations, rising wages and its tariff war with the United States, Japanese firms have tapped the Association of Southeast Asian Nations for alternative output 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 reinforce supply chains, the government will spend 220 billion yen to promote domestic output of items that are currently heavily imported from certain areas. Also included in the stimulus, the subsidies will financially support the relocation of Japanese firms’ overseas production sites back home.