Japan’s push to cut its reliance on China will come as a boon to Southeast Asia

10-Aug-2020 Intellasia | The Print | 7:00 AM Print This Post

Japan’s quiet push to protect its supply chains in the era of Covid-19 may prove a boon for Southeast Asian nations looking to gain from the growing backlash against China.

The Japanese government is paying about 12 billion yen ($114 million) to 30 companies to increase production in Southeast Asia, in the first round of a multi billion dollar programme to diversify supply chains after Covid-19 and worsening relations between the US and China.

Japan wants to cut its reliance on China or any other individual nation and the money will hasten the trend of firms moving out of China and into cheaper neighbours like Vietnam or Thailand.

Fujikin Inc. makes parts used in semiconductor manufacturing and is one firm benefiting from the incentives. The Osaka-based manufacturer will receive subsidies worth two-thirds of its costs to shift production out of China and into Vietnam.

“We’d been thinking about increasing our capacity in Vietnam before the subsidy was announced, and it fit right in,” said company President Shinya Nojima.

When the virus shut down Fujikin’s suppliers in China earlier this year, their customers became worried about shipments of parts. “Our customers were asking us: Is the China procurement happening? Are we going to be able to meet the deadline?” Nojima said Monday.

China Rethink

The coronavirus outbreak, and the lockdowns that followed, have forced businesses and government officials around the world to rethink their supply chains in order to reduce reliance on China as a manufacturing source.

Japan had already been a key player in Southeast Asia, home to some of Asia’s fastest-expanding economies before the pandemic and a growing and youthful population. Japanese investment into five of the region’s economies Vietnam, the Philippines, Malaysia, Indonesia and Thailand rose at nearly double the pace into China over the past decade.

Infrastructure development formed a big chunk of that investment, with Japanese firms vying with Chinese ones to build railways and hospitals in countries like Indonesia, the Philippines and Vietnam.

The US-China trade war and worries about China’s growing dominance in Southeast Asia have fostered stronger economic ties between Japan and the region.

Japan is considered the most trusted major power among Southeast Asian nations, according to an annual survey by the Singapore-based ISEAS-Yusof Ishak Institute, released in January. Of 1,308 people surveyed across five professional sectors, 61.2 percent said they had confidence Japan would “do the right thing” to provide public goods.

That trust goes both ways, with Japan putting a net $139 billion into Vietnam, Thailand, Indonesia, Malaysia and the Philippines over the past decade.

“Even before coronavirus and the US-China trade war struck, there was a shift away from production in China,” said Satoshi Kitashima, a deputy director at the Japan External Trade Organisation.

Vietnam has emerged as the clear favourite for many manufacturers over the years, given its proximity to China, relatively low labour and power costs, and its openness to foreign investment. Kitashima, who had previously spent nine years in Vietnam facilitating business between the two countries, said there’s been a clear upward swing in Japanese direct investment into Vietnam since the global financial crisis more than a decade ago.



Category: Japan

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