Japan’s exit from China: Shifting industries away from Dragon
The pandemic has hit countries in more ways than one. Economy has been the core sufferer following the lockdown that prevailed throughout the world. The states are on their way to revamp their economy and infrastructure. However, this revival is based on new realization and changed reality of the international political scenario. The world has witnessed formation of new groups, new mapping of the political status quo. Japan has been undergoing changes of late following the quick change in Presidency one after the other, and they feeling the pressure of China as a threat like never before.
To cushion the impact of the pandemic on the world's third-largest economy, Japan's government has approved a stimulus plan totaling 108.2 trillion yen (US$993 billion), equivalent to 20% of the country's economic output. The Japanese government has committed 220 billion yen ($2 billion) for companies that want to transfer production back to Japan, with the remaining 23.5 billion yen for companies that want to move production to other countries. The interruption of supply networks caused by the Wuhan virus, as well as the damages experienced while China's Coronavirus outbreak was at its peak, has prompted Japan to take this drastic move. Moreover, the Chinese has been aggressive throughout their engagements, and despite the fact that the world was juggling with a health crisis of humungous stature, China didn’t refrain from advancing its territorial claims violently in the neighborhood. This attitude, and uncooperative behavior from the end of China made Japan, and other countries in the region furious.
Under normal circumstances, China is Japan's largest commercial partner, but imports from China fell by over half in February as the COVID outbreak shut down facilities, depriving Japanese manufacturers of critical components. China exports $148 billion worth of goods to Japan, and despite the fact that the odds are stacked against it, the Japanese are not backing down and are targeting China in the same way the rest of the world is.
Furthermore, the Japanese are upset with the way China, and the WHO has handled the crisis. Deputy Prime Minister Taro Aso of Japan sarcastically commented that the World Health Organization's name be changed to "Chinese Health Organization" during a speech in Japanese Parliament in favor of a petition declaring Tedros Adhanom Ghebreyesus unfit for the position of WHO chief. They have expressed their concern of International Organizations being soft on their evaluation of the COVID-19, and in holding China accountable. Therefore, their actions against the Chinese is accumulation of several factors that have been putting Japan at an unease. Therefore, they are willing to take stringent actions, and “teach China a lesson” even if they have to bear the cost for it as well.
This decision by Japan doesn’t operate in isolation, and has its domino effect in place. Much like Japan, other countries in the vicinity of China were not happy with the Chinese aggression, and management of the Virus. However, the looming Chinese presence especially in the economic sphere made it difficult for everyone alike to call it off. Therefore, with Japan setting a precinct, it is likely that other countries would also follow trail to isolate and overtake the Chinese dominance in the region. While Japan has put its foot down and asked its enterprises to pack their belongings and leave China in search of fresh pastures. India, along with other South-east Asian countries such as Vietnam and Bangladesh, are eyeing this rich potential to entice Japan to their shores. Given the low cost of labor and the rich manufacturing environment of which Japan is currently a member, India appears to be the greatest hope for Japan.
For over 1,400 years, the two countries have enjoyed close civilizational links. In India, there are 1,441 Japanese businesses registered, up from 1,369 in 2017. These businesses operate in states such as Karnataka, Tamil Nadu, West Bengal, and Gujarat, with a total of 5,102 locations. Around 530 Japanese companies operate in the southern Indian state of Karnataka alone, up from around 200 five years ago.
In addition, to further diversify its supply chains, and break the dependence on China which cost it dearly amidst the pandemic, Japan will also initiate a subsidiary scheme. This scheme facilitates the transfer of industries that Japan has given a call for. It will support businesses in diversifying their supply chains by providing financial assistance for the building of manufacturing facilities and feasibility studies in ASEAN countries. Manufacturers of things necessary for Japanese people to "live a healthy life" during the outbreak, such as face masks and alcohol sanitizers, will be targeted as well. They may be eligible for subsidies if they open new plants or expand their present production capacity in Japan. As per the ministry, the subsidies will cover up to two-thirds of major enterprises' efforts in growing domestic production of such critical commodities, and three-quarters of small and medium-sized companies' investments.
According to the Japan Hygiene Products Industry Association, almost 80% of face masks in Japan were imported in 2018, primarily from China. Since the viral epidemic, such masks have grown scarce, prompting Prime Minister Shinzo Abe to establish a nationwide mask distribution campaign. The two subsidy programs were included in a $25.69 trillion extra budget approved by the Diet recently to fund the stimulus.
Car parts from China accounted for 36.9% of Japan's total imports in 2019, according to trade data from the Finance Ministry, while phone handsets from the Asian neighbor accounted for 85.5 percent of the overall import value. These subsidies are reasonable up to a certain extent. However, an expert points out that diversification and localization of their worldwide output bases should not be encouraged if it threatens their cost advantages. The production mechanism should be competitive and adaptive in nature.
Auto and aircraft components, hygiene items such as alcohol-based sanitizers, fertilizer, medications, and paper products are among the companies that have benefited. Iris Ohyama was among the first companies to benefit from the subsidy. It used the funds to build a mask factory in Sendai, northeastern Japan, to supplement existing factories in Dalian and Suzhou, China.
All these developments at a global scale against the Chinese economic dominance and in response to its ill management of the crisis coupled with its aggressive behavior has brought many countries in the region to join the bandwagon. This will have repercussions for Chinese dream of global dominance as the road to the throne of hegemony goes through economic corridors.
REFERENCES
1. Japan helps 87 companies to break from China after pandemic exposed overreliance. The Washington Post, 2020.
2. Japan pays 87 companies to 'exit China", shift production home or around Asia - The Washington Post
3. Pack up and get out of there,’ Japan to spend $2.2 billion to get Japanese companies to exit China. TIFIPOST, 2020
4. 'Pack up and get out of there,' Japan to spend $2.2 billion to get Japanese companies to exit China (tfipost.com)
5. Widely Unpopular But Direct Cash Transfer To Households Will Still Feature In Japan's Whopping New $487bn Stimulus Package. SWARAJYA, 2021.
6. Widely Unpopular But Direct Cash Transfer To Households Will Still Feature In Japan's Whopping New $487bn Stimulus Package (swarajyamag.com)
7. Japan PM announces stimulus package. ANI, 2021
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10. Japan's new economic stimulus package to exceed 40 tril. yen: sources (kyodonews.net)
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12. Japan PM Kishida vows wide-ranging payouts in planned stimulus package | Euronews
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(The views expressed are those of the author and do not represent views of CESCUBE.)
