Japan is paying 87 companies moving manufacturing from China and returning production to Japan or other parts of Southeast Asia, The Washington Post reports.
After the coronavirus outbreak revealed an overreliance on Chinese manufacturing, Japan is trying to incentivize companies to bring production back to Japan. The government set aside $2.2 billion to do so.
The city of Wuhan, where the virus originated, is a major hub of the auto parts industry. When the virus began to spread, Japanese companies that relied on the Chinese city had to shut down operations.
Japanese automaker Nissan had to temporarily stop production at a plant in Japan in February because it couldn’t get parts from China. Japanese consumer goods company Iris Ohyama found its supply chain disrupted amid lockdowns.
The country announced a list of companies that will benefit from the first round of subsidies. Fifty-seven companies received a total of $535 million to open factories in Japan and 30 others were paid to expand production in Vietnam, Myanmar, Thailand and other Southeast Asian countries.
“We already started to see the risks of the vulnerability of the supply chain, and we encouraged industries to look at such risks and asked them to diversify their source of supply,” a Ministry of Economy, Trade and Industry official told the newspaper. “We think this is another chance to rethink global supply chains.”
China is Japan’s largest trading partner. But Japan’s METI has been pushing to reduce the country’s reliance on China for years, according to the newspaper.
Iris Ohyama was the first company to take advantage of the new subsidy program. The company is using funds to open a factory to produce masks in Sendai in northeastern Japan. In addition to plants in China, Taiwan, South Korea and Vietnam, it has opened factories in France and the United States. It will soon make items in Wisconsin, Arizona and Texas.
“We decided to produce inside Japan a portion of the production consumed in Japan,” Executive President Akihiro Ohyama told The Washington Post. “I think we are at the beginning of a new phase of globalization. Not many companies have yet been doing what we have been doing. But going forward, I think more companies will follow.”
He said the company will still produce large items such as refrigerators and washing machines that involve complex supply chains in China and East Asia, but other production may move.
“I think we will see a trend, a shift in producing goods in large volume where personnel costs are low, to places closer to where they are consumed,” he said.
Other companies that received subsidies include producers of auto and aviation parts, hygiene products such as alcohol-based sanitizers, fertilizer, medicines and paper products.
The METI official said it was unrealistic to bring all production home. Rather, the country wants to see a mix of domestics and overseas production and a greater international cooperation on items like emergency supplies.
“We are not retreating from globalization, but we have to update globalization,” he said. “Japanese companies have to adjust to that new normal, but globalization is still on the way.”
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