Japan has earmarked ¥243.5 billion of its record economic support package to help manufacturers shift production out of China as the coronavirus pandemic disrupts supply chains between the major trading partners.
The extra budget, compiled to offset the devastating effects of the pandemic, includes ¥220 billion for companies shifting production back to Japan and ¥23.5 billion for those seeking to move production to other countries, according to details posted online.
The move coincides with what should have been a celebration of friendlier ties between the two countries. Chinese President Xi Jinping was supposed to make a state visit to Japan this month, but the summit, which would have been the first of its kind in a decade, was postponed a month ago as the virus began to spread through Japan. No new date has been set.
China is Japan’s biggest trading partner under normal circumstances, but Chinese imports sank by nearly half in February as the contagion shuttered its all-important factories, starving Japanese manufacturers of parts.
That has renewed talk of reducing Japan’s reliance on China as a manufacturing base. The government’s panel on future investment last month discussed the idea of shifting manufacturing of high-added-value products back to Japan, and for production of other goods to be spread across Southeast Asia.
“There will be something of a shift,” said Shinichi Seki, an economist at the Japan Research Institute. Seki said some Japanese manufacturers in China that were focused on exports were already considering moving out.
“Having this in the budget will definitely provide an impetus.” Companies, such as car makers, that are manufacturing for the Chinese domestic market, will likely stay put, he said.
Japan exports a far larger share of parts and partially finished goods to China than other major industrial nations, according to data compiled for the panel. A February survey by Tokyo Shoko Research Ltd. found 37 percent of the more than 2,600 firms that responded were diversifying procurement to places other than China amid the health crisis.
It remains to be seen how the policy will affect Prime Minister Shinzo Abe’s years-long effort to restore relations with China.
“We are doing our best to resume economic development,” Foreign Ministry spokesman Zhao Lijian said at a briefing Wednesday in Beijing when he was asked about the move. “In this process, we hope other countries will act like China and take proper measures to ensure the world economy will be impacted as little as possible and to ensure that supply chains are impacted as little as possible.”
The initial stages of the COVID-19 outbreak in China appeared to warm the often chilly ties between the two countries. Japan provided aid in the form of masks and protective gear — and in one case a shipment was accompanied by a fragment of ancient Chinese poetry. In return, it received praise from Beijing.
In another step welcomed in Japan, China declared Avigan, an anti-viral drug produced by Fujifilm Holdings Corp., to be an effective treatment for the coronavirus, even though it has yet to be approved for that use by the Japanese.
Yet many in Japan are inclined to blame China for mishandling the early stages of the outbreak and Abe for not blocking visitors from all of China sooner. Until last month, only visitors from Hubei, the epicenter of the outbreak, and one other province had been banned.
In the meantime, other issues that have deeply divided the neighbors — including the Senkaku Islands dispute in the East China Sea that brought them close to a military clash between 2012 and 2013 — are no nearer resolution.
Chinese government ships have continued to patrol around the Japanese-administered islands regularly throughout the crisis, with Japan saying four Chinese ships on Wednesday entered what it claims to be its territorial waters.