The Government of Japan is taking public a previously silent trade war with China as it offers Japanese companies with factories in China, financial incentives to close those factories and set-up new ones in Japan or in Southeast Asia.
The government’s policy is designed to reduce the dependence of Japanese firms manufacturing on China and to secure supply chains through diversification.
According to a statement from the Ministry of Economy, Trade and Industry, 57 companies have been identified who will be eligible for $536 million USD in subsidies from the government.
An additional 30 companies would receive money to move factories to Vietnam, Myanmar, Thailand and other Southeast Asian countries, although subsidy amounts for these companies have not yet been set.
The Japanese government has earmarked $2.3 billion USD to reduce dependency on Chinese supply chains by subsidizing Japanese companies to diversify their manufacturing operations.
Japan isn’t the only country that is offering subsidies or other incentives for companies to move their operations out of China, or to diversify those operations through a “China + One” strategy.
As well as the U.S., which has been very public in calling for U.S. companies to leave China and open manufacturing in the U.S.; India has banned Chinese apps, including Tik Tok and is asking citizens to use similar Indian or non-Chinese apps; and Taiwan has also been calling on companies to limit their operations in mainland China and bring back manufacturing to either Taiwan or expand operations in Southeast Asia.
The Japanese governments move to subsidize companies to leave China has both immediate and long-term significance for Japan-China relations, since Japanese companies have made massive investments in China and China is Japan's biggest trading partner.
Complicating the relationship between Japan and China, is Japan’s recent “defense white paper,” approved by Prime Minister Shinzo Abe’s government, which accuses China of "continuing to attempt to alter the status quo in the East China Sea and the South China Sea," at the same time the world is battling the global Covid-19 pandemic.
Helping to coordinate Japanese government subsidies is the Japan External Trade Organization (JETRO), which released a list of companies that would be moving operations from China.
The JETRO list includes 15 Japanese firms that have registered with the government to move production from China to Vietnam. JETRO said six of the 15 companies are large firms and nine companies are categorized as small and medium-sized enterprises (SMEs).
JETRO said that at the time of its report that 30 Japanese companies will receive subsidies to set up new factories in Laos, the Philippines, Thailand and Laos. JETRO said that the majority of the companies made medical equipment, semiconductors, phone components, air conditioners and power modules. JETRO said that each company will receive between $930,000USD to $46.7 million USD as their subsidy amount.
Apart from the 30 companies set to move to Southeast Asia, 57 additional Japanese companies will receive $536 million USD for their shift from China. These companies have not yet reported to the government whether they will move operations in part or whole back to Japan or to Southeast Asia.