Japan Moving Manufacturing Out Of China – Will Domino Effect Occur Around the Globe?

  • Japan announced funding to move manufacturing out of China.
  • The funds include moving manufacturing back to Japan or establishing manufacturing in other countries, just not in China.
  • It is highly likely other nations to follow the same trajectory.

The world is not going to be the same after the COVID-19 pandemic. The US Government is working on quantifying the damages coronavirus caused to the economy and China’s liability. The projected number is over $10 trillion. Also, there is a discussion of US defaulting on debt to China. Even though many nations are slowly starting to reopen their economies and providing plans in phases to reopen, the virus is still here.

First Sino-Japanese War.

Japan just announced a State of Emergency pertaining to the coronavirus pandemic.

It is clear the pandemic caused disruption within supply chains, as well as shortages and breakdowns. Japan announced allocation of  $2.25 billion (¥243.5 billion) to aid their business to shift production from China. This is a record amount ever allocated by Japan’s government to one goal.

The reason for such measures is the issues with supply chains experienced due to the virus. However, it is highly likely this move is also due to Japan’s desire to further distance their relationship with China.

Conflicts between Beijing and Tokyo go back centuries. They are more than 800 years old, if you count it from the failed invasions of Japan in the XIII Century (1274 and 1281). Later, there was the Sino-Japanese war (1937-1945). The relationship between Japan and China has mostly been tumultuous. Overall, it is highly likely other nations will follow soon.

Japan is allocating part of these funds to aid companies to return production back to Japan and the additional funds are intended for the companies to move production to other nations, if it is not possible to move it to Japan.

Japanese Prime Minister Abe Shinzo.

This month Chinese President Xi Jinping was expected to visit Japan, but the trip has been postponed due to coronavirus. It has not been rescheduled and it is doubtful it will go forward with the latest announcement about bringing production back to Japan.  The trip would have been historic as a Chinese leader does not visit Japan on a regular basis and the last trip by a Chinese government official was over 10 years ago.

Before the announcement, China was Japan’s largest trading partner. Now, Japan will no longer be dependent on China manufacturing in the near future.

So what is the recourse for Japanese businesses that manufacture certain products in China, specifically for the Chinese market?

It is obviously not what China wants. Since the pandemic, China has been trying to renew relations between both nations.

The new measures introduced are also meant to appease the Japanese populous, as many feel China is responsible for the virus and the government didn’t act quick enough. The same sentiment is felt across North America and within the EU member nations.

The long term ramifications for China are unclear. For now Japan is the first nation around the globe to specifically move the manufacturing out of China. Hopefully others will follow soon, including the US and Canada.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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