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Countries Move Supply Chains from China; Japan to Subsidize 87 Companies to “Exit China”

Relocating manufacturing and supply chains out of China has become a trend amid the COVID 19 outbreak.

Japans’ Ministry of Economy, Trade and Industry announced on Friday July 17 that the first group of Japanese companies had received “exit China” subsidies. These subsidies are designed to help Japanese companies move manufacturing from China to Southeast Asia or back to Japan. According to the Nikkei Asian Review, 87 Japanese companies or groups will receive a total of 70 billion yen ($653 million) in funding. These funds will be used to transfer production lines to reduce Japan’s dependence on China and establish a flexible supply chain. Among them, 30 companies will shift production to Southeast Asia. Hoya, a hard disk components manufacturer, will relocate its factories from China to Vietnam and Laos. Sumitomo Rubber Industries will produce nitrile rubber gloves in Malaysia, while Shin-Etsu Chemical will shift the production of rare earth magnets to Vietnam. The remaining 57 companies will be relocated to Japan.

Household product manufacturer Iris Ohyama currently produces masks in factories in Dalian and Suzhou, China. Non-woven fabrics and other major materials are purchased from Chinese companies. With the help of Japanese government subsidies, the company will start producing masks at the Kakuda plant in Miyagi Prefecture in northern Japan. All materials will be prepared locally, independent of overseas suppliers. Saraya, a manufacturer of sanitary products, is also eligible for subsidies. The company’s products include alcohol-based disinfectants.

The Japanese government allocated 220 billion yen (US$2.05 billion) in the supplementary budget for fiscal year 2020 to establish a subsidy program to encourage companies to relocate factories from China to Japan. Among them, 23.5 billion yen (US$0.22 billion) was used to promote the transfer of production lines from China to Southeast Asian countries.

Aside from Japan, Australian rare earth supplier Lynas has also previously stated that the outbreak of the epidemic highlights the importance of the decentralization of the supply chain from China. Lynas announced back on May 20, 2019 that it would build a rare earth processing plant in the United States, and signed a memorandum of cooperation with Texas manufacturer Blue Line Corporation. The U.S. government has repeatedly stressed the need to move the supply chain out of China. The White House chief economic adviser Larry Kudlow said in May that the Trump administration was willing to compensate American companies to help them move their supply chain out of China and Hong Kong and back to the U.S. The Times reported that British Prime Minister Johnson has ordered the “Project Defend” plan to end Britain’s dependence on the importation of key products from China, including pharmaceuticals and other strategic imported products. According to Agence France-Presse, before the outbreak, an investigation found that 104 German companies have decided or are considering withdrawing production capacity from China. In 2020, many companies in Taiwan made moving their production out of China an operational focus. According to a previous report in Science and Technology News, Quanta, Compal, Pegatron, Wistron, Inventec, Hon Hai, and others will work on relocating their production lines outside of China this year.

Source: Epoch Times, July 19, 2020