Chinese companies are aggressively investing in and shifting production to countries like Vietnam, Thailand and Mexico – areas seen by Japan and the US as alternatives to rely on instead of China. This is part of Japan and the US’s efforts towards “friend-shoring”, moving supply chains to friendly nations, but China is gaining ground.
From January to June 2023, China’s direct investment in Vietnam rose 37% year-on-year to $2.7 billion, far exceeding other countries like South Korea. Chinese firms offer wages in Vietnam more than twice the average to attract workers, making it hard for Japanese companies to maintain production bases. Overall, China’s direct investment balance in major ASEAN countries reached $52 billion in 2021, surpassing the US.
In Thailand, China’s direct investment from January to June accounted for over 20% of the total, ranking first and 70% higher than Japan. Thailand is becoming a production base for Chinese EV companies, shaking Japan’s auto dominance there. Similarly in Mexico, Chinese auto parts companies are increasing investments, approaching the levels of the US in 2022.
This illustrates risks to supply chains as China dominates certain critical materials like gallium and nickel. For example, 70% of nickel smelters in Indonesia, which produces half of global nickel, are owned by Chinese firms. Japan is losing ground, with Sumitomo abandoning a planned refinery to be replaced by a Chinese company.
While Japan and the US aim to exclude China from material processing and parts production, China’s dominance means it could choke exports. This risks Japan and the US’s goals for EV production if China limits exports. To compete, Japan and the US need to adopt strategies like joint R&D with local nations rather than just focus on friend-shoring. Overall, China is gaining advantage over Japan and the US in critical supply chain investments across Asia and Latin America.
Source: Nikkei Chinese, September 11, 2023