Japan push to cut China reliance may be boost for Southeast Asia

VIETNAM: Workers operate sewing machines at a Thai Son S.P. Co. garment factory in Binh Thuan province, Vietnam, on Oct. 11, 2019. Maika Elan/Bloomberg

Japan's quiet push to protect its supply chains in the era of COVID-19 may prove a boon for Southeast Asian nations looking to gain from the growing backlash against China.

The Japanese government is paying about 12 billion yen ($114 million) to 30 companies to increase production in Southeast Asia, in the first round of a multibillion-dollar program to diversify supply chains after COVID-19 and worsening relations between the U.S. and China.

Japan wants to cut its reliance on China or any other individual nation and the money will hasten the trend of firms moving out of China and into cheaper neighbors like Vietnam or Thailand.

Fujikin Inc. makes parts used in semiconductor manufacturing and is one firm benefiting from the incentives. The Osaka-based manufacturer will receive subsidies worth two-thirds of its costs to shift production out of China and into Vietnam.

"We'd been thinking about increasing our capacity in Vietnam before the subsidy was announced, and it fit right in," said company President Shinya Nojima.

When the virus shut down Fujikin's suppliers in China earlier this year, their customers became worried about shipments of parts. "Our customers were asking us: Is the China procurement happening? Are we going to be able to meet the deadline?" Nojima said Monday.

The coronavirus outbreak, and the lockdowns that followed, have forced businesses and government officials around the world to rethink their supply chains in order to reduce reliance on China as a manufacturing source.

Japan had already been a key player in Southeast Asia, home to some of Asia's fastest-expanding economies before the pandemic and a growing and youthful population. Japanese investment into five of the region's economies – Vietnam, the Philippines, Malaysia, Indonesia and Thailand – rose at nearly double the pace into China over the past decade.

Infrastructure development formed a big chunk of that investment, with Japanese firms vying with Chinese ones to build railways and hospitals in countries like Indonesia, the Philippines and Vietnam.

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