Professor Rajaram Panda Writes :
Like many countries currently focusing their priorities to contain the deadly coronavirus, simultaneous measures by economic stimulus packages are being taken to support the economies that are in a tailspin on the impact of the virus spread. In Asia, Japan’s Prime Minister Shinzo Abe in a major announcement on April 7 announced a state of emergency as well as a massive economic stimulus package of nearly $1 trillion – equal to 20 per cent of GDP – to soften the economic blow.[1]
What has caught the attention of India and countries in Southeast Asia is that Abe took into cognizance of the hardship faced by the Japanese companies hit hard and supply chains disrupted and therefore earmarked 243.5 billion yen ($2.2 billion) of the record economic support package to help manufacturers to shift production out of China. This includes 220 billion yen for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries.[2]
Viewed in the context of bilateral economic engagement between Japan and China, the outbreak of the virus emerged at an inopportune moment because both Japan and China were looking towards strengthening their friendly ties with the scheduled visit of Chinese President Xi Jinping to Japan, first in a decade. That had to be deferred to a later date.
China is Japan’s biggest trading partner[3], but Chinese imports sank by nearly half in February as the contagion shuttered its all-important factories, starving Japanese manufacturers of parts. That has renewed talk of reducing Japan’s reliance on China as a manufacturing base. The government’s panel on future investment discussed the idea of shifting manufacturing of high-added-value products to be shifted back to Japan, and for production of other goods to be diversified across Southeast Asia.[4]
The withdrawal of the Japanese companies from China and the process of disinvestment may be a loss to China but provides a huge opportunity for countries in Southeast Asia as well as India as they get ready to welcome the Japanese companies to set up bases.
In fact, Japanese companies are facing problems elsewhere too from where they could exit following Japanese government’s offer of incentives. For example, Japan’s three biggest automakers cut off pay of 32,000 in North America, thereby swelling the workers to an unprecedented level seeking unemployment benefits. Toyota Motor Corp. decided not to pay roughly 5,000 people that temporary agencies employ to help staff its idled plants. Honda Motor Co. and Nissan Motor Co. too temporarily decided to stop paying all staff at their idled US plants and asked them to file for the states’ unemployment benefits.[5] There also seems to be an erosion of trust by the Japanese companies on Europe and China and therefore looking for more dependable markets elsewhere to do business. India qualifies immensely in this Japanese thought process.
The situation of car manufacturers at home is no better. Around 20,000 domestic workers at three of Japan’s biggest carmakers have been put on temporary leave because of the output suspension caused by the coronavirus pandemic.[6] The situation in other sectors is equally precarious. While it remains to be seen how far Abe’s economic stimulus package can help Japan to escape from the impending recession, these companies are soon to shift production out of China and explore locations in Southeast Asia and India to set up manufacturing bases.
Some Japanese manufacturers in China that focused on exports were already considering moving out. Japan exports a far larger share of automobile parts and partially finished goods to China than other major industrial nations. According to a survey in February by Tokyo Shoko Research Ltd., 37 percent of the more than 2,600 firms were diversifying procurement to places other than China amid the health crisis.[7] In turn, Japanese manufacturers of necessary components began to starve. The slump in imports led to renewed talk of Japanese firms reducing their dependence on China as a manufacturing base. Though Japan would have liked not to disrupt the burgeoning economic ties with China despite the latter’s its expansionist design in the region, the government has obligation to protect the interests of Japanese companies operating in China so that the supply chains are not hugely disrupted.
Japan is not alone in thinking to either close or shift operations out of China. Industry watchers say Microsoft and Google are also better positioned to shift production away from China than companies like Apple and HP. Google and Microsoft are accelerating efforts to shift production of their new phones, personal computers and other devices from China to Southeast Asia amid the worsening coronavirus outbreak.[8] Factories in Vietnam and Thailand expected to be the beneficiaries as these two countries have emerged as the preferred destinations.
Can India seize this golden opportunity to welcome Japanese manufacturers to open operations in the country? Given that the two countries enjoy complementarities in their economies, the onus lies on the policy makers in India to lay the roadmap that would be attractive to the potential Japanese manufacturers. States should take steps to lure Japanese companies that are being pushed by their government with an attractive relocation incentive and prepare suitable blueprints.
In the past few years, several states such as Gujarat, Assam, Odisha and Bihar led investment delegations to Japan to organise roadshows showcasing investment potentials in their respective states. The programs were organised by the Indian mission to some of which the present author had opportunity to attend.[9] Now is the opportunity for these states to revisit their contacts and invite Japanese companies to set up manufacturing bases. The state could offer the companies with permissions and access to utilities. If the terms and conditions are made attractive to the Japanese companies, their first choice to relocate would be India rather than Malaysia, Vietnam or Thailand. Some reform in labour laws is too needed.
A healthy competition between states would lead them to make attractive offers such as 2000-5,000 acres in some special zone where they do not have to look for land and building approvals.[10] Such a measure would be in tune with Abe government’s incentive to companies which are part of the economic stimulus package. India enjoys strategic advantage such as relatively cheap labour cost, low cost of living, a democratic environment and as a policy in the foreign policy domain, respects rules of law. These are favourable conditions to which Japanese companies are expected to see merit.
Another sector that the Japanese companies could explore is in the health care systems.[11] The coronavirus also presents an opportunity for the Indian government to focus improving the health care systems as the livelihood and saving lives have assumed priority as the extension of the lockdown until May 3 in the announcement by Prime Minister Narendra Modi on 14 April 2020 demonstrates. What is required is that leaders and policy makers should plan the roadmap enabling people to innovate and come up with solutions and not micro-manage. Policy makers need to decide what supplies need to be made and what need not be prioritised. The Japanese counterparts ought to be presented with the blueprint so that supply chain plans vital for its success is already in place to help the Japanese manufacturers to make a transition from China to India smoothly.
Indeed, if the synergy is properly honed, India providing the fertile ground for setting up manufacturing bases to add to the value chain and be a production hub could present a win-win situation for both India and Japan. Not only India presents a huge domestic market but can also be a production hub for export of products to Middle East, Africa and even China.
End Note
[1] “Japan declares coronavirus emergency and approves a near $1 trillion stimulus package”
7 April, 2020,, https://www.cnbc.com/2020/04/07/japan-declares-coronavirus-emergency-and-approves-a-near-1-trillion-stimulus-package.html
[2] “Japan sets aside ¥243.5 billion to help firms shift production out of China”, BLOOMBERG, 9 April, 2020, https://www.japantimes.co.jp/news/2020/04/09/business/japan-sets-aside-%c2%a5243-5-billion-help-firms-shift-production-china/#.Xo8FV6gzZPY; “Japan Will Pay Its Firms to Leave China, Relocate Production as Part of Coronavirus Stimulus Package”, News18.com, https://www.news18.com/news/business/japan-will-pay-its-firms-to-leave-china-relocate-production-as-part-of-coronavirus-stimulus-package-2571011.html
[3] “Factbox: Key facts on China-Japan economic and trade ties”
Source: Xinhua| 2018-05-09 http://www.xinhuanet.com/english/2018-05/09/c_137167101.htm
[4] n. 2
[5] “Japanese carmakers cut off pay to 32,000 in North America”, BLOOMBERG, 9 April 2020,
[6] “Japanese carmakers plan to put 20,000 on temporary leave with partial pay to deal with virus”, 9 April 2020
[7] n. 2.
[8] https://asia.nikkei.com/Spotlight/Coronavirus/Google-Microsoft-shift-production-from-China-faster-due-to-virus
[9] The author was in Japan teaching at Reitaku University as ICCR Chair Professor and attended three roadshows by the investment delegations from Bihar, Assam and Odisha in 2017.
[10] Mayur Shetty, “Tap Japanese cos., Parekh tells states”, Times of India, 12 April 2020
[11] Namrata Singh, “”’China’s loss in mgf could be India’s gain’”, Times of India, 13 April 2020.
Professor Rajaram Panda is Lok Sabha Research Fellow, Parliament of India and Member, Governing Council of Indian Council of World Affairs, New Delhi. He was also Senior Fellow at IDSA and ICCR Chair Professor at Reitaku University, Japan, E-mail: rajaram.panda@gmail.com
Disclaimer: The views expressed are those of the author and do not necessarily represent the views of the organisation that he belongs to or of the USI of India.