Opinion | The coronavirus has complicated China-Japan relations. How will this benefit Asean?

China’s coronavirus lockdown disrupted trade with Japan, while issues like the Senkaku (Diaoyu) Islands, Hong Kong and South China Sea affected relations

Japan’s post-pandemic foreign policy outlook may create new opportunities for Asean-Japan cooperation

Reading Time:8 minutes

Japan's Prime Minister Shinzo Abe shakes hand with China's President Xi Jinping in 2019. Japan’s strained relations with China may lead it to enhance engagement and cooperation with Asean members. Photo: AP

Published: 7:00am, 12 Aug 2020Updated: 7:33am, 12 Aug 2020

In early April 2020, as the coronavirus pandemic sharply curtailed Japan’s supply of intermediate and finished goods produced by supply chains anchored in China, Japan earmarked 220 billion yen (US$2 billion) of its emergency economic support package to help Japanese manufacturers shift production of critically needed goods from China to Japan and another 23.5 billion yen (US$221 million) to move production to third countries.

The first package of subsidies announced on July 17 included 87 companies receiving a total of 70 billion yen (US$653 million). Thirty firms will relocate production to Southeast Asia and the remaining 57 will return production to Japan.

This move had been discussed and approved in principle at the March 5, 2020 meeting of the Council on Investments for the Future. At this meeting, Prime Minister Shinzo Abe said that “for those products with high added value and for which we are highly dependent on a single country, we intend to relocate the production bases to Japan. Regarding products that do not fall into this category, we aim to avoid relying on a single country and diversify production bases across a number of countries, including those of the Association of Southeast Asian Nations [Asean]”.

CHINA-CENTRED SUPPLY CHAINS

The concern of the Council on Investments for the Future was narrowly focused on dealing with unforeseen difficulties created by the coronavirus pandemic for Japanese business and society. Global supply chain risk materialised in the losses to the Japanese economy caused by China’s coronavirus lockdown, which disrupted Japanese supply chains in China and caused a shortage of critically needed medicines and protective medical gear sourced from China, highlighting the overdependence on China.

Leaving aside the sudden impact of the coronavirus, which led to a nationwide lockdown that caused as many as 205 million Chinese jobs being lost, there were already other longer-term economic risks facing Japanese firms in China. These included reduced exports due to the US-China trade war and slowing global GDP and trade growth, which put at greater risk a Chinese economy overburdened by debt. At the same time, the cost of production in China was rising due to higher wage demands and tightening environmental regulation.

Until the pandemic hit, Japanese firms operating supply chains in China were uncertain about what to expect and took a wait-and-see attitude. But by February 2020, prospects for the Phase One trade deal signed with the United States in January were already in doubt when the pandemic’s enormous negative impact became apparent. A February survey of 2,600 Japanese firms in China found that 37 per cent were looking outside China for suppliers. A Japan Chamber of Commerce and Industry survey published in April found that of 8,852 Japanese firms in China, 7.1 per cent wanted to scale down or withdraw.

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