China may begin to feel the after-effects of the coronavirus pandemic directly in its economy as Japan is reportedly paying its companies to leave the country.
Japan is apparently pulling production away from its biggest trading partner in a move allocating $2.2 billion from its economic stimulus package to help companies leave China due to the devastating effects of COVID-19.
The move may soon cause a strain on the relationship between the two nations as supply chains become disrupted. A state visit to Japan by Chinese President Xi Jinping set for this month as Prime Minister Shinzo Abe has sought to restore relations, was postponed and no new date set as the spreading virus disrupted business in the countries.
Now Japan’s new record stimulus budget includes 220 billion yen ($2 billion in US funds) to get companies to move their production back to Japan. Another 23.5 billion yen was allotted for businesses to move out of China and relocate to another country, according to South China Morning Post.
“There will be something of a shift,” Shinichi Seki, an economist at the Japan Research Institute, said. “Having this in the budget will definitely provide an impetus.”
Though many in Japan blamed China for mishandling the outbreak initially, the leaders of the two nations reached across the divide in the crisis, with Japan at one point even providing masks and protective gear. But with a major part of Japan’s regular exports going to China, the move to shift companies away from production in the communist nation could jeopardize relations.
“We are doing our best to resume economic development,” Foreign Ministry spokesman Zhao Lijian said Wednesday at a briefing in Beijing. “In this process, we hope other countries will act like China and take proper measures to ensure the world economy will be impacted as little as possible and to ensure that supply chains are impacted as little as possible.”
In the U.S., Sen. Tom Cotton Arkansas noted in a tweet reacting to the report that there will be more of the exodus “as the world turns against China.”
There will be more—much more—of this as the world turns against China. https://t.co/VKo5bHj5fQ
— Tom Cotton (@SenTomCotton) April 9, 2020
“USA should do the same,” Missouri Sen. Josh Hawley tweeted.
A new report released by a manufacturing consulting firm showed large numbers of American companies leaving China.
“The lessons we must learn from COVID-19 are as momentous as they are harsh. While the trade war triggered some notable tinkering, the massive operational disruption wrought by the coronavirus pandemic will compel companies to fundamentally rethink their sourcing strategies,” the report said.
“At minimum, we expect they will be increasingly inclined to spread their risks rather than put all their eggs in the lowest cost basket, as many long did in China,” it read.
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