Japan to give subsidies to companies shifting base from China to India

Based on inputs by Shahid Kazi

A week before an India-Japan summit, Japan’s ministry of economy, trade and industry (METI) announced it would add India and Bangladesh to a list of Asean countries to qualify for subsidies for Japanese manufacturers moving out of China. The METI announcement comes days after India, Japan and Australia decided to advance cooperation on building trusted, resilient supply chains.

The SCRI (Supply Chains Resilience Initiative) is intended to build alternative supply chains. At a trilateral meeting with trade ministers of Australia and Japan commerce minister Piyush Goyal said, “Diversification of supply chain is critical for managing the risks associated with supply of inputs, including disciplining price volatility. We could provide the core pathway for linking value chains in the region by creating a network of reliable, long-term supplies and appropriate capacities.”

Japanese manufacturers will now be eligible for subsidies if they shift production out of China to India or Bangladesh. This step is and attempt by Japanese government to diversify country’s supply chains.

The supply chain of Japanese companies currently heavily relies on China. During the COVID-19 pandemic, the supplies were cut off. By expanding the scope of the subsidy programme, Japan aims to reduce its dependence on a particular region. This step will ensure that a system is built that will provide a stable supply of medical materials and electronic components even in an emergency.

The government has allocated 23.5 billion yen ($221 million) in 2020 supplemental budget for the subsidy to encourage companies to disperse their manufacturing sites across ASEAN region.

In the first round of application which closed in June, the Japanese government approved 30 manufacturing projects, including Hoya’s manufacturing of electronic components project in Vietnam and Laos, and provided subsidies of 10 billion yen.

The second round of application targets feasibility studies on decentralising manufacturing sites, the experimental introduction of facilities and implementation of model projects. The total amount of subsidies which will be provided is reported to reach several billion yen

The second round of applications which began on September 3, projects that will contribute to the resilience of the ASEAN-Japan supply chain were added to the list, assuming relocation plans to India and Bangladesh.

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