Due to the supply chain disruptions caused by the novel coronavirus outbreak, Japanese companies are accelerating their efforts to produce masks and pharmaceuticals domestically. There has been a surge in applications for Japanese government production return assistance subsidies, and Japan is scheduled to approve 160 billion yen in subsidies in October, with a competition rate of 11 times higher. Some Japanese companies are feeling the risk of relying on specific countries, such as China, as a sourcing location, and the movement to diversify their production bases is evident. According to Japanese experts, “the response to reduce overdependence on China should be more diversified globalization”.
The Nihon Keizai Shimbun reported today that applications for production repatriation subsidies in Japan have surged. According to an official report on “subsidies for domestic investment promotion projects for supply chain countermeasures,” Japan provided a total of ¥220 billion in the first supplementary budget for 2020, which was prepared and adopted in April to address the neo-crowning epidemic. As of June, 90 projects (99.6 billion yen) had applied for subsidies, and 57 projects (57.4 billion yen) had been examined and approved in advance, a competition rate of less than twice as high.
With regard to the remaining 160 billion yen, as of July, 1,670 projects (about 1.764 trillion yen) had applied for subsidies, or 11 times the budgeted amount. The approved projects will be confirmed in October, after review by external experts. Japan currently has no plans to increase subsidies, but supply chain countermeasures have been mentioned by candidates in the LDP presidential election to determine Abe’s successor.
According to the report, the subsidies are for products and materials that are either (1) concentrated in a particular country or (2) important for national health. Among the projects that have been approved, masks and medical supplies are the most popular. The subsidy is capped at 15 billion yen, and will be paid as a percentage of the cost of constructing the sites in Japan.
The pharmaceutical company Ace Japan (Higashine, Yamagata Prefecture), which previously imported mainly raw materials from China, will begin construction of a factory in Yamagata Prefecture as early as the summer of 2021 to implement integrated production from raw materials, while SHOWA GLOVE (Himeji, Hyogo Prefecture) will build a new factory in Kagawa Prefecture to produce disposable medical rubber gloves.
Japan has provided similar subsidies in times of crisis in the past, and in 2011, when the Great East Japan Earthquake occurred, the first call for applications for the “Domestic Subsidy for Local Development” received about 750 projects, of which about 250 projects (about 200 billion yen) were approved. According to the Nihon Keizai Shimbun, unlike at that time, the importance of economic security has increased due to the confrontation between the United States and China. Yasuyuki Todo, a professor at Waseda University, pointed out that “protectionist policies were already widespread, and the neo-crowning epidemic has exacerbated them. According to an official from one of the approved companies, “Even without the subsidies, we decided to produce it domestically.
In terms of the use of the subsidies, there is a clear trend to disperse bases rather than simply closing overseas bases and returning to the local market. IRIS OHYAMA, which uses the subsidies to produce masks in Miyagi Prefecture, also plans to produce masks in the U.S., France, and South Korea. This is a strategy to spread the production bases, which were previously concentrated in China, around the world. Prof. Todo stated that “the response to reduce over-dependence on China should be more diversified globalization”.
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