Oct 15, 2020 (Nikkei) - Japan will significantly ramp up a program encouraging businesses to build production sites in Southeast Asia to diversify supply chains that are too dependent on China.
The government will cover up to half the cost of such investments within the Association of Southeast Asian Nations for large companies and as much as two-thirds for smaller businesses. The subsidies apply to products for which manufacturing tends to be concentrated in a specific country.
The aim is to have companies expand the number of countries where they have overseas operations, not to entice them to leave any certain nation. Although China is not specifically named in the plan, the goal appears to be to reduce dependence there.
Prime Minister Yoshihide Suga will announce the plan during his visit to Vietnam this month, further underscoring the importance of Southeast Asia on his first official trip overseas as Japan's leader. His ASEAN tour, which also includes a stop in Indonesia, will be used to call for measures to promote investment in Southeast Asia.
The program is intended specifically to support projects that involve expanding production networks into ASEAN members. Plans that involve pulling out of a given country will likely be excluded.
On the other hand, building a new factory in a Southeast Asian country while leaving capacity in China, for example, would be considered an eligible form of diversification.
The program does not cite China by name, as doing so could risk opening up Tokyo to criticism that it is distorting free trade.
The plan should pose no problems under World Trade Organization rules "as long as it has objective standards for providing support, rather than subsidizing specific companies," said Yorizumi Watanabe, professor of international political economy at Japan's Kansai University of International Studies.
