Japan allocates $2.4 billion to beef up supply chains

Japan is continuing its efforts to diversify its supply chains and beef up factories at home after Covid-19 and trade wars exposed the risk of being too concentrated in outside markets including China.

The government announced the distribution of 146 subsidies totaling 247.8 billion yen ($2.4 billion) to businesses fortifying their domestic supply chains, the trade ministry said Friday. Some 57 applications received 57.4 billion yen in an earlier round of payments this summer as part of a program launched earlier this year.

The program makes no mention of China, but economists say policy makers are conscious of the risks posed by keeping too much production in China, given the trade war between Beijing and Washington, and also the potential for disruption to key medical supplies.

“It’s true that it’s dangerous to shift toward China right now,” said economist Yuichi Kodama at Meiji Yasuda Research Institute. “On the other hand, China has a market of 1.3, 1.4 billion people, so it’s difficult to completely overhaul the supply chain.”

The second round of subsidies announced Friday exhausts funds first set aside for the program. Focus now shifts to whether a third extra budget being drafted for economic stimulus will include new money for supply chains.

In a key policy speech last month, Prime Minister Yoshihide Suga said he was aware of concern that the country’s supply chains have become vulnerable and he pledged to help diversify them.

Kawasaki Heavy Industries Ltd. and Sumitomo Chemical Co. are among business that are getting the government’s help. Smaller companies that make surgical masks and gowns were also among subsidy recipients.

A separate set of subsidies also introduced this year helps businesses diversifying their overseas production bases, a move that has seen some factory capacity shift to Vietnam and other southeast Asian countries.