Japan Is Taking Major Steps To Decrease Its Economic Dependence On China

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Amidst the coronavirus pandemic, Japan is moving to reduce economic ties with China and bolster its military capabilities.

Last month, Japanese Prime Minister Shinzo Abe’s cabinet introduced an emergency economic stimulus package that included an earmark for $2.2 billion to help Japanese companies move their production out of China. The overwhelming bulk of the funds will be used to support Japanese companies relocating back home, although some of it will also go to firms who want to shift their production to Southeast Asia.

A similar proposal has been floated in the United States by some within the Trump administration. White House economic adviser Larry Kudlow has suggested incentivizing American companies to leave China by offering to fully cover their moving costs. (Japan’s Deputy Prime Minister Says The WHO Should Change Name To The China Health Organization)

As in the United States, the coronavirus pandemic has pushed Japan to begin reconsidering its economic relationship with China, who has long been its biggest trading partner. When China instituted a national lockdown due to coronavirus, Japan was suddenly faced with major shortages of medical supplies and manufacturing parts, both of which it primarily imports from China.

BEIJING, CHINA – NOVEMBER 10: Japan’s Prime Minister Shinzo Abe shakes hands with China’s President Xi Jinping (R), during their meeting at the Great Hall of the People, on the sidelines of the Asia Pacific Economic Cooperation (APEC) meetings, November 10, 2014 in Beijing, China.. (Photo by Kim Kyung-Hoon-Pool/Getty Images)

The Abe government has vowed to never again repeat that experience. In an interview with Nikkei Asian Review, Japanese Chief Cabinet Secretary Yoshihide Suga argued that the coronavirus pandemic had exposed the dangers of Japan being overly dependent on China for essential goods.

“We need to end heavy reliance on a single country for a particular product or material,” he said. “For things that are essential to our everyday life, we need to bring production back to Japan or diversify the location of such manufacturing over several countries.”

Besides paying Japanese firms to shift their supply chains out of China, the Abe government has also partnered with 400 companies to boost domestic production of medical supplies. (RELATED: Japan, Inc. Was The Overture To China The Hegemon, And Both Resisted The Free-Trade Dogma)

Beijing has watched Japan’s recent moves with concern, fearing that they could be the start of a mass exit by foreign companies out of China.

Just one day after the Abe government’s announcement, Chinese President Xi Jinping warned senior Communist Party officials that as a result of the coronavirus pandemic, “unstable and uncertain factors are notably increasing.”

Trade is not the only area where Japan is preparing to offer greater pushback to China. Notwithstanding the coronavirus pandemic, Japan is moving ahead with plans to strengthen its military.

On March 27, the Japanese parliament voted to approve a $48.6 billion defense budget, the country’s largest since World War II. Although Japan’s military spending has since that conflict been restricted by a pacifist constitution, the Abe government in recent years has increased defense expenditures to counter threats from China and North Korea.

SAGAMI BAY, JAPAN – OCTOBER 22: A ship of the Japanese Maritime Self-Defense Force sails in formation during a naval fleet review exercises on October 22, 2006 off Sagami Bay, Japan.  (Photo by Koichi Kamoshida/Getty Images)

Japan’s latest military budget includes earmarks for advanced weapons systems, such as hypersonic anti-ship missiles, which could potentially be used against Chinese aircraft carriers.

Although relations between Japan and China have long been uneasy, Abe spent much of his premiership trying to improve relations with Beijing. These efforts culminated in his first official visit to China in October 2018, during which the two countries signed $18 billion worth of business deals and a $30 billion credit swap agreement between their central banks. Abe touted the results of this trip as evidence that Japan and China had entered “a new era” in their relationship.

The two countries were expected to take another major step forward in early April, when Xi was supposed to become the first Chinese leader to make a state visit to Japan since 2008. As a result of the coronavirus outbreak, however, the visit was postponed and a new date has yet to be announced.

When and if Xi’s visit to Japan is rescheduled, it will almost certainly occur under far less friendly circumstances.