More and more Japanese business firms intend to expand their operations in Vietnam while scaling back their operations in China. Vietnam and China are both run by communist governments.
A new and extensive survey by the Japan External Trade Organization (JETRO) involving 9,975 firms and conducted from November to December 2019 also showed 80% of Japanese companies operating abroad forecast their sales will plummet in 2020 compared to 2019.
It reveals that 41% of Japanese companies are considering expanding operations in Vietnam -- the "new China" -- over the next three years, up 5.5% from another survey conducted last year. It shows rising geopolitical tensions between China and the United States as the main reason Japanese companies are fleeing China for Vietnam.
The report also shows 36.3% of respondents selected Thailand (up 1.5%). On the other hand, 48.1% said they plan to expandbusiness in China, down 7.3%.
JETRO said that in 2018, the intensified confrontation between the United States and China has pushed up Japanese companies' investment in the Association of Southeast Asian Nations (ASEAN). The 10 members of ASEAN are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
The JETRO report said the gap between the amount of Japanese investment to ASEAN and China expanded to $191 million (20.4 billion yen) in 2019 from $96 billion (10.2 billion yen) in 2017.
The Japanese companies operating overseas that forecast a plunge in sales this year from 2019 said this will be due to shrinking demand ignited by the pandemic.
Of the Japanese firms operating in Asia, 91.4% do business in India; 89.4% in Malaysia; 88.4% in Thailand; 85.3% in the Philippines and 84.4% in Indonesia made this assessment.
In mid-July, Japan said it will begin paying $654 million (70 billion yen) in the first round of payments to the first 57 Japanese firms that moved manufacturing out of China. Payments will then be made until August to 30 other Japanese firms that did the same.
These 87 firms took advantage of a generous multi-billion yen subsidy program intending to slash Japan's heavy dependence on China as a manufacturing base.
The Ministry of Economy, Trade and Industry (METI) said 57 companies will receive $536 million (57.4 billion yen) in subsidies from the government as they return manufacturing to the Japanese mainland. Another 30 companies will receive money to move manufacturing from China to Vietnam, Myanmar, Thailand and other Southeast Asian countries.
Last April, the government of prime minister Abe Shinzo set aside $2.28 billion out of its coronavirus stimulus money to slash Japan's overreliance on China for its supply chain needs.