Japanese companies try to reduce their reliance on Chinese manufacturing
ATHE END of the month, the production line at a Toshiba factory in Dalian will shut down, 30 years after the Japanese electronics giant opened in the city in northeast China. Once a totemic example of global supply chains expanding into China, the shutdown exemplifies how these are being reconfigured. The short answer is: delicately and on the margins.
Enjoy more audio and podcasts on ios Where Android.
Toshiba’s factory in Dalian has seen a sea change in Asian business models. When it opened, Japan was the undisputed hub of the region’s trade and manufacturing networks. In 2019, Japan’s $ 390 billion trade in intermediate goods with major Asian economies competed for second place with South Korea and Taiwan. China, with $ 935 billion, was ahead.
Hourly wages of Chinese workers have increased tenfold in nominal terms this century, to reach $ 6.20. It’s still a quarter of Japanese rates but twice the wages of Thai workers, who were on par with the Chinese in 2008. As if that weren’t enough, geopolitical tensions are increasingly deteriorating relations between the Communist Party of China. authoritarian and the Chinese Communist Party. the rich democracies of the world.
These trends help explain why China’s share of new outward foreign direct investment from Japan has steadily declined since 2012. The number of manufacturing affiliates that Japanese companies have in China stopped growing almost ten years ago, while new subsidiaries elsewhere in Asia – notably in India, Indonesia, Thailand and Vietnam – have continued to multiply. Toshiba will make up part of the lost capacity by expanding some of its 50 factories in its country and also in Vietnam, one of its 30 overseas facilities. It is harnessing the Japanese government’s one-year-old subsidy program to encourage relocation and diversification of supply chains (and whose tacit goal is to reduce reliance on China).
Many other Japanese companies are in a similar situation. This month OK I Electric Industry, a small Japanese electronics maker, has announced that its 20-year-old factory in Shenzhen will stop manufacturing printers. This capacity would be moved to existing factories in Thailand and Japan. Yet most do not rush to leave China entirely. A survey last year for the Japan Foreign Trade Organization, a government agency, found that 8% of Japanese companies said they plan to reduce or eliminate their Chinese presence, less than the average for companies. Japanese in other countries. Many global companies, from Hasbro (an American toy maker) to Samsung (a South Korean tech giant) make a similar calculation. Toshiba itself will maintain a second, partly owned factory in Dalian.
Even the most patriotic executive in the world would hesitate to sever ties with the world’s second largest economy. This would disrupt profitable relationships with Chinese suppliers and manufacturing know-how. Such things take years to forge. But on the fringes, where companies find themselves pressed by the imperatives of cutting costs and securing stable future supplies, China no longer appears to be the place to be. ■
For a more in-depth analysis of the biggest stories in economics, business and markets, sign up for Money Talks, our weekly newsletter.
This article appeared in the Business section of the print edition under the title “Marginal Revolution”