Japan looking to Asean in bid to crisis-proof economy

White Paper calls for revamp of supply chain, citing risk of over-reliance on Chinese imports

Japan views Asean as a potential strategic partner in crisis-proofing its economy, whose vulnerabilities such as an over-reliance on Chinese imports and domestic manufacturing have been exposed during the Covid-19 pandemic and in past natural disasters.

To this end, it will connect funds, technology, know-how and business networks with an increasingly digitalised Asean, Japan said in its annual economy and trade White Paper released yesterday.

"We must construct a system that is hard to break by precisely locating the choke points and procuring materials from many countries, while supply chain diversification will also enhance the security of food and energy," a senior official at the Ministry of Economy, Trade and Industry (Meti) told The Straits Times.

In the 618-page White Paper, Japan said "divisive forces" that have become apparent in the pandemic, such as protectionist emergency measures like trade restrictions, are unproductive to overcoming the worst economic crisis since the Great Depression.

"What is clear is that a pandemic on a global scale cannot be resolved only by protectionist measures in one's own country, despite the growing distrust of the existing multilateral framework," the White Paper said.

Japan, in its report, urged greater international cooperation to overcome a growing distrust of global agreements and institutions, as the crisis has made clear the vulnerability of international supply chains and the lack of resources to deal with a major health crisis.

It has encouraged Japanese companies to diversify their supply chains from China back to Japan and Asean, after a breakdown in its manufacturing lines when China enacted a wide shutdown in February, choking imports from China by 47 per cent from last year.

The policy was not born out of an anti-China response but a need for more flexibility in times of crises, said the Meti official.

He added that it was unwise for Japanese companies to have manufacturing lines only in Japan, given how vulnerable the country is to natural disasters.

Thus, there needs to be a shift from a system that prides economic efficacy to one that is more crisis-proof, to avoid situations where a missing cog in the machine freezes entire industries such as electronics and cars, the official said.

The White Paper noted that Japanese affiliates procure over 75 per cent of vehicle parts from Chinese suppliers, while more than one-third of its parts for ICT (information and communications technology) electronics equipment is also from its neighbour.

 
 
 

While admitting that its investment on the digital front was still inadequate, Japan said the pandemic provides an opportunity to ramp up investment in such assets.

With the value of Asean's digital economy projected to surge with a rising middle class, Japan should work closely with the region to promote rules-based trade in the digital sphere, the White Paper said.

Also of great concern is that many countries imposed export curbs on items such as personal protective equipment and surgical masks.

Without extending any help to developing countries, any easing of travel restrictions in the future could well lead to Covid-19 being spread again in countries that have already put a lid on the crisis.

The report also said it was not feasible for countries to maintain a full inventory of medical supplies for emergencies during normal times, but there has to be a business continuity plan to ensure a stable supply that is not affected by international politics. The Meti official suggested that an international inventory of such items could be set up.

 
A version of this article appeared in the print edition of The Straits Times on July 08, 2020, with the headline 'Japan looking to Asean in bid to crisis-proof economy'. Print Edition | Subscribe