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Seeking to avoid over-reliance on China amid sky-high Sino-U.S. tensions and a global pandemic, 40% of Japanese companies involved in sensitive technology linked to security are considering, or have already started, shifting manufacturing bases and sources of parts from China, a Kyodo survey has found.

Additional incentives for Japanese firms to spread their bets are new environmental restrictions in China and its “dual circulation” growth strategy, which prioritizes domestic consumers and exporters. While the green push might sound like a boon for some Japanese firms, foreign businesses in China fear the tough rules will be used to make life difficult for them.

China's environmental restrictions, as well as a new economic growth strategy designed to bolster the country's domestic demand while trying to increase exports, could pose obstacles for Japanese companies hoping to expand their business in China. | KYODO
China’s environmental restrictions, as well as a new economic growth strategy designed to bolster the country’s domestic demand while trying to increase exports, could pose obstacles for Japanese companies hoping to expand their business in China. | KYODO

With a battle of economic statecraft raging between the U.S. and China, commentator Hiroki Sugita warns Japan against getting too involved in the fight, offering three downsides to wielding sanctions as weapons. Instead, he argues that Japan should use its influence to sway the U.S. to apply sanctions in a more targeted way that yields less collateral damage.

However, that doesn’t mean Japan can’t make the most of the current carnage. For example, Japanese firms, once leaders in mobile phone tech, have fallen behind China’s Huawei and others in 5G infrastructure development. Then along comes the U.S. clampdown on Huawei, handing these companies a lifeline. Recognizing the opportunity, the Japanese government is also piling on support for these firms.

It’s not just in tech that Japan has been losing ground. Once the key lender for infrastructure projects in Asia, Japan now has to compete with China’s huge Belt and Road Initiative. How can Japan match a mammoth? Simple, argue Vindu Mai Chotani and Yoichiro Sato: With concerns growing about the viability and consequences of many BRI projects, now is the time for Japan to step in and re-focus on quality lending in the region over quantity.

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