South Korea said today it will spend some 1.1 trillion won (US$896 million or RM3.92 billion) on developing technologies for “high automation” vehicles that can lead growth in the automobile market, Yonhap News Agency reported.

The investment calls for the development of “level four” autonomous cars, according to the country’s Ministry of Science and ICT (information and communications technology).

There are five levels of self-driving cars that range from no automation “level one” all the way up to “level five” that is fully autonomous with a vehicle being able to drive itself without almost any human input.

The level four cars are called “high automation” vehicles that can fully control steering and speed, and normally can be driven without the driver controlling the vehicle in most situations.

These cars can also be driven in full automation mode in certain areas.

At present, most cars on the road referred to as autonomous vehicles are “level two” cars with “driver assistance” programmes.

These offer some steering control to keep a car inside a lane and manage the speed to maintain a set distance from other cars but require constant attention and input from the driver, with self-driving only allowed in very restricted areas.

The ministry said the country will need to create supporting services and an ecosystem that involves close cooperation between various state actors and the private sector.

Source: Bernama

Volkswagen the world’s largest carmaker by sales, on Monday said it had resumed work at its biggest factory in Wolfsburg, Germany, to give its workers time to adapt to new hygiene measures to combat the coronavirus.

Encouraged by a fall in infection rates, Germany eased lockdown rules and carmakers are relying on the country’s ability to trace and contain the coronavirus to put Europe’s largest economy back to work.

In Wolfsburg, around 8,000 workers started building cars again on Monday, including the VW Golf. This week 1,400 cars will be built, followed by 6,000 cars in a fortnight, VW said.

Production capacity in the Wolfsburg plant will be at around 10%-15% to begin with, and reach around 40% of pre-crisis levels in the week after, Andreas Tostmann, VW brand’s board member responsible for production told Reuters.

“The restart of Europe’s biggest car factory after weeks of standstill is an important symbol for our employees, our dealers, suppliers, the German economy and for Europe,” Tostmann said.

VW has overhauled its procedures to include extra hygiene measures. Workers are told to measure their temperature and to get changed into their overalls at home, to prevent crowding in factory changing rooms.

Extra markings have been put on the factory floor so that workers are better able to adhere to a 1.5 metre social distancing rule, and extra time is provided so that employees can disinfect their tools and surfaces, VW said.

Volkswagen began producing components in Braunschweig, Kassel, Salzgitter and Hanover in early April and resumed car manufacturing in Zwickau and Bratislava on April 20 and in Chemnitz on April 23.

This week Volkswagen Group will re-start production in Portugal, Spain, Russia, South Africa and South America and from May 3 onwards in Chattanooga in the United States.

Volkswagen further said that around 70% of its dealerships in Germany had re-opened.

Source: Reuters

China’s factory activity likely rose for a second straight month in April as more businesses re-opened from strict lockdowns implemented to contain the coronavirus outbreak, which has now paralysed the global economy.

The official manufacturing Purchasing Manager’s Index (PMI), due for release on Thursday, is forecast to fall to 51 in April, from 52 in March, according to the median forecast of 32 economists polled by Reuters. A reading above the 50-point mark indicates an expansion in activity.

While the forecast PMI would show a slight moderation in China’s factory activity growth, it would be a stark contrast to recent PMIs in other economies, which plummeted to previously unimaginable lows.

That global slump, caused by heavy government-ordered lockdowns, as well as the cautious resumption of business in China, suggests any recovery in the world’s second-largest economy is likely to be some way off.

“The recovery so far has been led by a bounce-back in production, however, the growth bottleneck has decisively shifted to the demand side, as global growth has weakened and consumption recovery has lagged amid continued social distancing,” Morgan Stanley said in a note.

“The expected slump in external demand has likely capped further recovery in industrial production.”

The latest official data showed 84% of mid-sized and small business had reopened as of April 15, compared with 71.7% on March 24.

Hobbled by the coronavirus, China’s economy shrank 6.8% in the first quarter from a year earlier, the first contraction since current quarterly records began.

That has left Chinese manufacturers with reduced export orders and a logistics logjam, as many exporters grapple with rising inventory, high costs and falling profits. Some have let workers go as part of the cost-cutting efforts.

A China-based brokerage Zhongtai Securities estimated that the country’s real unemployment rate, measured using international standards, could exceed 20%, equal to more than 70 million job losses and much higher than March’s official reading of 5.9%.

Sheng Laiyun, deputy head at the statistics bureau, said on Sunday migrant workers and college graduates are facing increasing pressures to secure jobs, while official jobless surveys show nearly 20% of employed workers not working in March.

Chinese authorities have rolled out more support to revive the economy. The People’s Bank of China earlier in April cut the amount of cash banks must hold as reserves and reduced the interest rate on lenders’ excess reserves.

It has also guided benchmark lending rates lower to reduce borrowing costs for companies and prop up the economy. The one-year loan prime rate (LPR) CNYLPR1Y=CFXS was lowered last week.

The private-sector Caixin/Markit Manufacturing PMI, which analysts say focuses more on smaller export-driven firms, is expected to rise to 50.3 in April from 50.1.

Source: Reuters

Samsung Electronics Co Ltd, the world’s largest memory chip maker, said today that it spent 5.36 trillion won (RM18.75 billion) on research and development (R&D) activities in the first quarter of the year (1Q20).

The investment surpassed the previous record high of 5.32 trillion won in 4Q18.

The 1Q figure is equal to 9.7% of the South Korean tech giant’s sales in the January-March period, compared with 9.6% a year earlier.

Last year, Samsung Electronics spent 20.19 trillion won in R&D, marking the first time that its R&D spending exceeded 20 trillion won.

In March, Samsung Electronics said it will carry out investments as planned despite the Covid-19 pandemic.

Currently, Samsung Electronics holds more than 180,000 patents around the world, including 5,075 patents in South Korea and 8,729 patents in the US.

Source: Bernama

Global sales of semiconductors rose 6.9% year-on-year in the first quarter of 2020 to US$104.6 billion, said the U.S.-based Semiconductor Industry Association (SIA).

In a statement May 4 on its website, SIA said the figure was 3.6% lower quarter-on-quarter, in line with typical seasonal trends.

SIA said global sales for the month of March 2020 were US$34.9 billion, an increase of 0.9% compared to the previous month’s total and 6.9% more than sales from March 2019.

Monthly sales are compiled by the World Semiconductor Trade Statistics (WSTS) organisation and represent a three-month moving average.

SIA president and CEO John Neuffer said first-quarter global semiconductor sales slipped somewhat compared to the fourth quarter of 2019, but monthly totals for March increased month-to-month and year-to-year, indicating the available sales data has not yet fully captured the impacts of the COVID-19 health crisis.

“Ongoing macroeconomic turmoil related to the pandemic has caused significant uncertainty for the global semiconductor market that is likely to persist in the months ahead,” he said.

SIA said that regionally, month-to-month sales increased in Europe (4.0%), Asia Pacific/All Other (2.2%), and the Americas (1.1%), but decreased in China (-0.2%) and Japan (-2.1%).

Meanwhile, sales increased year-to-year in the Americas (21.8%), Asia Pacific/All Other (4.6%), China (4.5%), and Japan (1.0%), but fell slightly in Europe (-1.1%).

Source: The Edge Markets

The world appears to have reached the limit of its tolerance for economic disruption. Even as the novel virus continues to put lives at risk, governments around the world are beginning the process of reopening. More than $7 trillion has been committed to relief efforts just in the past three months, and many more trillions will need to be injected into the global economy in the coming months to help it recover.

With so much at stake, it matters whether governments get bang for their bucks. The world’s top financial thinkers agree: many of the most effective solutions are also those that reduce carbon emissions.

That conclusion comes from a survey of more than 200 central bankers, G20 finance minsters, and top academics from across 53 countries, conducted by a group of star economists that includes Nobel Laureate Joseph Stiglitz, among others. The results were released today in the Oxford Review of Economic Policy.

The authors fear that unless policymakers keep carbon emissions in mind, the world risks leaping “from the Covid frying pan into the climate fire.”

“We’ve already got enough capital stock to take us to 2° [Celsius of warming],” says Cameron Hepburn, professor of environmental economics at the University of Oxford, referring to the target set under the Paris climate agreement. There’s broad agreement in the scientific community that crossing that temperature threshold would unleash irreversible environmental changes that could lead to massive disasters, millions of deaths, and a poorer world for everyone. “If we load up another $10 trillion on fossil fuels, we can pretty much kiss Paris goodbye,” Hepburn says.

Most of the money spent so far has gone towards increasing liquidity in global markets, such as direct payment to citizens and loans for businesses, mostly without green strings attached. As governments move beyond providing relief to an economy on pause and begin to set a course for recovery, however, climate objectives may come more into play.

Stiglitz and Hepburn, along with colleagues such as Grantham Research Institute Chairman Nicholas Stern, wanted to gauge the zeitgeist on stimulus among the world’s financial thinkers. Among the respondents to their survey were Laurence Boone, chief economist at the Organization for Economic Co-operation and Development; Sylvie Goulard, deputy governor of France’s central bank; Gus O’Donnell, former economist for the UK government; and Sandra Eickmeier, senior economist at Germany’s central bank. Many are in a position to exert direct influence over where stimulus dollars wind up.

Their task: rank 25 different economic policies—many of which were used to boost recovery after the financial crisis of 2008-09—on four characteristics: how quickly the policy could be deployed; what economic return would it bring for each $1 of public money spent; for how long would it provide returns; and how much it would contribute to lowering emissions.

Beyond liquidity measures, the top preferences were for policies with major climate benefits such as clean energy research and infrastructure, disaster preparedness, and zero-carbon transportation. In practice, that might mean funding for things like electric vehicle charging stations and grid modernization, coastal rehabilitation, and research grants in areas such as energy storage and carbon capture.

Few governments are considering austerity measures this time around—likely because countries like the U.K. that followed the deficit-reduction track the last time around have been hit hard during the pandemic as poorly funded healthcare systems have come under pressure.

“It’s interesting to see that financial minds are turned towards green policies for economic recovery,” says Maeva Cousin of Bloomberg Economics. “Much more so than in 2009.” The results of the survey bode well as a prediction for the kinds of economic recovery the world is likely to see. But Cousin also warns that politics could come in the way of green recovery in certain sectors of the economy.

Tourism and aviation, for instance, are likely to get bailed out even without green conditions because of the sheer number of people they employ—even though airline bailouts were ranked lowest by survey respondents from both economic and environmental perspectives. Other policies that received little enthusiasm included income tax cuts, liquidity for large corporations, and non-green infrastructure spending.

Overall, however, Hepburn is pleased that the wisdom of the crowd tilted toward largely tilted towards economics policies that are inherently green. “If policymakers can be conscious of the potential to solve two problems with one set of actions,” he says, “then there’s a reasonable chance that they will.”

Source: Bloomberg

Worldwide fab equipment spending for power and compound devices is expected to rebound in the second half of 2020 to meet resurgent end-product demand and jump 59% to a segment record US$6.9 billion in 2021, according to U.S.-based Semiconductor Equipment & Materials International (SEMI).

In its “Power & Compound Fab Report to 2024” released yesterday, SEMI said the 2020 rally will help blunt a drop in annual spending, now projected at 8%, as fabs ride the COVID-19 recovery wave.

Power and compound devices are used to control electrical energy for devices across an array of industries such as computing, communications, energy and automotive.

SEMI said since the widespread enactment of stay-at-home orders to curb the spread of COVID-19, demand for servers, laptops and other electronics at the heart of online communications has surged.

The SEMI Power & Compound Fab Report to 2024 lists more than 800 power- and compound-related facilities and lines and covers investments and capacities for the 12 years from 2013 through 2024.

In 2019, the report tracked 804 facilities and lines with installed capacity of 8 million wafers per month (in 200mm equivalent wafers).

It said by 2024, 38 new facilities and lines will begin operation, fueling installed capacity growth of a cumulative 20% to 9.7 million wafers per month.

In breakdowns by region, China will expand power and compound fab capacity by 50% and 87%, respectively, from 2019-2024, more than any other region.

Over the same period, Europe/Mideast and Taiwan will lead the way in adding power fab capacity, while the Americas and Europe/Mideast will be among those regions adding compound fab capacity, said SEMI.

Source: The Edge Markets

The Asia-Pacific Economic Cooperation (APEC) ministers responsible for trade (MRTs) have issued a statement calling for APEC economies to hasten the fight against Covid-19 while undertaking the necessary steps to remedy the health and economic impact of the pandemic.

The Ministry of International Trade and Industry (MITI), which led the process of consensus-building among the 21-member grouping, said APEC trade ministers had underlined the importance of ensuring a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment to safeguard the region’s economy.

The trade ministers also called on the economies to ensure that global supply chains and trading links remain open in order to mitigate the impact of Covid-19 on the lives and livelihoods of the people.

“They expressed concerns with regard to the impact of Covid-19 on vulnerable developing economies and acknowledged the need to implement certain emergency measures to effectively address the challenges presented by the crisis.

“They concurred that there is a need to place a specific emphasis on providing timely and affordable access to essential healthcare services, particularly for members of society that are more vulnerable to the pandemic,” MITI said in a statement today.

The call by the APEC MRTs was a clear demonstration of the region’s collective commitment to responding decisively to the pandemic and navigating the Asia-Pacific towards a path of economic recovery.

“The ministers also urged member economies to act swiftly and put in place measures to keep their markets open and ensure that the flow of essential goods, services and people remain uninterrupted.

“They also recognised that the digital economy ecosystem provides opportunities to ease the adverse impact of the pandemic and noted that, by further harnessing the potential of digital technologies, economies can advance sustainable economic growth within the region,” it said.

Malaysia is the host of APEC 2020 and MITI is the national secretariat. At present, all APEC 2020 programmes including the MRT meeting, which was scheduled for April, has been postponed until further notice in view of the Covid-19 pandemic.

Source: Bernama

The need for a stronger concerted effort among APEC economies and a more focused strategy for structural reforms, especially in harnessing modern digital technology to address economic challenges, has become more critical than ever amid the adverse impact of the COVID-19 pandemic.

For instance, if a shift to digital was a looming need a few months ago, it is now a stark reality. For some sectors of society, such as smaller businesses, it is a matter of survival, chair of APEC Economic Committee (EC) Dr James Ding said.

He said the EC provides support for advancing APEC’s agenda to help economies implement structural reform to stimulate economic growth and bolster trade and investment volume.

Thus, it could play an important part of the APEC region’s recovery.

“The committee has long embraced the idea of harnessing modern digital technology to solve problems. It is central to our work in structural reform  – that is, strengthening policy and legal infrastructure to make it easier to do business and improve economic conditions,” he said today.

He said there are many ways governments can employ simple digital solutions to help entrepreneurs affected by lockdown measures and disruptions in supply chains.

Take returns and dispute resolution, for instance, which, according to a study by the APEC Business Advisory Council, is one of the greatest challenges faced by micro, small and medium enterprises (MSMEs) when trading across borders, with 94 per cent of them reporting that as a problem.

Another study reported that as many as 35 per cent of cross-border disputes involving MSMEs remain unresolved, with the average value of the dispute being some US$50,000.

The EC’s Friends of the Chair group on Strengthening Economic and Legal Infrastructure (SELI) has been developing a work plan to promote online dispute resolution (ODR) — an innovative solution designed to aid small businesses who do business abroad, and who face significant hurdles when it comes to accessing justice in cross-border transaction disputes.

After years of development, APEC SME Ministers expressed support for the ODR Framework in September 2019, noting that it “will provide a cost-effective and efficient platform to resolve low-value cross-border disputes.

As of today, China; Hong Kong, China; Japan; Singapore and the United States have opted into it, while a number of economies are actively considering the possibility of joining.

ODR was designed to help small businesses navigate the global stage, but it is also particularly apt for resolving disputes when face-to-face meetings or physical hearings are neither encouraged nor allowed.

He said the ODR Framework is just one example of how modern technology and structural reform can help businesses of all sizes.

The EC will continue to find ways structural reform can contribute in the implementation of the APEC Internet and Digital Economy Roadmap, said Ding.

“We’re also in the process of preparing for the upcoming Structural Reform Ministerial Meeting, which will lay the foundation for the next phase of structural reform programmes for APEC economies from 2021 to 2025,” he added.

It will be an opportunity for APEC economies to explore how structural reform may help to revitalise the region’s economy after the pandemic and even reinforce it against future economic crises.

The 21 APEC economies are: Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, SouthSingapore, South Korea, Taiwan, Thailand, the United States of America, and Vietnam.

source: Bernama

The European Union (EU) continues to push for more trade deals with major Asean economies despite making slow progress following its consecutive successes with Singapore and Vietnam last year.

In outlining the EU’s immediate goals as the bloc celebrates 70 years of unity over the weekend, EU ambassador to Asean Igor Dreismans said it is important for Europe to continue its pursuit of region-to-region trade with Asean.

The EU’s free trade agreement (FTA) with Singapore came into effect in November last year, allowing Singapore to enjoy access to European digital markets, among others. Its trade agreement with Vietnam is also expected to be enforced soon which will see the gradual removal of all customs duties in 10 years. Singapore and Vietnam account for over 45% of total EU-Asean trade in 2018.

Talks with Indonesia, the Philippines and Thailand are in progress, but have proven to be difficult. Negotiations with Malaysia have stalled for years, with prevailing issues, particularly the EU’s plan to ban palm oil imports, taking precedence. The EU, however, is not giving up.

“FTAs are being negotiated with Indonesia and we hope to get a boost with Thailand, so that we have the building blocks to pursue an EU-Asean Agreement in the medium term. This will be good for our economies and societies,” Dreismans said at a virtual launch of the EU-Asean Blue Book Report 2020 last Friday.

Indonesia, the Philippines, Thailand and Malaysia collectively account for 50% of EU-Asean trade. The remaining four Asean members — Brunei, Cambodia, Laos and Myanmar — made up the rest.

The EU was Asean’s second- largest trading partner in 2018, after China, with total trade estimated at US$263 billion (RM1.14 billion). The EU was also the largest foreign investor in Asean, with about US$374 billion of foreign direct investment pumped into the region per annum in recent years.

Last month, the EU mobilised €350 million (RM1.66 billion) to mitigate the impacts of the coronavirus pandemic in the Asean region. The funds will support actions at country and regional levels to strengthen health systems, and alleviate the economic and social consequences of the pandemic.

Asean countries are among the worst hit in the world with Singapore recording the highest number of infections in the region with over 22,000 cases. Indonesia has the most deaths in the region with nearly 1,000 fatalities. To compare, Malaysia has 6,726 cases and 109 deaths (as at press time).

Apart from financial support, the EU is also looking to continuously share its input in areas such as data protection, tourism and the environment as the dust begins to settle on the outbreak.

Elaborating on the use of technology, Dreismans said: “We have seen how some of the tracing apps can protect lives. At the same time, there is concern on privacy. You don’t want your name to be circulated if you are Covid-19 positive. So, we need to find a way to combine both objectives.

“In Europe, we have tried to do so by issuing a European Commissioner recommendation on what member states could do in their legislation as well, to ensure that those mobile data are useful and at the same time protect privacy. We look forward to sharing our views and experience with Asean.”

The Regional Comprehensive Economic Partnership (RCEP), led by China, is also expected to conclude this year.

Singapore’s Trade and Industry Minister Chan Chun Sing last week said the deal was on track to be signed by year-end despite the Covid-19 pandemic.

The RCEP is set to be the world’s largest trade pact, involving all 10 Asean nations, as well as Australia, China, Japan, New Zealand and South Korea. India withdrew from the deal last year.

Source: The Malaysian Reserve

The COVID-19 pandemic and lockdown are posing short-term challenges to the e-commerce sector in China, however, the sector will likely benefit in the long-term.

Bloomberg Intelligence (BI) senior industry analyst for Asia-Pacific Internet, Vey-Sern Ling said despite being online businesses, the pandemic and global lockdowns did disrupt the operations of e-commerce companies in China such as Alibaba, Pinduoduo and Vipshop.

“In the short-term, e-commerce platforms do suffer from disruptions to the way the merchants operate, produce their products, as well as logistics and delivery during the lockdown period there, even though they are supposedly online.

“These ‘offline’ aspect to the business will bring negative impact to these companies,” he said at the online BI Analyst Briefing: APAC Technology Outlook 2020 here today.

The pandemic in China had peaked in the first quarter of the year, with the situation improving in March.

Vey-Sern said while Alibaba, Pinduoduo and Vipshop have implied that their first quarter sales would either decline or at least be flat year-on-year, JD.com is expecting its sales to grow by at least 10 per cent because it owns and operates the bulk of their fulfilment and delivery network.

He highlighted that JD.com has a better outlook on their sales because the company has better control over delivery and fulfilment during the outbreak.

Over the long-term, Vey-Sern said there would be major upside for the e-commerce sector considering that the lockdown period has clearly accelerated user penetration and increased users’ reliance on e-commerce to purchase groceries, fresh produce, daily necessities and medical supplies.

“Over time, this will accelerate the structural shift from offline retail to online retail because more users have experienced this service and it is likely that they will be retained even after situation normalises.

“The convenience and price comparisons that e-commerce offer is a major appeal,” he added.

Source: Bernama

The novel coronavirus pandemic has not only undermined economic globalization but also dragged the global economy into the worst recession since the Great Depression. In addition, it has also intensified structural reshuffling between countries and accelerated the trend toward localization and decentralization of the global supply and industrial chains. Which would lead to restructuring of the global industrial and supply chains, including those of China and the United States, in the post-epidemic era.

With the numbers of infections and deaths continuing to rise in the country, US states are facing a serious shortage of medical supplies. Their worries over the inadequate supply of face masks, ventilators and medicines highlight their dependency on Chinese-made goods. No wonder bringing supply chains back to the US from abroad and becoming self-dependent in manufacturing and supplies have become strategically important for Washington.

US desperate to attract manufacturing units back

On March 27, the US president invoked the Defense Production Act of 1950 to ensure the smooth production of strategic goods within the country. Also, White House trade adviser Peter Navarro, Republican Senator Marco Rubio and others have been urging the administration to forcefully implement the Buy American Act of 1933, by making sure federal agencies buy US-made medicines and medical equipment to reduce their reliance on China’s supply chain. And big companies such as carmakers Tesla and Ford have announced that they are freeing up production lines to produce much-needed ventilators and other products in the US, while White House economic adviser Larry Kudlow has said the administration is planning to promote special policies to attract US companies back from China.

The world’s dependence on China has increased with each passing year, as China’s share in global exports increased from 3.9 percent in 2000 to 12.8 percent in 2018. And since Chinese exports of machinery, transportation equipment and miscellaneous products account for 19.2 percent of the global total, the US also sees its dependence on China for such goods as a threat to its national security.

Declining Sino-US trade a sign of the things to come

Coupled with this are some signs of China-US decoupling－due to the trade war the US launched against China two years ago－which the epidemic is bound to accelerate, leading to a decline in bilateral trade of intermediate or capital goods. In fact, the Sino-US trade volume in the first quarter declined nearly 20 percent year-on-year to less than $100 billion, accounting for only about 10 percent of China’s total trade.

The deteriorating relations between China and the US, the two most important links of the global industrial and supply chains, reflect the changes in globalization. And apart from the US’ unilateral actions, the weakening of strategic mutual trust among different countries and the inherent laws of globalization are important factors contributing to the localization of the global industrial and supply chains. Since 2008, the global industrial and supply chains have hardly developed－thanks to the emergence of regional industrial and supply chains. In terms of global participation, while the global average tariff continued to decline after a brief rebound in 2008, the international division of labor in industrial and supply chains did not facilitate much growth.

Both emerging and developed economies have over the years been strengthening their domestic industrial chains to reduce their reliance on imported intermediate products. Measured as a proportion of global output, global trade in intermediate goods fell by 5.1 percentage points between 2007 and 2017. After the 2008 global financial crisis, developed countries introduced re-industrialization strategies, including the US Advanced Manufacturing Initiative, the Japanese White Paper on Manufacturing Industries, the Future of Manufacturing for the United Kingdom 2050, and Germany’s Industry 4.0. And Washington’s “America first” policy and Germany’s National Industry Strategy 2030 and similar policies have accelerated the re-industrialization process in developed economies.

China’s industrial structure is progressively maturing

The same is true for emerging economies. For example, in recent years, as China’s industrial structure has continued to mature, the country has rapidly moved up the industrial chain, and its dependence on global industrial and supply chains has decreased. The slow growth of global trade reflects the gradual maturing of emerging economies’ industries, a trend that cannot be reversed.

There are three major global production centers that make up by far the largest part of the global industrial and supply chains－the North American center with the US, Canada and Mexico at the core; the European Union center with Germany, France, the Netherlands and Italy at the core; and the East Asian center with China, Japan and the Republic of Korea at the core.

China’s industrial and supply chains have long been integrated with the world, but in terms of degree of connection, China’s production is more closely linked with that of Japan, the ROK and other Asian countries, especially in the computer, electronics and optics sectors. More than 50 percent of global manufacturing output comes from Asia, a region whose manufacturing GDP was more than $7.1 trillion in 2019, with $4.1 trillion (58.3 percent) from China, $1 trillion (14.7 percent) from Japan, and $500 billion (6.3 percent) from the ROK.

Indeed, the pandemic is a structural shock that will accelerate the trend toward multipolarity, and hasten the process of the regional division of labor replacing the global division of labor. Plus, the signing of some megaregional trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (accounting for 13.1 percent of the global economy), the Economic Partnership Agreement between the European Union and Japan (28.1 percent) and the US-Mexico-Canada Agreement (27.6 percent) will further regionalize production in North America, Europe and Asia.

Therefore, in the post-epidemic era, we could see a polycentric international division of labor and a transformation of globalization.

Source: China Daily

 The United States has overtaken China as the most attractive country in the world for renewables investment and the global clean energy sector is expected to bounce back quickly despite the coronavirus pandemic, research showed on Tuesday.

In an annual ranking of the top 40 renewable energy markets worldwide by consultancy EY, the United States was ranked first for the first time since 2016, followed by China.

U.S. growth was largely due to a short-term extension of a production tax credit for wind projects and plans to invest $57 billion to install up to 30 gigawatts (GW) of offshore wind by 2030, the report said.

Wind projects which began construction in 2016 need to be operational by the end of the year to qualify for the U.S. tax credit which is forecast to create a surge in installations this year.

China’s growth in renewables has slowed, as the government looks to wean the market off subsidies. This, coupled with reduced demand as a result of COVID-19, has caused China to drop to second in the index from first last year, but forecasts remain optimistic for long-term growth, the report added.

France was ranked third, followed by Austria, Germany and Britain. India slumped to seventh place, having been third last year, due to warnings it might miss its 175 GW installation target by 2022.

Despite delays to some projects due to logistic issues amid the coronavirus pandemic, the global renewables sector is expected to bounce back quickly as the long-term drivers for investment remain strong, the report said.

“There was much discussion around environmental, social and governance issues earlier this year and this, along with climate change, is still the dominant long-term driver for renewable investment,” said Ben Warren, EY global power & utilities corporate finance leader and chief editor of the report.

“As a result of the pandemic, pollution levels have fallen dramatically through reduced fossil fuel consumption. A greater focus on a sustainable long-term energy future therefore works in favour of clean energy, in particular wind and solar, together with storage,” he added.

Source: Reuters

This period of uncertainty brought on by the COVID-19 pandemic should be viewed as an opportunity to strengthen the global supply chain systems which the world has relied on so much, said Asia-Pacific Economic Cooperation (APEC) Secretariat executive director Tan Sri Dr Rebecca Sta Maria.

“The COVID-19 pandemic has shown us that global medical supply chains — crucial in the fight against this and future pandemics — may still have vulnerabilities, bottlenecks and integrity issues.

“Many around the world have not been spared shortages of medical equipment, medicines and basic protective equipment,” she said in the APEC Bulletin.

She said although there are predictions about the effects of this pandemic, including whether it will reverse globalisation and erode trust in global supply chains, it is perhaps an opportunity to strengthen it.

“This period of uncertainty should be looked upon as an opportunity to strengthen the systems that we’ve grown to rely on so much over the years and more so now during a crisis,” she said.

This could mean setting clear-cut standards and comprehensive security programmes to build more resilient supply chains that facilitate steady flow of medicine, vaccines, and personal protective equipment, Sta Maria said.

“Done right, these measures will strengthen the credibility and transparency of these supply chains. Positive changes of this sort will go a long way in galvanizing trust in our system, processes and procedures, in so doing have us in a state of preparedness in the event of future health crises.”

APEC, she said, has a number of tools in place that can help economies find such solutions. Specifically, there is an already existing supply chain security toolkit, which sets protocols and serves as a roadmap for the promotion of global medical product quality and supply chain security.

This toolkit, established alongside regulators, industry stakeholders, representatives from non-governmental organisations, international organisations, and academics, aims to maximise the use of public and private partnerships and other available resources, she said.

All in all, the toolkit is intended to cover the entire supply chain and life cycle of medical products.

She said industry, policy makers, and regulators, like the World Health Organisation (WHO), now see the crucial and immediate need to address disruptions to the smooth flow and movement of medical supplies globally, as well as the appearance of illegitimate products.

“The implementation of the APEC supply chain security toolkit can surely make supply chains more secure. This toolkit, relevant as it is, was endorsed in 2017. Clearly there are still gaps that need to be filled and now is the best time to address them,” she said.

APEC, which has 21 members including Malaysia, is a regional economic forum established in 1989 to leverage the growing interdependence of the Asia-Pacific.

Source: Bernama

South Korea’s trade minister said yesterday the country will continue to promote open trade amid growing protectionism in the aftermath of the new Covid-19 pandemic, calling for major trade partners to join efforts to normalise the virus-hit global supply chain, the Yonhap news agency reported.

“In the post-pandemic era, the global environment for trade and commerce will change drastically,” Trade Minister Yoo Myung-hee said during a video conference with experts around the globe, hosted by the Korea International Trade Association (KITA).

“Each country will move towards economic nationalism, and the global supply chain will also be reorganised. The world will also experience the transition to the digital economy,” Yoo added.

In the face of such challenging times, the trade minister said countries must
reconnect with each other by allowing business officials to travel while seeking to revitalise the global trade of goods and services.

The remarks came as the Covid-19 pandemic, which has infected at least 5.5 million across the globe, has virtually suspended international travel, dragging down export-oriented economies such as South Korea.

During the conference, deputy director-general Alan Wolff of the World Trade Organization (WTO) echoed the view, saying the global body will make efforts to promote the travel of the essential workforce while abolishing unnecessary trade regulations.

South Korea reiterated that the world should establish new guidelines under which countries can maintain normal trade even in the case of emergencies, such as the Covid-19 pandemic.

The country’s exports are expected to dip nearly 23% in May from a year earlier and to post a trade deficit for the second consecutive month, a poll showed earlier.

Outbound shipments of South Korea fell 24% year-on-year in April, when it suffered the first monthly trade deficit since 2012.

Source: Bernama

 Samsung Electronics Co Ltd has begun work on a sixth domestic contract chip production line, the company said on Thursday, to make logic chips for mobile phones and computers as it looks to cut reliance on the volatile memory chip sector.

The South Korean firm is taking on bigger rival Taiwan Semiconductor Manufacturing Co Ltd (TSMC) in the contract manufacturing business, where it competes for orders from customers such as Qualcomm Inc.

“This new production facility will expand Samsung’s manufacturing capabilities,” the company said in a statement on Thursday.

Samsung is targeting the second half of next year to start producing advanced 5 nanometre chips, using extreme ultraviolet (EUV) technology, on the added line in its plant in Pyeongtaek city, within a two-hour drive of the capital, Seoul.

“This is Samsung’s effort to narrow the gap with TSMC, as it still lags behind TSMC in the contract chip making market,” said Park Sung-soon, an analyst at Cape Investment & Securities.

TSMC, the world’s biggest contract chipmaker, plans to build a $12 billion factory in the U.S. state of Arizona, it said last week.

Samsung now operates five foundry lines in South Korea and one in the United States.

Last year, Samsung said it planned to invest 133 trillion won ($107.97 billion) in non-memory chips through 2030, comprising 73 trillion won for domestic R&D and 60 trillion won for production infrastructure.

This month, President Moon Jae-in said he aimed to nurture the non memory industry in his agenda to foster economic growth.

South Korea’s chip exports for the first 20 days of May soared 13.4%, while exports of mobile devices and cars collapsed 11.2% and 58.6% respectively, customs data showed.

Source: Reuters

Hyundai Motor Group, South Korea’s leading carmaker, said Sunday that it has joined hands with local solar cells and modules manufacturer Hanwha Q Cells to develop energy storage system (ESS) with used electric vehicle (EV) batteries, Yonhap News Agency reported.

Under the memorandum of understanding, the two sides will cooperate to find a business solution that recycles EV batteries and makes ESS at a lower cost. They plan to develop home-use ESS products together, targeting European and North American customers.

The two companies also agreed to explore solar-related ESS projects by utilising their infrastructure and supply channels.

Hyundai Motor Group said the partnership will facilitate expansion of renewable energy use and support its efforts to establish an environmental-friendly ecosystem for the EV industry.

The South Korean automotive titan in recent years has been pushing to develop ESS in the after-market use of EV batteries.

In 2018, Hyundai signed a strategic partnership with Finnish energy giant Wartsila on developing the commercial market for ESS using recycled EV batteries. Last year, it decided to join forces with local solar energy firm OCI Co. for an ESS project.

Source: Bernama

Coordination among Asian nations is key to steering the global economy toward recovery from the coronavirus crisis, according to former senior government officials and academics in the region.

Asian leaders should hold a summit to arrange financial, trade, public health and food security policies, according to a strategic plan released Wednesday by the Australian National University. The group behind the initiative includes advisers to the governments of China, Japan, Indonesia, India, Singapore and others, the statement said.

“Without international cooperation and coordination, the world is facing a prolonged health crisis and lasting economic stagnation on a scale not seen since the Great Depression,” said strategy co-author Peter Drysdale of the ANU’s Asian Bureau of Economic Research. “Asian economies will be central to global economic recovery from the COVID-19 crisis.”

The meeting’s key objectives should include: expanded bilateral currency swap arrangements to strengthen regional safety nets; the development, production and equitable distribution of diagnostic tests, a vaccine and treatments across Asia; and keeping medical and food markets open.

It should also agree to protocols to help restart international travel and commerce, conclude the Regional Comprehensive Economic Partnership and expand the digital transformation of health management, the statement showed.

The group said a regional leaders’ conference should comprise the Asean +6 dialog partners including Australia, India and China. The goal would be to avoid individual nations “acting in narrow self interest” with the almost certain unintended consequence of a deeper and prolonged economic downturn.

“Equally important is developing a regional and multilateral framework within which China will be welcome to contribute rather than let Beijing work alone,” said Drysdale, a professor at ANU and widely regarded as the intellectual architect of APEC.

The success of Prime Minister Scott Morrison’s government in dealing with the virus will, in the eyes of the many former officials, give Australia significant influence within the grouping, he said.

The group argues that if Asian countries successfully coordinate their responses to the coronavirus, they will encourage the US and Europe to follow a similar path.

“We must seize the opportunity the virus has provided to secure cooperation, economic development and strengthening of common ties in Asia,” Drysdale said. “This will be good for Asia, good for Australia and good for the world.”

Source: Bloomberg

Worldwide sales of semiconductors rose 6.1% year-on-year in April to US$34.4 billion from US$32.4 billion a year earlier, said the U.S.-based Semiconductor Industry Association (SIA).

In a statement on its website June 1, SIA said sales dipped 1.2% month-on-month from US$34.9 billion in March.

All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

SIA president and CEO John Neuffer said global semiconductor sales in April slipped slightly compared to the previous month, which is in line with seasonal trends, but significantly outpaced sales from April 2019.

“The global semiconductor market through April has shown early signs of resilience to the economic turmoil caused by the COVID-19 pandemic, but significant uncertainty remains in the months ahead,” he said.

SIA said that regionally, month-to-month sales increased in China (2.1%), but decreased in Japan (-0.9%), the Americas (-1.1%), Asia Pacific/All Other (-3.1%), and Europe (-7.6%).

It said sales increased year-to-year in the Americas (24.5%), China (4.4%), and Asia Pacific/All Other (3.3%), but fell in Japan (-0.1%) and Europe (-7.1%).

Source: The Edge Markets

Plunging costs of renewables mark a turning point in a global transition to low-carbon energy, with new solar or wind farms increasingly cheaper to build than running existing coal plants, according to a report published on Tuesday.

The International Renewable Energy Agency (IRENA) said the attractive prices of renewables relative to fossil fuel power generation could help governments embrace green economic recoveries from the shock of the coronavirus pandemic.

“We have reached an important turning point in the energy transition,” Francesco La Camera, director-general of IRENA, said in a statement.

Although scientists say the world needs to stage a much faster transition to mitigate the worst impacts of climate change, the annual report by the Abu Dhabi-based agency shows that wind and solar are increasingly competitive on price alone.

More than half of the renewable capacity added in 2019 achieved lower power costs than the cheapest new coal plants, the report found.

Auction results also suggest that the average cost of building new solar photovoltaic (PV) and onshore wind power now costs less than keeping many existing coal plants running, reinforcing the case for phasing out coal, the report said.

The authors also calculated that the world could save up to $23 billion of power system costs per year by using onshore wind and solar PV to replace the most expensive 500 gigawatts of coal-fired power, mostly found in China, India, Ukraine, Poland, South Korea, Japan, Germany and the United States.

Such a switch would also reduce global carbon dioxide emissions by about the equivalent of 5% of the total CO2 emissions in 2019, the report found.

Next year, up to 1,200 GW of existing coal capacity could prove more expensive to operate than the cost of building new utility-scale solar PV farms, the report found.

Source: Reuters

Global semiconductor manufacturing equipment billings rose 13% year-on-year in the first quarter of 2020 to US$15.57 billion, said the U.S.-based Semiconductor Equipment & Materials International (SEMI).

In a statement on its website June 2 in conjuction with the release of its Worldwide Semiconductor Equipment Market Statistics Report, SEMI however said that the billings contracted 13% quarter-on-quarter in 1Q 2020.

The data are gathered jointly with the Semiconductor Equipment Association of Japan (SEAJ) from over 80 global equipment companies that provide data on a monthly basis.

Source: The Edge Markets

The digital economy now accounts for one-third of China’s total economic aggregate. And its further development will help the country seize the opportunities created by the Fourth Industrial Revolution and gain comparative advantages in international competition.

The global economy is undergoing restructuring, and there is a broad international consensus that emerging digital technologies can foster new economic growth points and create new competitive advantages. Given the advantage of a large-scale market, a complete industrial system, an innovation-led internet ecosystem and several other positive factors, developing the digital economy is an inevitable choice for China to adapt to and lead the global economic development trend.

Digital economy vital to supply-side reform

The development of the digital economy will accelerate China’s supply-side structural reform, which in turn will facilitate the replacement of old growth drivers with new ones, and create a new engine for its high-quality development. The digital economy involves digital industrialization and industrial digitalization. The extensive use of new generation information technology has led to the emergence of new organizations, and new models of businesses, creating more and more economic growth points. With the digital transformation and intelligent upgrading of industries, the new trend of integrated development has accumulated fresh vigor.

The digital economy’s development can help China better meet people’s growing needs for a better life. The sales figures of many Chinese e-commerce companies during online shopping festivals have reached new highs with each passing year, which shows the rapid development of the digital economy has not only enriched people’s lives, but also helped consumption upgrading. In 2019, China’s online retail sales added up to 10.6 trillion yuan ($1.48 trillion), accounting for 20.7 percent of the country’s total retail sales of consumer goods.

The development of the digital economy will also help hedge the uncertainty caused by the novel coronavirus outbreak, and create a macroeconomic “tool” to stabilize China’s economic fundamentals, generate more jobs, help ease market players’ hardships and revive the industrial and supply chains.

The pre-outbreak economic downturn had already created huge employment pressure, and the epidemic has made it all the more urgent for China to take measures to ease this pressure. A stable job market is vital to people’s well-being and a manifestation of China’s economic resilience－while promoting steady economic growth is mainly aimed at securing employment. And the fact that the digital economy has larger employment capacity makes it very important.

Large numbers of flexible jobs

According to official data, the digital economy created 191 million jobs in China in 2018－accounting for nearly 25 percent of the total employment generated that year－an increase of 11.5 percent year-on-year, which was significantly higher than the country’s total employment growth rate. Some large internet enterprises have already built a number of platforms to promote digital technology-based innovation, which will add more vitality to entrepreneurship and create a large number of flexible jobs.

The digital economy has also fostered many new forms of businesses and business opportunities, while many digital economy platforms have provided infrastructure for employment and entrepreneurship, giving people more employment choices.

To overcome the difficulties created by the outbreak and turn the crisis into an opportunity, many enterprises have accelerated their digital transformation and intelligent upgrading. Enterprises that have achieved digital transformation enjoy a big advantage in resuming production and realizing timely transition in production.

Digital transformation and intelligent upgrading have also helped many small and medium-sized enterprises to embark on the path of “specialization and innovation”, which has significantly increased their risk-resistance capability, and ensured the stability of the country’s industrial and supply chains.

Digital technology can also be deeply integrated with financial services, fiscal and tax support systems, so as to more effectively help market players to overcome difficulties.

Intelligent manufacturing and industrial internet

Thanks to the development of digital economy and the new industrial revolution, many countries have made the important strategic choice of developing intelligent manufacturing and industrial internet. And China’s transitioning from consumption-focused internet to industry-focused internet, shifting from the consumer sector to the industrial sector.

As a new application model that integrates new generation information and communications technology (ICT) with the industrial economy, industrial internet is an important innovation-driven development strategy and a cornerstone of the digital economy. The profound changes in the manufacturing industry model and enterprises brought about by industrial internet will promote China’s industrial transformation and upgrading, and facilitate its march toward the middle-to high-end of the global value chain.

To better develop industrial internet, there should be smooth coordination between the government and the market, with the market playing a decisive role in resource allocation. And laws and regulations on intellectual property rights, data transfer and security, and policy incentives should be improved to create a favorable business environment.

Safeguarding cybersecurity, cultivating more talents

While developing the digital economy, it’s also important to safeguard cyberspace security. So China needs to increase investment in order to strengthen cybersecurity, ensure safety of big data, launch a publicity campaign to reinforce the sense of security among governments at different levels and enterprises, and recruit more talents in the cybersecurity sector.

In the era of digital economy, recruiting high-level talents, as well as qualified and skilled people, especially those with expertise in specific areas, is very important. Universities, enterprises and research institutions need to nurture more ICT talents with multiple skills. School and college syllabuses should be designed to cultivate the passion for science and innovation among students. And measures should be taken to provide more training for workers so they can meet the demands of the emerging sectors.

Besides, international cooperation is key to consolidating the global supply chain, and to lead economic globalization, digital economy needs to play a bigger role in integrating labor, capital and technology, for which multilateral communication, international cooperation in research, and global digital economy governance will be very important.

*The author (Shi Yu) is vice-chairman of the National Committee of the Chinese People’s Political Consultative Conference. The article is based on a commentary first published in Outlook magazine. The views don’t necessarily reflect those of China Daily.

Source: China Daily

A stock analyst who gained attention for emphasizing the theme of inequality a decade-and-a-half ago is now promoting the idea that U.S.-China showdown for economic supremacy could prove a boon for investors.

The escalation in U.S.-China tensions since President Donald Trump took office in 2017 has largely been viewed as a negative by traders. And headlines announcing fresh tariffs or other protectionist moves by either country have roiled equities on any given day — though they didn’t prevent global shares from hitting record highs before the coronavirus crisis.

Ajay Kapur, head of Asia and global emerging-market strategy at Bank of America, says that the rivalry could have many benefits, particularly in driving investment and innovation. Stronger productivity gains would help propel investment returns in a variety of assets, he wrote with colleagues in a June 7 report.

“For equity investors, especially growth investors, the seeds of new military-civilian technologies that are germinating today will be irrigated by the full-blown great power rivalry, and blossom in unknown ways in the coming decades,” Kapur wrote with colleagues Ritesh Samadhiya and Aritra Baksi.

The team cited historical examples such as rivalry between the U.K. and Germany in the late 1890s to early 1900s, along with the U.S.-Soviet conflict, as periods when big rivalries acted as a spur for technological development.

Among the investment implications of a reduced emphasis on global supply chains and increasingly nationalistic strategic policies from the world’s top two economies, the Bank of America strategists highlighted the following:

“Technology is the biggest winner,” they wrote. Robotics, space research, cybersecurity and artificial intelligence along with semiconductor makers and chip designers are “logical” candidates.

Asian equities in particular, with their “technology bias,” are likely winners, they argued.

Government bond yields will be kept low, so aren’t likely to be good hedges for equity portfolios, they wrote. Cash could be a “temporary fix,” though gold and blockchain-based currencies could take a bigger diversification role, they wrote.

Media firms will play a role in the communications war, and patriotic and nationalist-leaning ones could benefit, they wrote.

Defense and financial-technology providers should be other beneficiaries, they concluded.

“Two competing great powers, using the government balance sheet and zero real interest rates from the savings glut” generated by the ultra-wealthy and high-savings societies such as Japan, Kapur and his colleagues wrote. Kapur in the mid-2000s used the term “plutonomy” to describe economies with increasing inequality.

“Re-shoring, reinvigorating these domestic supply chains and creating domestic upstream suppliers in critical technologies is likely in both the U.S. and China,” the Bank of America team wrote. “Tomorrow’s iPhone, a substantial beneficiary of military research, is probably incubating in military-financed research labs or projects.”

Source: Bloomberg

Thailand on Tuesday approved a draft bill requiring foreign digital service providers to pay a value-added tax (VAT), becoming the latest country in Southeast Asia to seek to boost tax revenues from international tech companies.

Last month, Indonesia passed a law requiring big internet companies to pay VAT on sales of digital products and services from July, and in the Philippines a lawmaker introduced a similar bill in parliament to tax digital services.

The Thai bill, which still has to be voted on by Thailand’s parliament, requires non-resident companies or platforms that earn more than 1.8 million baht (US$57,434.59) per year from providing digital services in the country to pay a 7% VAT on sales, deputy government spokeswoman Ratchada Thanadirek told reporters.

Thailand is expected to add about 3 billion baht (US$95.72 million) to its coffers annually from the move, which will affect services such as music and video streaming, gaming, and hotel booking, she added, without naming any companies.

“These businesses would’ve had to pay VAT if they had been Thai, which is unfair,” Ratchada said.

Thailand, Southeast Asia’s second-largest economy, has mulled taxing digital businesses for years, hoping to tap the country’s internet economy, one of the fastest growing in the region.

Thanawat Malabuppha, president of the Thai e-Commerce Association, told Reuters he welcomed the move, as it will help level the playing field for rival Thai businesses.

“Anyone who makes money from Thai people should pay taxes to the country,” he said.

Analysts say the Covid-19 pandemic has accentuated a push by governments around the world to tax internet companies, who could see a boost in revenues as people stay at home during global lockdowns.

Nearly 140 countries from the Organisation for Economic Cooperation and Development (OECD) are negotiating the first major rewriting of tax rules to take better account of the rise of big tech companies such as Amazon, Facebook, Apple and Google.

Southeast Asian regulators held talks last year on a region-wide effort to tax tech giants more, while industry groups have warned that over-regulation could blunt the region’s booming digital economy.

Source: Reuters

When Japanese firm Iris Ohyama agreed in April to begin producing much-needed face masks in Japan, it marked a win for Prime Minister Shinzo Abe who wants to bring manufacturing back from China.

Spooked by coronavirus-induced factory shutdowns in China, Abe’s government has earmarked $2 billion to help companies shift production home. The policy, part of a massive stimulus package to cope with the pandemic, has even been termed by some bureaucrats as a matter of national security.

“We have become dependent on China,” Economy Minister Yasutoshi Nishimura told reporters last week. “We need to make supply chains more robust and diverse, broadening our supply sources and increasing domestic
production.”

Japanese production of masks, for which domestic demand has skyrocketed, makes sense. But Iris Ohyama, which until this month had only made face masks in China, is so far the only large firm known to be taking advantage of the subsidies.

Many other Japanese firms say shifting output back home is simply impractical and uneconomical. They need to be physically present in China because much of what they are making is ultimately for the Chinese consumer, and to meet the demands of ‘just-in-time’ production which prioritises short delivery times for efficient manufacturing.

“The parts we make are so big that we need to be near our customers to control our costs,” said Chikara Haruta, a spokesman at Yorozu Corp, which makes suspension and other auto components.

Its plant in Wuhan, China is located just seven kilometers from a Honda Motor Co Ltd assembly factory.

For Japan’s car makers, reliance on Chinese suppliers in the world’s biggest auto market is also just good business.

“Even if we wanted to, it would be difficult to lower our exposure to China-made parts,” an executive at a Japanese automaker told Reuters, declining to be identified as he was not authorised to speak to media.

He added that over the past decade, Chinese suppliers had upped their game and now provide a vast range of quality, low-cost parts.

Toyota Motor Corp, Nissan Motor Co Ltd and Honda also have at least three R&D centers each in China, and their suppliers are following suit.

“Where the software is developed dictates where the hardware is developed and made,” said an official at a Japanese parts supplier, speaking on condition of anonymity.

“The new government incentive is misguided if it only focuses on bringing manufacturing back, while overlooking R&D functions.”

OVERLY DEPENDENT?

Japanese politicians have increasingly fretted over Japan’s dependence on China as a production hub.

Since the early 2000s as Chinese labour costs rose, there has been talk of a “China Plus One” strategy — a policy of managing risk by locating plants and facilities in China and one other Asian nation. It gained more traction in 2012 when bilateral tensions flared and many Japanese firms have sought to diversify with operations in Southeast Asia.

The near total shutdown of China’s factories in February as the world’s No. 2 economy sought to stamp out the coronavirus has, however, rammed Japan’s China dependence home.

The government’s 220 billion yen ($2 billion) allocation is the first time it has offered subsidies for bringing back manufacturing. It is also offering 23.5 billion yen to Japanese firms to strengthen and diversify supply chains in Southeast Asia.

Japanese firms had at least 7,400 affiliates in China as of March 2018, according to a trade ministry survey, up 60% from 2008. In the same year, Japanese manufacturing affiliates in China sold $252 billion in goods, with 73% of that sold in China and 17% exported back home, a separate survey by the ministry shows.

Electronics makers too say they would struggle to sever ties with China’s supply chains.

Nidec Corp, which produces motors for electronic goods, even said in April it needed to improve its supply chain in China. It was unable to procure supplies of a basic part this year which it had believed was sourced locally but was in fact being shipped from Europe.

“We need to strengthen sourcing capabilities at our Chinese plants. We should be producing these sorts of parts in-house,” CEO Shigenobu Nagamori told reporters.

Japan Display Inc and chipmaker Rohm Co Ltd say potential shifts to full automation for labor-intensive back-end processes done overseas could lead to new assembly lines being built at home where more advanced manufacturing takes place.

But for many others, China remains the cheaper option.

Display panel and television maker Sharp Corp produces ultra-thin panel cells in Japan, which are shipped to China where backlights, connectors and other parts are added – a process that requires constant manual testing and machinery adjustments.

“The back-end process has long been done in China because it’s labour intensive,” said a spokesman at Sharp, which was acquired by Taiwan’s Foxconn in 2016. “It would be expensive to bring it back home.”

Source: Reuters