The impact of the coronavirus pandemic has underscored the risk of Japan’s supply chains — its supply networks for components used by businesses — relying on China.
“A particularly painful part of what we suffered was that we didn’t manufacture masks domestically and depended on imports from China,” said a senior government official, expressing chagrin.
A senior official of the National Security Secretariat also said, “Japan needs to restructure its supply chains so that it does not rely on any particular country.”
In fact, Japan and the United States have been discussing the rebuilding of their supply chains since last year.
At the end of last year, a senior Japanese government official was told by a senior U.S. State Department official of Washington’s scheme to build at an early stage a “global trusted network” — an unfamiliar term to the Japanese side.
The idea was to establish reliable supply chains among willing countries such as Japan, the United States, Britain and Australia for high-tech products and technologies, including those related to key infrastructure such as telecommunications base stations and submarine cables.
The United States was already trying to exclude Chinese companies in the market of the 5G next-generation communications standard, but the envisioned network was in fact aimed at broadly excluding China from the supply chains for other key goods and technologies.
There were signs of this move coming. In an October 2018 speech, U.S. Vice President Mike Pence denounced China, saying, “Chinese security agencies have masterminded the wholesale theft of American technology.”
In line with this speech, the U.S. Commerce Department virtually banned the export of components and technologies from the United States to Chinese semiconductor manufacturer Fujian Jinhua Integrated Circuit Co. (JHICC).
JHICC is China’s core company that focuses on the production of DRAM (dynamic random-access memory) semiconductor devices and promotes the domestic production of semiconductors.
However, even if the United States stopped exporting semiconductor manufacturing equipment to JHICC, the U.S. effort would be meaningless if Japanese companies were to fill the empty hole.
“There was back-channel pressure coming from the U.S. Commerce Department that Tokyo should keep pace with Washington,” a source close to the Economy, Trade and Industry Ministry revealed. There was fear within the Japanese government that if Japan refused to do so, it would be deemed to have acted for the benefit of a U.S. enemy and would face sanctions, the source added.
Under the scheme mentioned by the senior U.S. State Department official at the end of last year, the U.S. government first lists companies that it believes are trustworthy and does not allow Japan to use firms other than those on the list. The concept was so extremely strict that it spread unrest within the Japanese government.
In industry circles in Japan, the dominant view is to promote cooperation between Japan and China in areas where there is no risk of advanced technologies being leaked.
As an example of such cooperation, promoting the distribution of fuel-efficient vehicles in the used car market was discussed by a Liberal Democratic Party league of lawmakers for rule-making strategies, headed by Akira Amari, a former minister in charge of economic revitalization.
In January, a U.S. Embassy official in Tokyo secretly visited Amari. When the issue of supply chains was raised, Amari said: “We cannot completely ignore the Chinese market. It is important to clarify the areas to be decoupled from the rest.”
In regard to supply chains, both Japan and the United States, until the beginning of this year, had been focusing only on high-tech products and technologies, not general-purpose goods, such as masks.
Amid the spread of new coronavirus infections, the United States at one point even struggled to procure medical supplies such as masks. Shocked by this turn of events, Washington is now forced to review its strategy. Japan is in the same situation.
“China regards even masks as strategic goods in its diplomacy. First, we should examine Japan’s supply chains to find out areas that have increasing dependence on China and are [thus] vulnerable,” said Norihiro Nakayama, parliamentary vice foreign minister and secretary general of the LDP’s lawmakers league.
Under the current circumstances, the U.S. State Department’s scheme to create supply chains without China will unlikely be realized soon. However, once the ongoing virus crisis is contained, the question will be posed on how Japan and the United States can proceed with the work to secure reliable supply chains with fewer security risks.