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ECONOMY

Question of cooperating in move to isolate China presents Japanese companies with test of loyalty

  • August 26, 2020
  • , Sankei , p. 3
  • JMH Translation
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By Kanji Takahashi

 

“China risk” is clearly a challenge to the Japanese economy. Kirin Holdings has been forced to call off the sale of its Australian beverage business to a Chinese company in the aftermath of worsening relations between Australia and China. The U.S.-China confrontation affects companies that do business with Chinese companies, such as telecom giant Huawei and ByteDance, which runs the popular TikTok application. In 2012, the nationalization of the Senkaku Islands (Ishigaki City, Okinawa Prefecture) led to anti-Japanese demonstrations and boycotts in China. These also impacted Japanese companies. The current China risk requires Japanese businesses to respond quickly and in a completely different way.

 

For Kirin, the sale of its Australian beverage business is part of its strategy to divest from low-profit businesses. After the scheduled sale came to a standstill, the company said it would reexamine its business in Australia. The company is apparently forced to revise its strategy. Although it was Australia that refused to approve the sale, the fact that China is becoming increasingly isolated from the rest of the world in the wake of the spread of COVID-19 is also a factor.

 

The U.S.-China conflict has the greatest impact. The U.S. has introduced a ban on exports to Huawei, citing national security risks as the reason because Washington suspects that the Chinese company is collecting personal information. The measure is aimed at making it difficult for Huawei to obtain core components such as semiconductors. For companies that supply such components, however, it leads to a decline in revenues.

 

The rules that came into effect on Aug. 13 prevent companies that use the products and services of five Chinese companies from entering into contracts with the U.S. government. If the business performance of specific Chinese companies is affected, it will also have a significant impact on their business partners, which includes a reduction in the supply of parts other than those subject to the embargo.

 

“As the confrontation between the U.S. and China intensifies, there are likely to be more and more situations where Japanese companies are pressured into a test of loyalty to determine which they side with, the U.S. or China,” said Kokichiro Mio, a senior economist at Nippon Life Insurance Research Institute. “Either way they choose, it could be unprofitable for them.”

 

On account of the COVID-19 outbreak, there are cases in which supply chains for the production of car parts and medical supplies including masks, are cut off. Restructuring such supply chains will apparently be a challenge.

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