Japanese companies try to reduce their reliance on Chinese manufacturing

AT THE END of the month the production line of a Toshiba factory in Dalian will come to a halt, 30 years after the Japanese electronics giant opened it in the north-eastern Chinese city. Once a totemic example of global supply chains expanding into China, the closure exemplifies how these are being reconfigured. The short answer is: delicately and at the margin.

Toshiba’s plant in Dalian has spanned a sea change in Asian business patterns. When it opened, Japan was the undisputed linchpin of the region’s trade and manufacturing networks. By 2019 Japan’s $390bn in intermediate-goods trade with big Asian economies was vying for runner-up status with South Korea and Taiwan. China, with $935bn-worth, was way ahead.

Hourly wages commanded by Chinese workers have risen tenfold in nominal terms this century, to $6.20. That is still a quarter of Japanese rates but twice the pay of Thai workers, who were at parity with Chinese ones as recently as 2008. If that were not enough, geopolitical tensions are souring relations between the increasingly heavy-handed Chinese Communist Party and the world’s rich democracies.

These trends help explain why China’s share of Japan’s new outbound foreign direct investment has steadily declined since 2012. The number of manufacturing affiliates that Japanese companies have in China...