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Withdrawal of Japanese industry from China: Bangladesh’s opportunity!

The Covid-19 pandemic is a major blow to world trade. Global and regional supply systems have been put at risk. In order to overcome this push, Japan announced the relocation of several manufacturing industries from China.

The reasons given by Japan are to keep the supply chain of Japanese goods available and to reduce the growing dependence on China. In the process of relocation, two potential new destinations for Japanese factories have been fixed. 1) Returning a large part of the factory to Japan, 2) Transferring the factories that need more labor to some developing countries in Southeast and South Asia. To this end, the Japanese government has already announced two different economic incentives. Japanese decision has been outlined that about Taka 17,000 crore to be taken back to Japan and about Taka 1,700 crore for relocation to other countries.

However, analysts say this is not the first time a Japanese company has suspended operations in China or relocated its industry. In 2005, due to anti-Japanese protests across China, Japan adopted a “China Plus One” policy and relocated some of its industries to Southeast Asia. Even the 2012 unrest in the East China Sea over Senkaku Island sparked renewed anti-Japanese protests in China. As a result, leading Japanese companies such as Canon and Panasonic were forced to suspend production.

But the current situation is a bit different than before. Apart from keeping the supply of Japanese goods running and reducing dependence on China, some other issues are coming to the fore. For example, the Sino-US ‘trade war’ raises tariffs on Chinese goods in the US market, China’s growing military influence in the East and South China Sea, the complexities surrounding Hong Kong and Taiwan, and the de facto political base of the Shinzo Abe’s Liberal Democratic Party (LDP) strength. Whatever the reason for the decision to withdraw the Japanese factory, it is easy to assume that cheap labor has given rise to great expectations in South and Southeast Asian countries.

Soon after the Japanese government decided to withdraw its factories from China, many countries including Vietnam, Indonesia, Thailand, Myanmar and India have started taking various initiatives to attract these new Japanese investments to their own countries. It should be noted that Japan has not considered the region as an economic ally for a long time due to its backward economy and lack of ideal markets for selling goods. Japan has always given priority to economy in determining its international relations. But since the beginning of the twenty-first century this situation has begun to change. The rise of a middle class in South Asian countries, especially India, Bangladesh and Sri Lanka has increased the demand for Japanese products in the region. As well as cheap labor, new emerging markets, better investment environment; In other words, South Asia is going to be one of the major investment hubs for Japan due to the increase in low cost product production and marketing facilities.

The recent decision to shift the factory from China to Japan has opened a door of possibility for Bangladesh as well as other countries in South Asia. Although India needs to be ahead in this area strategically and financially, there is no chance to say that Bangladesh is lagging far behind. For the past few years, Japan has been considered as the sole development partner of Bangladesh, the main foundation of which was laid by the Special Goodwill Envoy sent by Japan in the post-independence period of Bangladesh. Recently, in 2014, the Japan-Bangladesh Comprehensive Partnership Treaty between the two countries accelerated the continuity of this development cooperation in Japan, as evidenced by the ‘Bay of Bengal Industrial Growth Belt (Big-B)’ Japanese mega projects like this.

However, the question may arise as to whether this friendly Japan-Bangladesh relationship is sufficient to attract new investment from the China leaving Japanese factory or how diligent we are in attracting new Japanese investment to Bangladesh.

In this case, it is important to keep in mind that Japan pays attention to a number of factors when investing in a country: a) the government’s investment-friendly policy; B) internal political stability; C) availability of raw materials; D) Strict national laws relating to labor-friendly and workers’ interests; E) cheap labor and suitable market for Japanese products; F) Specific and fruitful proposals of the government for the purpose of obtaining investment etc.

If we look at Bangladesh, we can see that there has been a political stability in Bangladesh for the last few years. Although Japan still views Bangladesh as a security risk in the wake of the 2016 Holy Artisan terrorist attack, the government’s zero tolerance against terrorism has been able to inspire some Japanese investors. On the other hand, low wages of workers in Bangladesh, growing demand for Japanese products for the emerging middle class are encouraging Japanese investment in the country.

Recently, in order to increase Japanese investment in Bangladesh, the Government of Bangladesh has taken a policy decision to set up a ‘G-to-G’ based ‘Japanese Economic Zone’ on about 1,010 acres of land in Araihazar, Narayanganj, which was approved by the ECNEC on March 5, 2019. Besides, a factory is being set up for Japanese Honda Motor Corporation on about 25 acres of land in Munshiganj’s Gazaria Abdul Monem Economic Zone. It may be mentioned that in 2018, Japan Tobacco bought the tobacco business of Akij Group of Bangladesh with an investment of around Taka 12,398 crore. Yamaha, a Japanese motorcycle manufacturer, has also shown interest in investing in the Mirsarai Economic Zone.

Due to this investment friendly environment created by the government of Bangladesh, the number of Japanese companies in the country has also increased steadily. At present, more than three hundred Japanese companies are operating in Bangladesh. Not only that, Bangladesh has the lowest trade deficit with Japan as compared to other countries. Over the past few years, Bangladesh’s exports to Japan have grown at a significant rate, especially in the garment export sector.

However, the factory environment in the country, the absence of labor-friendly laws, bureaucratic complexities, and the presence of very important terrorism can be major obstacles to Japanese or foreign investment in the country.

While the prospect of newly emerging Japanese investment has shed new light on the country’s economic development, Bangladesh has no choice but to step in very cautiously. Although Japan is a development partner of Bangladesh, it is very certain that Japan will take the next step after investing in these new and very urgent products of Japan. However, it is unfortunate but true that no significant activity of Bangladesh in attracting new Japanese investment has been noticed. So far, only two Bangladeshi organizations are working to attract Japanese investment: the Bangladesh Economic Zones Authority (BEZA) and the Bangladesh Investment Development Authority (BIDA). Beza is the only organization in the country trying to set up about 100 economic zones, including a separate economic zone for Japan, which is undoubtedly an effective initiative.

However, since the developing countries of Asia are aiming to capture this huge investment from Japan, Bangladesh should not sit idle. In addition to increasing diplomatic activity, foreign investment-friendly policies and more opportunities for Japanese investors than other countries need to be provided. In this case, in order to increase investment, the government has to provide some incentives and more specialized areas. The country’s land, labor and tax laws need to be streamlined to facilitate foreign investment. At the same time, the various institutions of the country have to show dedication from now on to maintain the quality of the products, and the government has no choice but to strengthen its supervision in this regard. Besides, it remains to be seen how fast Bangladesh can consolidate its position in the investment market by controlling Covid-19 in the shortest possible time.

After all, Japan and Japanese investment could be key partners in Bangladesh’s dream of becoming a middle-income country by 2021.

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