Japan, India, and Australia are planning a new global supply network and are working out an initiative called the Supply Chain Resilience Initiative (SCRI) to reduce dependency on China, experts say.
The initiative is a result of the emerging geopolitics in the post-coronavirus world, they say.
“This cooperation is well-related to current U.S. policy toward China,” Satoru Nagao, a visiting fellow at Hudson Institute and an expert on India–U.S.–Japan security cooperation, told The Epoch Times in an email.
“Washington has an interest in preventing Beijing from gaining the wealth it needs to rapidly modernize its military.”
While the talks on the SCRI are currently at the working level, Japan seeks to bring them to a higher level at some point, Japan Times reported. Meanwhile, the Japanese government is subsidizing some of its companies with reliance on the Chinese supply chain to shift or expand in Japan or Southeast Asian countries; currently, about 87 firms are participants.
The SCRI is a “bold policy announcement,” but the global community still needs to develop an operational clarity about it, Pratik Dattani, an adviser to the London-based think tank Bridge India and managing director of Economic Policy Group, told The Epoch Times.
“India has traditionally prided itself on its non-alignment, but this bold move marks a shift away,” said Dattani, who was the former UK head of the Federation of Indian Chambers of Commerce & Industry. “On the other hand, the three countries have developed closer relationships in maritime security through the Quad, so this could be seen as a natural evolution of the policy into the economic arena.”
The Quad refers to a strategic forum comprising the United States, Australia, India, and Japan.
While the pandemic raised serious questions about China’s credibility as a supplier, that’s not the only factor leading to SCRI; the worsening trade and diplomatic relationships of each of these countries with China are also a concern, experts say.
Nagao said China’s influence around the world is a result of its wealth and its loans to small countries that are leading them to debt.
“Countries with significant Chinese investment (and debt) are also hesitant to criticize Beijing, even when it violates international rules. For this reason, the United States will use trade wars, economic sanctions, or other means in an attempt to weaken China economically,” he said.
“How should Japan, India, and Australia respond? They should not be economically dependent on China. In the long run, they must reduce their economic dependence to avoid becoming passengers on a sinking ship. Therefore, it is unavoidable.”
Dattani said that Chinese leader Xi Jinping this year has made some strategic blunders in a border conflict with India in Galwan, as well as in Hong Kong and elsewhere because of aggressive actions.
“At a time when humility and global cooperation would have better achieved China’s foreign policy objectives, it turned sentiment amongst some of the largest economies in the world quickly sour,” Dattani said.
‘The Situation Is Tough’
Japan, India, and Australia have already started to reduce their dependency on China, although experts say that shifting the entire supply chain’s order from China to elsewhere is no easy matter.
“For Japan, China is not a top trading partner, but a big one,” Nagao said. “The U.S. is nearly 20 percent of the total Japanese export, and the top. But China is 19 percent and second. For India, the situation is similar. In 2018, the U.S. first surpassed China to become India’s top trading partner.
“But from 2013 to 2017, China was top and is still a big trading partner. For Australia, the situation is very serious. China is top and dominates 30–40 percent of the total. Japan is second for Australia, but one-third of China.”
Bibhu Prasad Routray, an Indian geopolitical analyst and the director of the Goa-based think tank Mantraya, told The Epoch Times that it can’t “happen in the short term.”
“And to make it happen, investors will have to be attracted to the participating countries, especially India. New Delhi’s record, in this regard, has not been especially promising. Tax laws, absence of reforms, lack of infrastructure, etc., has made investors look for other destinations,” Routray said in a written message.
“All those will have to drastically change for such an objective to be realized.”
Indian Prime Minister Narendra Modi said during the virtual meeting of the U.S.–India Strategic Partnership Forum on Sept. 3 that the cost of supply networks shouldn’t be the only factor, in an indirect dig at the Chinese supply chains.
“They should also be based on trust along with affordability. Companies are also now looking for reliability and policy stability. India has all of these qualities,” Modi said.
“In April 2020, Japan earmarked $2.2 billion of its record economic stimulus package to help local manufacturers shift production out of China, and indeed, many Japanese companies have relocated their Chinese factories to Southeast Asia or South Asia,” Nagao said, adding that India also changed its rules in April making it mandatory for foreign direct investment from countries it shares a land border with to seek its prior approval.
“As a result, the number of Japanese citizens living in China is decreasing and has gone from 150,399 in 2012 to 120,076 in 2018. The number of Japanese living in the United States, on the other hand, has increased, from 410,973 in 2012 to 446,925 in 2018.”
For Dattani, the goal of the policy isn’t to build a supply chain overnight but to push back against Chinese aggression.
“The reality, however, is that China is India’s largest trading partner. To simply switch to other countries is not feasible. The announcement should nudge China to recalibrate some of its less benign policy decisions of recent times, in order to restore normalcy in its international relations,” he said.
Effects on China
The announcement is a coping mechanism for the countries involved, Dattani says, as they feel threatened by China and find it in their best interest to come together. Meanwhile, Nagao said economic development in the Indo-Pacific will face serious damage if this global supply chain alternative to the Chinese supply chain doesn’t work.
“But at the same time, Japan–India–Australia cooperation is important but merely one of the efforts. There are other efforts, too. And the COVID-19 crisis stopped or slowed down the economy itself. This is the time to rethink the whole structure of the economy and supply chain,” Nagao said.
Routray suggests that the effort will seriously challenge Beijing’s monopoly over the global supply chain and threaten its dominance.
“If pushed to its logical conclusion, the move can have serious implications for its economy. However, China will certainly unveil its own policies to counter this,” he said.
He added that Japan, India, and Australia can’t base their cooperation only on their “anti-China-ism” and will need to expand their partnership into other realms that would need tough choices.
Dattani said any true partnership would need a genuine people-to-people exchange.
“So policy and operational clarity would be needed, especially as the Japanese political climate is in a state of flux. Without this, it is window dressing,” he said.