text: Multinationals reroute supply chains from China -- for good? - Nikkei Asia
  Komatsu, Daikin and Asics shift operations elsewhere
  Employees work on the production line of a robot vacuum cleaner factory in Shenzhen. Wage increases have bitten into the competitiveness of China, the world's factory. © Reuters
  REI NAKAFUJI and KEN MORIYASU, Nikkei staff writers February 15, 2020 04:49 JST | China
  TOKYO/NEW YORK -- With China's supply chains cut off by the coronavirus outbreak, multinational companies are moving production outside the country or looking for alternative sources for parts.
  While these are simply stopgaps to get operations back online, enterprises will be evaluating whether the new destinations offer more competitive costs than China, where wages continue to climb.
  Some experts see a possible turning point for Asia's manufacturing landscape if companies opt not to come back to China.
  Construction equipment maker Komatsu, which sources components from its own plants and outside partners in China, is shifting production of metal parts used in the body of the vehicles as well as wire harnesses to Japan and Vietnam. The Tokyo-based company aims to prevent Chinese-shipment delays from spilling over to the rest of the world.
  Japan's Daikin Industries is considering moving assembly of commercial air conditioners to Malaysia or elsewhere from the Hubei Province capital of Wuhan, which remains under lockdown. The company partly reopened factories in Suzhou and Shanghai on Monday after authorities extended the Lunar New Year holiday.
  But if the Wuhan quarantine drags on, "we'll have to minimize the impact on our operations," an executive said. Key components such as compressors could be produced in Japan or Thailand, the executive said.
  Sportswear maker Asics looks to move production to Vietnam and Indonesia that had been outsourced to facilities in Wuhan.
  While the moves by multinationals are only temporary, experts say they could trigger a more fundamental review of Asia supply chains.
  "This is going to be a turning point," said Edward Alden, a Council on Foreign Relations senior fellow specializing in trade. "There was already enormous pressure on many companies to diversify away from China" as wages and production costs rise there, he said.
  Alden said that because the "phase one" trade deal between the U.S. and China failed to remove most of the tariffs, companies have had to conclude that "the costs of sourcing from China for U.S.-bound products now looks to be permanently, not just temporarily, higher."
  And with the increased American scrutiny of technology trade with China, plus the coronavirus crisis, "I have no doubt this will accelerate efforts to diversify supply chains away from China," he said.
  Meanwhile, Dan Alpert, a managing partner at New York-based investment bank Westwood Capital, predicted that the Chinese government will lead its currency cheaper in the second quarter to help its exporters.
  "China has a lot of catching up to do," Alpert said, and "it needs its factories to be at peak capacity" to make up for lost earnings from the virus-induced shutdowns of January and February.
  This, Alpert predicted, may be an incentive for multinationals that have temporarily shifted production away from China to return. "At the end of the day, the only thing that matters to multinationals is the domestic cost of import," which comes down to shipping costs, currencies and entry costs, he said.
  If China devalues its currency to help exporters rebound from the coronavirus crisis, it will likely put itself on a collision course with U.S. President Donald Trump. © Reuters
  But such a currency devaluation would "create a massive issue with the Trump administration and would be in blatant violation of the phase one deal," the CFR's Alden said.
  Discussions are likely to increase in the administration and Congress over whether to once again label China a currency manipulator.
  Business resumed in much of China on Feb. 10 after the extended Lunar New Year holiday. But even now, many companies are only partly up and running. About 30% of the nation's 183 auto assembly plants were online as of Wednesday, according to the China Association of Automobile Manufacturers.
  And in Hubei Province, where about 80% of mainland Chinese coronavirus cases are concentrated, whether companies can reopen on Feb. 21 as scheduled is in doubt. The province is a hub for industries including autos, steel and semiconductors, and a protracted shutdown there could squeeze global supply chains.
  Meiko Electronics, which manufactures automotive circuit boards, has its largest production hub in Wuhan. With operations halted through Feb. 20, the Japanese company is weighing producing parts at sites that also have the necessary certifications, such as Guangzhou, Japan or Vietnam.
  For products that can be made only at the Wuhan plant, it has asked customers to find other suppliers, given how long it would take to get alternative sites certified.
  A survey this week by the Shanghai Japanese Commerce & Industry Club found that the outbreak had affected the supply chains of 54% of companies. But only 23% said they had alternative production or procurement plans in case of a prolonged Chinese shutdown.
  Fiat Chrysler Automobiles will halt operations at a Serbian assembly plant over a shortage of audio-system and other electronic parts from China, Bloomberg reported Friday. The facility will be the first of a European carmaker in Europe to be idled because of the outbreak, according to the report.
  Given "the global nature and depth of the automotive supply chain," production continuity for automakers and major suppliers "could become a concern as the virus impacts companies deeper in the supply chain," warned President Julie Fream of the Original Equipment Suppliers Association, a North American industry group, in a recent statement.
  Nissan Motor halted a production line at an auto assembly plant of Nissan Motor Kyushu again Friday, marking the third day of stoppages this month. The line has run on reduced hours other days.
  "Inventories are running low for dozens of types of Chinese-made components," including springs and plastic parts, said an executive at a major auto parts manufacturer.
  Shortages of Chinese parts have also spurred General Motors arm GM Korea to suspend production at its Bupyeong plant near Seoul next Monday and Tuesday. The facility's output includes vehicles under the Chevrolet brand.