New Delhi: Japan is willing to fund its companies to shift manufacturing operations out of China, Bloomberg has reported as the disruptions caused to production by the coronavirus pandemic has forced a rethink of supply chains between the major trading partners.

As part of its economic stimulus package, Japan has earmarked $2.2 billion to help its manufacturers shift production out of China. Of this amount, 220 billion yen ($2 billion) is for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries.

The extra budget, compiled to try to offset the devastating effects of the pandemic, includes 220 billion yen ($2 billion) for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries, according to details of the plan posted online.

The move coincides with what should have been a celebration of friendlier ties between the two countries. Chinese President Xi Jinping was supposed to be on a state visit to Japan early this month. But what would have been the first visit of its sort in a decade was postponed a month ago amid the spread of the virus and no new date has been set.

China is Japan’s biggest trading partner under normal circumstances, but imports from China have slumped by almost half in February due to lockdowns to curb the spread of the virus hitting manufacturing and supply chain.

Shinichi Seki, an economist at the Japan Research Institute, predicted that there would be a shift in the coming days as there already was renewed talk of Japanese firms reducing their reliance on China as a manufacturing base. 

“Having this in the budget will definitely provide an impetus. Companies, such as car makers, which are manufacturing for the Chinese domestic market, will likely stay put,” he was quoted by Bloomberg.

Japan exports a far larger share of parts and partially finished goods to China than other major industrial nations, according to data compiled for the panel. A February survey by Tokyo Shoko Research Ltd found 37% of the more than 2,600 companies that responded were diversifying procurement to places other than China amid the coronavirus crisis.

It remains to be seen how the policy will affect Prime Minister Shinzo Abe’s years-long effort to restore relations with China.