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Japan quake hits China's supply chain

Last updated on: March 30, 2011 11:25 IST

Japan quake hits China's supply chain

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KJM Varma in Beijing

The massive earthquake in Japan has affected supply chains for a host of products being imported by China, resulting in a sharp increase in prices.

China, the largest trading partner of Japan in terms of imports and exports, is feeling the heat as Japan's North-East coastal regions, which were hard-hit by the quake, serve as the manufacturing base for everything from chips and semiconductors to auto components.

Japan's total trade with China (imports and exports combined) rose by 30 per cent year-on-year to $301.9 billion last year, exceeding $300 billion.

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Image: China is Japan's largest trading partner.
Photographs: Reuters
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Japan quake hits China's supply chain

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Japan's exports to China rose 36 per cent to $149.1 billion in 2010, while Japan's imports from China rose by 24.7 per cent to $152.8 billion.

The increase in Japan's exports to China exceeded that of Japan's imports from China for the fifth straight year in 2010.

After the quake, prices of electronic items and auto parts shot up in China, as the supply chain was affected.

The prices of iPad tablets have gone up from 2,800 yuan to 3,300 yuan due to a squeeze in the supply chain of some key parts of the iPad from Japan.

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Image: Japan's exports to China rose 36 per cent in 2010.
Photographs: Reuters
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Japan quake hits China's supply chain

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One of the key parts of the iPad, the flash memory chip, was made in Japan. The earthquake disrupted the supply and prices have been rising steadily, said Jiang Shaoming, a salesman of Apple products in Zhongguancun, China's Silicon Valley.

He said the 16GB iPad is out of stock in many stores. Other Japan-related products also saw prices fluctuate.

The price of Canon's 5D mark II high-end camera jumped from 16,700 yuan to 21,000 yuan after the quake, but have now fallen back to around 18,000 yuan, according to Sun Xinlei, a salesman of Japan-brand cameras in Hailong Electronics Market at Zhongguancun.

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Image: Prices of iPads are rising sharply in China.
Photographs: Reuters
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Japan's quake hits China's supply chain

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According to information from the Japan External Trade Organisation, Iwate prefecture, which was close to the quake's epicentre, is home to many popular semi-conductor manufacturers such as Toshiba, Fujitsu and Motorola.

"Japan is at the upstream of electronics manufacturing, especially when it comes to high-tech key components.

"China only serves as a processing and trading market, which is why when it is compared to other countries, China is more reliant on Japan," Zhao Jinhua, the deputy head of the Industry Research Department of the Development Centre of the State Council.

He said that the knock-on effect, which might deal a blow to China's exports for the year, should not be underestimated. The market is already beginning to feel the bite.

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Image: Motorola is based near the quake epicentre.
Photographs: Reuters
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Japan's quake hits China's supply chain

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A distributor of Japanese cameras at Hailong Electronics Market said that although they had sufficient stock right now, their inventories would run out in mid-April due to the shortage of raw materials and disrupted logistics.

To guard against the possible shortfalls, some retailers have hoarded products for better profits.

Hu Dongping, a Canon agent at Hailong Electronics Market, said they have access to fewer products in spite of the manufacturer's message that capacities are sufficient.

Among the hardest-hit sectors is the auto industry. After the quake, joint venture Dongfeng Nissan announced that it would reduce production and that its factory in central China's Hubei province has slowed down operations.

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Image: Canon agent says there is a shortage of products.
Photographs: Reuters
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Japan's quake hits China's supply chain

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Officials at Honda Motor's Japan factory said last week that a production halt would continue through Sunday.

IHS Automotive Insight predicts that one-third of global automotive output would be hurt due to the ruptured supply chain.

Currently, global auto output has shrunk by 13 per cent to about 320,000 units. China would be severely affected by the reduction.

According to customs statistics, China imported $10.9 billion worth of auto parts from Japan in 2010, which accounted for over one-third of the country's total imports of auto parts.

Despite the negative impact of the earthquake, analysts expect the global supply chain to adjust to the effects of the earthquake in Japan.

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Image: Honda has halted production.
Photographs: Reuters
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Japan's quake hits China's supply chain

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A report from Ccidnet, an IT platform in China, said that the supply chain squeeze would prompt some enterprises to consider replacement plans.

For example, in the IT sector, companies in South Korea and Taiwan would be given more opportunities.

Affected companies in Japan could set up factories abroad to explore new opportunities overseas.

Zhou Yi, an analyst with Ccidnet, said the earthquake would press more Japanese enterprises to expand in the global market and encourage the transfer of technology to emerging economies to lessen risks.

"The most suitable target for technology transfer would be China. Though the replacement would not happen overnight, there will be a gradual shift in the two countries' position in the electronics industry," he said.


Image: Japan's production halt can benefit South Korean firms.
Photographs: Reuters
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