Panasonic joins trend of reshoring out of China

Panasonic Corp plans to transfer most of its domestic appliance production in China back to Japan starting in the spring, a response to the weaker yen and a jump in labor costs in China.

It is one of several Japan-based companies making such a move.

Panasonic President Kazuhiro Tsuga said in an interview on Tuesday, according to Kyodo News, that the company will move its washing machine and other home appliance production back to Japan and export products that are made in Japan to other markets.

Panasonic plans to export about 40 types of home appliances made domestically to Asian markets.

Tsuga did not reveal the location of the reshored factories. But microwave ovens and top-loading washing machines, which are almost all made in China now, will be the first products for which production is resumed in Japan at factories in Shizuoka prefecture and Kobe, respectively.

Panasonic said that a 1 yen drop against the dollar reduces profit by about 1.8 billion yen ($15.1 million) on an annual basis. If the yen stabilizes at 120 to the dollar, this will cause a significant decrease in profit even if the company cuts back on costs, according to the Yomiuri Shimbun.

Panasonic China's public relations office said it had not heard of such plans or decisions, and it declined to comment further.

It would be the first such large-scale reshoring of the company's foreign production. After 35 years operating in China, Panasonic has three plants in Hangzhou, Guangzhou and Shanghai.

Rising labor costs in China are also driving the relocation of Japanese factories, said Su Liang, branding director of the China Home Appliance Research Institute.

He said the shortage of senior skilled workers at home appliance plants has pushed up their salaries and thus increased employers' costs.

Sharp Corp also plans to reshore overseas TV production, and Daikin Industries Ltd has moved part of its air conditioner production from China to Japan.

Yen 'weighs on emerging economies'

The yen will likely continue to depreciate against the dollar as the Bank of Japan will step up quantitative easing to spur growth, and this trend could weigh on currency values in emerging economies, analysts said on Wednesday.

The yen may weaken to 150 per US dollar in the next two years as Japan is expected to continue its aggressive stimulus in the form of bond-buying by its central bank.

The yen has lost about 55 percent of its value against the dollar since 2012 when Japanese PM Shinzo Abe took office with the promise of reviving the economy through quantitative easing.

China and other emerging economies may face headwinds from the weaker yen, which could be a drag on their exports to Japan. Some Japanese companies are weighing up the benefits of reshoring production from China.

Zhu Haibin, chief China economist at JPMorgan & Co, warned of the risk of competitive devaluations in emerging markets in response to a weaker yen and euro. The latter currency is trading at its lowest level in nine years.

"Most emerging market currencies may follow the euro and the yen, weakening against the dollar, and the risk of competitive devaluation cannot be ignored," he said.