The number of Japanese companies operating in China has fallen to its lowest point since tracking began in 2010, according to a recent report from Teikoku Databank, a corporate research firm. The survey, conducted in June, found that 10,118 Japanese firms maintained a presence in China, marking a 22% decrease from a similar survey in June 2024.
The current figure is approximately 30% below the peak recorded in 2012. The Teikoku Databank report also noted that over the past two years, 4,137 Japanese companies have fully withdrawn operations from China, while 1,221 new firms have entered the market through subsidiaries, factories, or other offices.
The report identified several economic factors contributing to the trend, including tariff risks, rising labor and manufacturing costs, and intense local competition affecting profit margins.
Analysts have pointed to strained diplomatic relations between the two countries as another significant factor. Tensions increased following a statement by Japanese Prime Minister Sanae Takaichi last November regarding Japan’s potential military involvement in a conflict over Taiwan. In response, Beijing has placed curbs on the export of some critical minerals to Japan.
Jeremy Chan, an analyst at the political risk consultancy Eurasia Group, commented on the business environment. “Japanese firms and their employees increasingly feel unwelcome and unsafe in China,” Chan said, also referencing reports this year of Japanese nationals being detained in China.
Data from financial experts suggests a corresponding shift in profitability for Japanese corporations. Jesper Koll, expert director at Monex Group, estimated that for companies listed on the Tokyo Stock Price Index (Topix), the share of profits derived from China has decreased from 23% in 2020 to less than 15% in the current year. Over the same period, he estimated the share of profits from the United States rose from 25% to 35%.
Other market dynamics were cited by Martin Schulz, chief policy economist at the Fujitsu Research Institute. Schulz noted that U.S. tariffs on Chinese goods and the growth of alternative markets, such as India, have provided incentives for Japanese companies to diversify their supply chains and investments away from China.
On Tuesday, Chinese Vice Premier He Lifeng addressed a delegation from the Japanese Association for the Promotion of International Trade. He stated that China “always welcomes” Japanese businesses to operate in the country and share in market opportunities. He encouraged the group to help advance economic cooperation between the two nations.
The trend does not affect all sectors equally, according to Kei Koga, a professor at Nanyang Technological University in Singapore. Koga suggested that automakers, parts suppliers, and other export-focused manufacturers are among the most likely to scale back their operations in China. He added that companies with highly localized operations that can compete with Chinese firms, such as medical and precision equipment makers, are more likely to maintain their presence.
