On Tuesday (February 24th), the Chinese Communist Party announced a ban on exporting dual-use military and civilian goods to 20 Japanese companies and institutions, and placed an additional 20 Japanese entities on an observation list. Analysts believe that this move by Beijing may backfire, pushing Japan towards becoming a military power and accelerating “de-Chinafication.” Additionally, it poses a challenge to the global supply chain and may lead to increased cooperation among Western countries.
The Chinese Ministry of Commerce issued a statement on February 24th citing concerns about Japan’s “remilitarization” to include 20 Japanese entities in the export control list while placing 20 others on the watch list. Chinese companies are now prohibited from exporting dual-use items such as rare earths and chip equipment (goods or technology with both civilian and military applications) to these entities.
Earlier in January, Beijing had already imposed broad restrictions on the export of dual-use goods to Japan, but this latest action specifically targets several major Japanese companies. Following the announcement, several companies saw a decline in their stock prices on the Tokyo Stock Exchange, with the yen also weakening against the dollar by 0.4%, reaching 155.27 yen to 1 US dollar.
In response to these measures, Japan’s Chief Cabinet Secretary Katsunobu Kato stated during a press conference, “This is intolerable.” He added that the Japanese government has lodged a strong protest and demanded that China retract these measures.
Japanese Defense Minister Nobuo Kishi announced Japan’s plans to deploy missile units to Okinawa Prefecture and Yonaguni Island within five years, including the deployment of the Type 03 medium-range surface-to-air missile system. This marks the first time the Japanese government has publicly disclosed a timeline for deploying missiles on the island.
Prime Minister Fumio Kishida, during a parliamentary session on Wednesday (February 25th), expressed Japan’s intention to strengthen cooperation with like-minded countries to achieve a resilient supply chain independent of specific nations, promoting diversification of supply sources.
Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina believes that China’s actions are somewhat counterproductive. Xie Tian explained to a media outlet, “Why do I call this counterproductive? Because the United States often imposes restrictions on Chinese companies, adding them to entity lists, prohibiting the export of sensitive items to these Chinese companies. China does not sell any particularly high-tech sensitive items to these Japanese companies; it mainly supplies them with raw materials and components. In other words, these items are not essential for Japan to purchase from China.”
A spokesperson from the Chinese Ministry of Commerce stated that the purpose of these measures is to prevent Japan from “remilitarizing” and pursuing nuclear ambitions.
Lin Xianshen, an adjunct professor at the Department of East Asian Studies at National Taiwan Normal University, commented that China’s rhetoric aims to generate opposition within Japan against the Kishida administration’s military buildup.
However, he pointed out, “China’s attempts are unlikely to succeed. The Liberal Democratic Party led by Fumio Kishida just won the largest number of seats in the history of the lower house elections, indicating that Japanese voters trust the Kishida administration and support his resistance to China’s economic bullying.”
Xie Tian also expressed concerns, stating, “Under the threat from China, Japan is likely to head towards becoming a military power, a trend that may be unstoppable. This is largely instigated by China, which is asserting its military presence in the South China Sea, East China Sea, and Taiwan Strait, leading to the consequences that China itself has to bear.”
In recent years, Chinese coast guard ships have frequently entered waters surrounding the Senkaku Islands (known as Diaoyu Islands in China), and Chinese military aircraft have intruded into the airspace outside Nagasaki Prefecture in Japan. In December last year, Japanese Self-Defense Force aircraft were even subjected to “radar illumination” by Chinese military aircraft. The latest Japanese defense white paper views China’s military expansion and provocations as the “greatest strategic threat” to Japan and regional security.
Following the sanctions imposed by China, Mitsubishi Heavy Industries’ stock price dropped by 3.1% in the Japanese stock market on Tuesday. Stocks of IHI Corporation and Japan Electronics also fell by 5.7% and 6.2%, respectively. Subaru Corporation, a major car manufacturer placed on the watch list, saw its stock price fall by 3.5% on the same day.
Lin Xianshen analyzed, “The decline in the stock prices of Japanese companies affected by Chinese sanctions is only temporary, but it will severely impact Japan’s willingness for continued investment in the mainland. The supply chain of Japanese companies manufacturing in China and selling back to Japan will inevitably be reconsidered.”
He added, “Due to economic security concerns, Japanese companies will expedite the transfer of their supply chains from China to Southeast Asia. The trend of ‘de-Chinafication’ or risk reduction is bound to increase.”
Mitsui & Co Aerospace, a subsidiary of Mitsui & Co Ltd., one of Japan’s five major trading companies, was placed on the observation list by China. Tsuneo Yasunaga, chairman of Mitsui & Co, stated on Wednesday (25th) to the Nikkei newspaper that their subsidiary has “no direct transactions with China” and that the reasons and standards for being listed are unclear.
“The crucial issue lies in how the overall Japanese business community achieve source diversification,” Yasunaga emphasized.
Xie Tian believes that this will accelerate the process of these companies and Japan’s ‘de-Chinafication.’ He explained, “Once Japanese companies stop buying raw materials and components from these Chinese companies, the ones who will actually suffer losses are the Chinese companies themselves. So, in reality, China has resorted to political motives, harming others and even themselves.”
In recent years, there has been a trend of Japanese companies withdrawing or reducing business operations in China. The Japan Chamber of Commerce and Industry in China previously released the results of its 8th survey in Beijing. The survey covered 1,427 Japanese-funded enterprises in China, with over 40% of companies indicating a reduction or complete halt in investment. Some surveyed companies mentioned that operational pressure could be higher than presented in the survey data.
The survey also revealed that only 1% of respondent companies believed that the Chinese economy “showed improvement,” while nearly half judged that the economy was “deteriorating or would continue to worsen.” Moreover, the instability of Chinese policies, enforcement measures, and the safety environment for personnel have collectively dampened overall investment confidence among Japanese enterprises.
Xie Tian stressed the importance of ensuring diverse supply sources for key commodities in the global supply chain, which has become part of the agenda in Japan-US trade negotiations, and he suggested expanding such efforts globally, including through collaboration with the European Union.