Following the withdrawal of some Japanese companies from China, Japanese regional banks that serve them are also pushing for “decentralization from China” and shifting their focus to Southeast Asia, India, and other regions, expanding their global footprint. Experts say this reflects Japanese companies preparing for the “post-China era” by advancing their presence in the Indo-Pacific region and globally.
According to a report by the “Nikkei Asian Review” on June 3rd, over the past 5 years, the number of Chinese branches of Japanese regional banks has decreased by about 20%. Japanese regional banks are accelerating the reduction of their footprint in China and redirecting their focus to Southeast Asia and India.
This phenomenon is seen as a significant indicator of the “de-Chinafication” of Japanese companies’ supply chains and investment strategies.
The report indicates that out of the 61 regional banks in Japan, 50 had branches in China in April 2021, which decreased to 40 by March 2026, marking a 20% decrease over 5 years.
While China still accounts for nearly half of the overseas branches of Japanese regional banks, the trend of reduction is evident.
Hokkaido Bank closed its Shenyang branch in 2025 after 19 years of operation; Kyoto Bank closed its Dalian branch due to rising costs and declining customer demand, merging its operations into the Shanghai branch.
For over two decades, Japanese regional banks entered China primarily to provide financial services to Japanese businesses in the country.
Now, with the decline in market share of the Japanese automotive industry in China and increased competition from local Chinese companies, operating costs in China rising steadily, and changes such as U.S.-China tensions and economic security considerations, geopolitical and regulatory risks are gradually increasing.
In addition to regional banks, significant decreases in lending to China have been observed in the three major financial groups in Japan, contracting their businesses in China. Among these, loans from Sumitomo Mitsui Banking Corporation decreased by 40%, Mitsubishi UFJ Financial Group decreased by 20%, and Mizuho Bank reduced by over 30%.
As the Chinese market shrinks in size, regions like Southeast Asia and India have become new investment favorites for Japanese companies, prompting banks that provide financial services to them to adjust and move alongside Japanese enterprises.
Professor Sun Guoxiang from the Department of International Affairs and Business at South China University of Technology told Epoch Times, “The withdrawal of Japanese regional banks from China is primarily due to Japanese companies shifting their supply chain and investment focus. ”
“In the past, regional banks established a presence in China mainly to service Japanese small and medium enterprises for setting up factories, financing, currency exchange, and business consultation in China. However, as Japanese enterprises redirect some of their production capacity and investments towards Southeast Asia and India, naturally, the banking business in China declines.”
He further explained, “Another important consideration is geopolitical and compliance risks. Tensions in the Taiwan Strait, strained Sino-Japanese relations, U.S.-China tech war, export controls, rare earth and critical materials risks, all prompt Japanese companies to reassess the vulnerabilities of operating in China.”
Japanese political and economic observer Fukuzawa Jo noted that previous actions by the Chinese Communist Party, such as pandemic restrictions, unfriendliness towards Japanese nationals, U.S.-China confrontation, Taiwan Strait crisis, and implementation of anti-espionage laws, have posed significant risks to Japanese businesses in China, leading Japan to move away from over-reliance on China and embrace diversification.
According to the official website of the National Association of Regional Banks in Japan, Japanese regional banks primarily focus on local business operations. Apart from Aichi Prefecture, all other 46 prefectures have regional banks. Considering support for local customers and expanding overseas businesses, some regional banks have a focus on Asia and have branches or liaison offices in Europe, the U.S., and other regions.
The report from the National Association of Regional Banks in Japan in 2025 shows that 20 years ago, Japanese regional banks began entering China to support Japanese companies expanding their businesses in the country.
By 2005, Japanese regional banks were mainly concentrated in China; by 2015, they had expanded their overseas presence to Southeast Asia, India, Russia, Australia, North America, and South America; and by 2025, this trend further expanded.
The 77 Bank, headquartered in Sendai City, Miyagi Prefecture, is the largest regional bank in the Tohoku region.
According to a statistical report released by the bank on May 13, 2025, as of the end of March 2025, the bank had a total of 526 business locations worldwide, with the highest number in China at 170 locations, accounting for 32.3%.
Although the bank had the most business locations in China, the numbers have shown a declining trend since March 2015: from 205 locations in 2015 to 189 in 2020, further decreasing to 170 in 2025.
The report explains that due to the changing U.S.-China relations, Chinese Communist policies, and rising labor costs, the bank is transitioning its operations and reconfiguring its locations.
The report emphasized that ASEAN countries like Vietnam and Thailand, as alternative markets to China in manufacturing and sales, are increasing in influence. The bank plans to increase its locations in these regions from 26 in 2005 to 232 in 2025.
Fukuzawa Jo stated that both large and regional banks in Japan are shifting their investment focus towards Southeast Asia, particularly India, which aligns with Japan’s international political and defense strategies since Shinzo Abe’s administration.
Sun Guoxiang explained that Southeast Asia and India have become new focal points for Japanese banks’ overseas operations because Japanese companies are diversifying their overseas investments away from being solely concentrated in China. The banks are moving in tandem with their clients.
He further analyzed, stating, “This indicates three key points: Firstly, China’s position in Japanese companies’ Asian strategy is declining; it no longer serves as the sole core. Secondly, Japanese companies are shifting from prioritizing efficiency to prioritizing resilience, moving away from solely relying on China’s low costs and complete supply chain to dispersing risks, avoiding geopolitical impacts, and spillover from Taiwan Strait crises.”
“Thirdly, Southeast Asia and India are not just receiving migrated production capacity from China but are gradually becoming new platforms for Japanese financial, manufacturing, investment, and strategic deployments.” In other words, “The shift of Japanese banks towards Southeast Asia and India reflects Japanese enterprises’ proactive deployment in reshaping the Asia supply chain order in the ‘post-China era.'”
Statistics from the Japan External Trade Organization (JETRO) show that for the fiscal year 2025, Japanese companies worldwide reported profits of 66.6%, break-even at 16.9%, and losses at 16.6%.
Among the key host countries, UAE showed the highest profitability for Japanese companies at 83.3%, with China ranking 18th out of 19, second to last, with profits at 63.2%, break-even at 19.1%, and losses at 17.7%.
In a survey focusing on the automotive industry, one of Japan’s primary pillars, improvement in business performance is expected to be highest in India in 2026 at 62.5%, while China is ranked second to last among the major countries, with profits at only 20.3%, a staggering deterioration rate of 40.5%, the highest among 8 key countries.
Looking ahead over the next 1 to 2 years, around 80% of Japanese companies in India are willing to expand their operations, while Japanese companies in China are on a downward trend.
Overall, there is almost a balance in Japanese companies’ expansion and contraction plans overseas, with 46.2% planning expansion and 47.5% planning contraction. In India, 81.5% of Japanese companies intend to expand their operations.
On the other hand, among Japanese companies in China, only 21.3% are looking to expand, while 64.3% plan to maintain their current status, 12.6% plan to downsize, and some even plan to shift to other countries and regions.
In a ranking of local business performance expectations among Japanese companies in 18 countries and regions (including mainland China, Hong Kong, Korea, Singapore, Thailand, Indonesia, Vietnam, India, Australia, the U.S., Mexico, Brazil, UK, France, Germany, the Netherlands, UAE, and South Africa), mainland China ranks 17th, and Hong Kong comes in last at 18th.
One of the reasons affecting the expansion of Japanese companies in China is the continued economic downturn and the challenging anticipation of market demand recovery.
Despite some Japanese companies and banks retreating from China, it remains an essential market for Japanese enterprises.
Sun Guoxiang explained that the streamlining of physical locations in China is due to a decrease in marginal benefits. However, what Japanese banks are pursuing is a form of “de-concentration” rather than “de-Chinafication”; China still holds significance as one of the crucial markets for Japanese companies.
Nevertheless, “the actions of Japanese banks reflect a trend: businesses and financial institutions are shifting China from the core of their Asian strategy to an important market that requires risk management, placing bets on a more diversified, resilient Asian landscape for future growth.”