In recent times, tensions persist in U.S.-China relations and Japan-China relations, exacerbated by China’s slowing economic growth, the enactment of the Chinese Communist Party’s anti-spy law, and various other factors. These circumstances have heightened the political and economic risks facing businesses operating in China, leading many Japanese small and medium-sized enterprises to choose to withdraw from the Chinese market.
According to a report by Nikkei Asia on July 12, Ichiro Kawaguchi, the chairman of human resources service provider Quick, stated: “Many Japanese companies entered the Chinese market during the period when China was known as the ‘world’s factory,’ but due to the increasing unpredictable risks, they have decided to withdraw.”
Established in 1980, Quick set up a wholly-owned subsidiary in Shanghai in 2003 but decided to dissolve it by the end of 2025. The company primarily offered personnel consultation and advice on Chinese labor laws to Japanese enterprises operating in China.
Since 2003, an increasing number of Japanese companies have entered the Chinese market, leading to a rise in demand for related consultations. However, Quick estimated that the number of new entrants into the market started declining around 2020. The slowdown of the Chinese economy became more apparent after the outbreak of the COVID-19 pandemic, coupled with escalating tensions between China and the U.S. on tariffs and other issues. Furthermore, cases emerged where Japanese employees were accused by the Chinese authorities of violating the anti-spy law.
These factors have led Japanese businesses to reassess the risks of operating in China and make adjustments. In the fiscal year ending in December 2024, Quick’s subsidiary in China recorded a year-on-year sales decline of approximately 35%, amounting to 2.36 million Chinese yuan (approximately $350,000 at the current exchange rate), resulting in a net loss of around 470,000 Chinese yuan. The company began considering exiting the market in the summer of that year and engaged in extensive discussions on how to arrange the local employees.
Kawaguchi mentioned, “Perhaps our decision to withdraw from China came a bit late, but given the increasingly visible risks, I believe ultimately it was the right decision.”
In the fiscal year ending in March 2026, Quick’s overseas business sales amounted to about 2.5 billion Japanese yen (approximately $15.4 million). After exiting the Chinese market, the company plans to strengthen its operations in Europe and the United States, with sales from these two major markets accounting for about 80% of its total overseas sales.
In Europe, many Japanese-affiliated companies establish their regional headquarters in the UK or the Netherlands. In response to this trend, Quick supports its clients by providing tailored information compliant with the laws and salary systems of each country.
Japanese businesses operating in China are at a crossroads. According to Teikoku Databank, in 2024, there were approximately 13,000 Japanese-affiliated businesses operating in China, showing a nearly 10% decrease from the peak in 2012. The Tokyo-based research institution noted, “The eagerness to enter China seems to have peaked.”
In a survey conducted by the Japan External Trade Organization (JETRO) on Japanese enterprises operating in China in the fiscal year 2025, they received responses from 784 companies regarding their business plans for the next one to two years.
Only 21.3% of the companies indicated plans to expand their operations in China, marking the lowest percentage since the survey commenced in the fiscal year 2007. Meanwhile, 14.4% of the companies expressed intentions to downsize, relocate, or withdraw, establishing a historical high. The remaining 64.3% of companies planned to maintain their current status.
Surveyed companies highlighted challenges such as rising employee wages and increased competition as their primary business concerns, particularly for small and medium-sized enterprises finding it challenging to acquire new customers.
Care Service, a company managing care facilities, dissolved its wholly-owned subsidiary in Shanghai in 2025. Since 2015, the company had been providing body cleaning and embalming services at local funeral parlors.
The decision to enter the Chinese market was partly due to an invitation from the relevant authorities in Shanghai at the time when faced with an increasingly aged society. The local authorities aimed to introduce Japanese-style funeral services, not yet widely prevalent, to address the growing needs.
“Due to the tumultuous economic situation in China, we couldn’t clearly foresee the future prospects, hence we decided to withdraw and focus on our domestic business in Japan,” stated Toshiharu Fukuhara, the company’s president.
Olica Sangyo, a food packaging container manufacturer headquartered in Osaka, dissolved its joint venture in Shanghai in 2023. The decision was influenced by the increasing costs of labor and materials, as well as the inferior product quality level compared to the products manufactured by the company in Japan.
From October 2024 to June this year, the Bank of Kyoto held seven consultation sessions for client enterprises considering withdrawing from China. Among Asian countries, the consultations regarding withdrawals from China were the most frequent, while inquiries about expanding business into India and Vietnam each numbered over 20.