Due to the slowdown of the Chinese economy, rising tariff risks, increasing labor and manufacturing costs, as well as fierce competition from local Chinese enterprises squeezing the profit margins of Japanese companies, the number of Japanese enterprises in China has decreased to its lowest level in history. The ongoing diplomatic disputes between China and Japan may further exacerbate the trend of Japanese companies withdrawing from China.
According to statistics from Teikoku Databank, a Japanese corporate credit research agency cited by CNBC, as of June this year, the number of Japanese enterprises in China has decreased to 10,118, a 22% drop compared to the last survey conducted in June 2024, and a decrease of about 30% from the peak in 2012. It’s also the lowest level recorded by Teikoku Databank since they began tracking such data in 2010.
Jeremy Chan, an analyst at the Eurasia Group political consulting firm, stated that some Japanese companies had already planned to scale back their operations in China, and with the deteriorating China-Japan relations, the urgency to withdraw has increased.
A report released by Teikoku Databank last week indicated that the pressure on Japanese companies to withdraw could further intensify due to the continuation of the diplomatic disputes between China and Japan. The escalating risks of tariffs, rising labor and manufacturing costs, coupled with the fierce competition from local Chinese enterprises, have significantly squeezed the profit margins of Japanese companies, leading some to downsize their operations in China or even close down businesses.
Japanese Prime Minister Sanae Takaichi’s statement in parliament last November indicating possible military intervention in case of a Chinese invasion of Taiwan has further strained China-Japan relations. Subsequently, China restricted the export of key minerals to Japanese companies and advised Chinese citizens against going to Japan.
Martin Schulz, Chief Policy Economist at the Fujitsu Research Institute, mentioned that the U.S. tariff measures, growing consumer resistance to Chinese products, and the expanding market in India are further driving Japanese companies to diversify their business operations and investments away from China.
According to Teikoku Databank data, a total of 4,137 Japanese companies have completely exited China in the past two years, marking a historical high. During the same period, only 1,221 Japanese companies entered the Chinese market through subsidiaries, factories, or representative offices, the lowest figure ever recorded.
Jesper Koll, an expert at Monex Group, expressed that Japanese companies are increasingly relying on the U.S. market while gradually reducing their dependence on China. He estimated that the share of profits from Chinese operations for companies listed on the Tokyo Stock Price Index (TOPIX) has dropped to less than 15% since the beginning of the year, far below the 23% share in 2020, with profits from the U.S. market increasing to 35% during the same period, surpassing the 25% in 2020.
Koll highlighted the aggressive efforts of the United States to attract Japanese companies to participate in its industrialization process, while China is vigorously pursuing a “Comprehensive Made in China” development model.
Analysts noted that the increasing cases of Japanese citizens being detained in China have heightened concerns for Japanese companies sending employees to China. In August, several Japanese citizens, including executives from major Japanese companies, were reported to have been detained by Chinese authorities on suspicion of violating dual-use item export control regulations.
Jeremy Chan commented that both Japanese companies and employees are increasingly feeling unwelcome and insecure in China.
A report released by the Japan External Trade Organization (JETRO) in April this year revealed that Japanese companies are becoming less willing to expand their operations in China.
Following the publication of the Teikoku Databank report, Chinese Vice Premier He Lifeng promptly expressed a warm welcome to Japanese companies to develop in China, inviting them to promote bilateral economic and trade cooperation.
Kei Koga, a professor at Nanyang Technological University in Singapore, pointed out that automotive manufacturers, component suppliers, and export-oriented manufacturing companies are most likely to scale back their operations in China. Companies that have achieved localization and can compete with Chinese enterprises, particularly manufacturers of medical equipment and precision instruments, are more likely to continue operating in China.
In recent years, major Japanese companies that have completely withdrawn from the Chinese market include Mitsubishi Motors and Suzuki.
Mitsubishi Motors terminated local car production in China in 2023, transferring its stake in GAC Mitsubishi Motors to the GAC Group. In 2025, the joint venture with Shenyang Aerospace Mitsubishi Engines was further terminated, ending the engine business. The company has largely completed its exit from the Chinese automotive manufacturing market.
Suzuki had already exited the Chinese car production business in 2018, ending its joint ventures with Changan Automobile and Changhe Automobile, shifting its focus on overseas growth to markets such as India.
Other major Japanese companies that have partially withdrawn or significantly reduced their operations in China, decreasing their reliance on the Chinese supply chain, include Nippon Steel, Mitsubishi Corporation, Honda, Nissan, and Panasonic Energy.