Amid the Chinese Communist Party vigorously attracting foreign investment, Japanese companies are accelerating their departure. According to reports, in the second quarter of this year, Japanese investment in equipment in mainland China and Hong Kong decreased by 16% compared to the previous year.
A report by Nikkei Asia on October 5 revealed that an analysis by Japan’s Ministry of Economy, Trade, and Industry surveyed approximately 5,300 Japanese overseas subsidiaries (manufacturing companies where Japanese companies hold more than half of the shares) and found that from April to June, Japanese investment in equipment in mainland China and Hong Kong decreased by 16% compared to the same period last year, when calculated in US dollars.
Among Japanese overseas investments, China and Hong Kong accounted for 13.6%, which was lower than Europe for two consecutive quarters. This marks the first time in eight years since January to March 2016 that the investment level in China and Hong Kong fell below that of Europe.
In the previous period of April to June 2019, China and Hong Kong represented 18.6% of Japanese overseas corporation investments, indicating a nearly 5% decrease over the past five years. By 2024, from April to June, Europe’s share increased by approximately 1 percentage point to 13.8%, while North America surged by around 10 percentage points to 36.8%.
The report highlighted that China is Japan’s second-largest export destination and the largest source of imports. Despite the closer geographical and economic ties between China and Japan compared to the geographically distant Europe, investments are in decline.
The decline in Japanese investments in China is attributed to the impact on the performance of automobile manufacturers. Sales of Japanese transport machinery industry’s Chinese subsidiaries have continued to decline by over 20% beyond 2024.
In June of this year, Nissan closed its factory in Changzhou, which had an annual production capacity of 130,000 vehicles, accounting for 10% of its overall production in China. Nissan is also considering reducing production capacities at other factories. In July, Honda closed its factory in Guangdong province and announced plans to temporarily halt production at its factory in Hubei province. Even with the consideration of newly built EV plants, the annual production capacity is expected to decline by 290,000 vehicles.
In another article published on the same day, Nikkei Asia noted that it’s not just the automotive industry hitting the investment brakes. Japanese company DIC will exit its liquid crystal materials business in China by 2024.
The slowdown in the Chinese economy has intensified competition. Faced with increasingly fierce price competition, Ajinomoto is restructuring and selling three frozen food factories, consolidating them into one location. In July, Shiseido stopped selling its high-end cosmetics brand “BAUM” in China. Shiseido President Kentaro Fujiwara stated, “Consumers are becoming more price-conscious, and we may continue to withdraw unprofitable brands.”
According to statistics from the Ministry of Economy, Trade, and Industry, as of April to June, sales by Japanese corporations in China have been lower than the same period of the previous year for seven consecutive quarters. Starting from 2021, the proportion of Chinese subsidiaries in Japanese overseas investments has gradually declined, with Japanese companies leaning towards rationalizing operations rather than expanding factories and networks.
The report also mentioned that while Japanese investments in China are decreasing, China has been making efforts to attract foreign investment.