Recent survey results released by the China-Japan Business Association indicate that 60% of Chinese-Japanese enterprises interviewed believe that China’s economic situation this year will “deteriorate” compared to last year. In August, senior executives of Japanese companies in China were prosecuted by the Chinese Communist Party on espionage charges. Scholars point out that many people have a pessimistic view of China’s future, and the implementation of the Anti-Spying Law has instilled a sense of self-preservation in everyone, leading to an ongoing trend of exodus from the Chinese market.
In July this year, the China-Japan Business Association conducted a questionnaire survey of 8,000 Japanese companies in China, receiving 1,760 valid responses. The results showed that 60% of the Chinese-Japanese enterprises surveyed believe that China’s economic situation this year will “deteriorate” or “slightly deteriorate” compared to last year. This figure has significantly increased from the 50% reported in a survey conducted in May.
There are approximately 31,300 Japanese enterprises in China. According to reports, Japanese companies invested 17.3 trillion yen (about 3.7 trillion New Taiwan dollars) in Asia in 2023, reaching a nearly 10-year high. The top destinations for investment were Singapore, Vietnam, India, the Philippines, and Taiwan. However, many Japanese companies have become increasingly cautious in investing in China, with investment amounts decreasing by 20% compared to 2019.
Professor Li Shihui from the College of International Affairs at National Chengchi University in Taiwan believes that there are three main reasons for Japanese companies withdrawing from China.
Firstly, the opaque and uncertain policies of the Chinese Communist Party make Japanese enterprises vulnerable to political influence, leading to operational difficulties. Secondly, Japan is vigorously promoting “economic security” as having supply chains controlled by the CCP is detrimental to Japan’s economy and even national security.
Li Shihui explains that thirdly, the significant depreciation of the Japanese yen over the past two years has increased Japan’s domestic cost competitiveness, prompting many Japanese companies to compare production costs in China and Japan.
Regarding the trend of Japanese companies exiting China, Professor Fan Jiazhong from National Taiwan University’s Department of Economics stated that this reflects a very pessimistic outlook on the Chinese market in the international arena.
He stated, “According to data from China’s State Administration of Foreign Exchange, China’s outward direct investment is increasing, while foreign investment in China is decreasing. In the second quarter of this year, there was a negative value of $14.8 billion, indicating that previously planned investments may have been canceled, leading to adjustments.”
“When the situation of foreign capital withdrawal becomes more severe without any signs of abating, it is evident that at least for the next few quarters, and looking ahead to next year, the situation is very pessimistic.”
Fan Jiazhong emphasized that Japan’s situation is not unique, as countries with significant investments in China are also withdrawing, including Chinese companies themselves. The uncertainty surrounding the US presidential election this year has prompted many companies, including Chinese ones, to prepare for a potential re-election of Trump. Hence, the trend of foreign enterprises withdrawing from China is expected to intensify as they seek to avoid tariff issues.
As early as July 2020, Japan’s Ministry of Economy, Trade, and Industry announced a subsidy of 70 billion yen (about $500 million) to assist 87 companies in relocating production lines from China to Southeast Asian countries or back to Japan, aiming to reduce Japan’s dependency on China and establish a resilient supply chain.
Reportedly, around 150 to 200 companies have decided to relocate some or all of their production activities back to Japan by 2024, and this number is continuously increasing.
Regarding this, Chen Wenjia, a senior advisor at the National Policy Institute, mentioned that companies returning to Japan are mainly concentrated in high-tech and high value-added manufacturing sectors, such as semiconductors, electronic components, and medical equipment. The return of these industries to Japan not only helps enhance Japan’s domestic technological competitiveness but also aligns with the Japanese government’s policy of “economic security.”
He explained, “This trend reflects Japan’s active role in the global supply chain reorganization and demonstrates companies’ increasing concerns about the Chinese economic environment.”
Fan Jiazhong also pointed out that due to the increasing risks in the Chinese economy in recent years, Japan, from a government perspective, encourages citizens to take hedging measures.
In July of last year, the CCP amended the Anti-Spying Law, granting unprecedented enforcement powers to the Chinese National Security Agency and its local branches, resulting in a growing personal security risk for foreign employees in China.
According to Nikkei Asia, since the introduction of the new Anti-Spying Law by the CCP in 2014, at least 17 Japanese nationals have been detained by the Chinese authorities. A Japanese employee in Beijing frankly stated, “If you are detained for espionage, it is very difficult to be released.”
In March last year, a Japanese man in his fifties working for Astellas Pharma in Beijing was arrested by the CCP on “espionage charges.” This man had worked in China for over twenty years and had even served as the vice chairman of the Japan Chamber of Commerce in China.
In August this year, the Chinese Ministry of Foreign Affairs charged this Japanese employee with espionage. This move has created a chilling effect in the Japanese business community and deepened concerns among Japanese business figures in China about their personal security.
Chen Wenjia believes that Japanese companies in China do face high risks under the Anti-Spying Law, increasing operational uncertainties and affecting the protection of operations and business secrets. This has intensified Japanese companies’ concerns about the Chinese market, leading many to either divest or scale back their operations to reduce the legal risks of being investigated or detained at any time.