On July 15, 2025, the Mazda Motors flag and Japanese flag will be raised at the headquarters in Fuchu-cho, Hiroshima Prefecture.
Kazunari Kato | Reuters
A record number of Japanese companies are leaving China, as China’s economic slowdown and diplomatic freeze are forcing companies to reassess their presence in the world’s second-largest economy.
According to Teikoku Databank, a Japanese corporate credit research company, the number of Japanese companies expanding into China has fallen to a historic low of 10,118 as of June. This is down 22% from the previous survey conducted in June 2024, about 30% below the 2012 peak, and the lowest since Empire began tracking the data in 2010.
Jeremy Cheung, an analyst at political consulting firm Eurasia Group, said Japanese companies that were already planning to reduce their operations in China are considering exiting the market more urgently as relations between Japan and China hit a rock.
The outflow is likely to intensify as the diplomatic feud between Asia’s two largest economies forces Japanese companies, already facing tariff risks, rising labor and manufacturing costs, and shrinking profits from fierce competition at home, to scale back or close operations in China, Teikoku said in a report last week. He added that some companies are reducing their dependence on China without cutting it off completely.
Sino-Japanese relations have been under great tension since Prime Minister Sanae Takaichi told Congress in November last year that Japan might become involved militarily if China invaded Taiwan. The Chinese government responded by restricting exports of critical minerals to Japanese companies and urged its citizens to refrain from traveling to Japan.
Japanese companies and their employees feel increasingly unwelcome and unsafe in China.
jeremy chan
Eurasia Group Analyst
Martin Schulz, chief policy economist at Fujitsu Research Institute, said factors such as U.S. tariffs, growing public resistance to Chinese products and the growth of the Indian market are also encouraging Japanese companies to further diversify away from Beijing. “Investment in China is weathering a perfect storm,” he said.
According to Teikoku data, 4,137 Japanese companies have completely withdrawn from China in the past two years, a record high. Just 1,221 people entered the country through subsidiaries, factories and representative offices during the same period, the lowest on record outside of the COVID-19 pandemic.
lean toward the United States
Jesper Cole, expert director at Monex Group, said Japanese companies are increasingly relying on the U.S. market while moving away from China, which was once an important market.
Cole estimates that the share of TOPIX-listed companies’ Chinese profits has fallen to less than 15% so far this year, down from 23% in 2020, while U.S. profits rose to 35% from 25% in the same period.
Cole said the U.S. government is “openly courting” Japanese companies to support its re-industrialization efforts, while the Chinese government is moving toward a “Made in China” model.
“Unwelcome and dangerous”
Analysts say companies are becoming more concerned about sending staff to China after the Chinese government detained Japanese nationals this year. Several Japanese nationals, including executives from top Japanese companies, were reportedly detained in August on suspicion of violating export controls on products for military and civilian use.
“Japanese companies and their employees feel increasingly unwelcome and unsafe in China,” Zhang said.
According to an April report from the Japan External Trade Organization, companies are becoming reluctant to expand operations in China.
On Tuesday, a day after the Empire report, Chinese Vice Premier He Lifeng said China “always welcomes” Japanese companies to do business in the country and share market opportunities.
He called on the delegation from the Japan Association for the Promotion of International Trade to “continue on the right path on historical issues and play a greater role in promoting economic and trade cooperation between China and Japan.”
Kei Koga, a professor at Singapore’s Nanyang Technological University, said automakers, parts suppliers and export-oriented manufacturers are most likely to scale back operations in China. He added that companies that can localize and compete with Chinese rivals, especially medical and precision equipment manufacturers, are likely to stay.
