As of June, the number of Japanese companies in China has dropped to 10,118, marking a 22% decrease from the previous year and the lowest level since 2010, according to Teikoku Databank.
This exodus is driven by a combination of a slowing Chinese economy, rising operational costs, and strained diplomatic ties, particularly following comments from Japanese Prime Minister Sanae Takaichi regarding potential military involvement in Taiwan.
Analysts from Eurasia Group and Fujitsu Research Institute note that the increasing risks, including U.S. tariffs and a growing preference for Indian markets, are prompting Japanese firms to diversify away from China. In the past two years, 4,137 Japanese companies have fully exited China, while only 1,221 have entered, indicating a significant shift in investment strategy.
Furthermore, Japanese firms are increasingly reliant on the U.S. market, with profits from China falling to less than 15% this year, down from 23% in 2020. Concerns over safety, highlighted by recent detentions of Japanese nationals in China, further exacerbate the situation.
Despite attempts by Chinese officials to encourage Japanese investment, the sentiment among Japanese businesses remains one of feeling unwelcome and unsafe, particularly in sectors like automotive and manufacturing