Japanese companies in China expected to hit record low by 2026

A survey by Teikoku Databank reveals that the number of Japanese companies operating in China is expected to fall to 10,118 by June 2026. This represents a 22.4% decrease from 2024 and a nearly 30% drop from the peak in 2012, marking the lowest level since 2010.

The data indicates a significant shift in business strategy. While new entries reached a record low of 1,221 companies, withdrawals and closures hit a record high of 4,137. This trend suggests that Japanese businesses are moving away from using China as a low-cost manufacturing hub and are instead restructuring their presence.

Key drivers for this decline include rising country risks such as geopolitical tensions, economic stagnation in China's real estate sector, export restrictions on rare earths, and the implementation of the revised Anti-Espionage Law. Consequently, many companies are diversifying their supply chains to Southeast Asian nations like Vietnam or relocating operations back to Japan.

Despite the overall decline, the profile of companies remaining in China is changing. There is a decreasing proportion of small and medium-sized enterprises, while the share of large corporations with annual sales exceeding 1 billion yen is rising. These larger firms are increasingly viewing China as a strategic consumer market for high-value manufacturing, R&D, and marketing rather than just a production base.