Japanese Companies Pull Out of China as Vietnam Becomes Next Destination

• 17 August 2024
• Construction Focus
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Japanese companies are becoming increasingly cautious about operating in China, as supply chain risks, anti-espionage legislation, and rising geopolitical tensions create an uncertain environment. A recent survey by Teikoku Databank reveals that the number of Japanese companies in China has decreased by 9.4% since its peak in 2012, with 13,034 businesses currently operating in the world’s second-largest economy. This data was updated by Asia.nikkei on 06 August 2024.

While there was a slight increase of 328 companies in 2022, the report indicates a growing reluctance among Japanese firms to invest in China. Daisuke Iijima, a researcher at Teikoku Databank, remarked that “it’s likely that companies’ appetite for operating in China is diminishing more than the data shows.” He pointed out that rising labour costs, which have doubled over the past decade, and escalating tensions with the U.S. are pushing companies to reconsider placing China at the centre of their supply chains.

“More companies see a management risk in placing China at the centre of their supply chains and are integrating local subsidiaries or moving them to Southeast Asia,” Iijima added.

The survey also noted that manufacturers, particularly in the automotive, electronics, and semiconductor sectors, represent the largest portion of Japanese companies in China. However, trade barriers imposed by Washington and unpredictable regulations in China, such as the arrest of a Japanese employee of Astellas Pharma on espionage charges in 2023, are deterring further investment.

Iijima noted, “The political situation is complicated, and the risks aren’t zero, but we see an opportunity in the nation’s 200 million elderly population, which is more than the entire Japanese population.”

Despite these challenges, some Japanese companies continue to see opportunities in China’s vast market. The elder care industry, for example, is expanding to cater to the country’s ageing population. Yamashita, a company specialising in nursing care equipment, established a presence in Shanghai in March 2024, viewing China’s 200 million elderly population as a significant opportunity.

Iijima further explained that while Japanese companies are seeking ways to distance themselves from China without provoking local authorities, a mass exodus is unlikely.

Similar reports also indicate China is losing its lustre. In 2023, the Japan Bank for International Cooperation asked more than 500 Japanese companies to name promising countries for business development in the next three years. China dropped to third in the ranking, its lowest spot since 2014. Vietnam, helped by corporate moves away from China, took second place for the first time since the annual survey started in 1989.

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