A record number of Japanese companies have closed their businesses in China as they face mounting pressure from slower economic growth, US tariffs and worsening diplomatic relations between Tokyo and Beijing.
As of June 2026, 10,118 Japanese companies had an established presence in mainland China, according to Teikoku Databank, Japan’s largest corporate credit research firm.
The figure, published on Wednesday, was the lowest since the group began compiling the data in 2010. It represented a 22 per cent decline from 2024 and a 30 per cent drop from the 2012 peak.
Japanese companies shift from expansion to restructuring
Teikoku Databank researchers said the decline ‘clearly indicates a shift in Japanese companies’ business in China from an expansion phase to a restructuring phase’.
They said the trend of Japanese companies withdrawing from China was likely to continue as businesses of all sizes reassessed long-standing assumptions about the risks of investing in Chinese manufacturing capacity and the strength of domestic competition in consumer markets.
A major part of the restructuring has involved diversifying supply chains to reduce Japanese companies’ reliance on China without completely decoupling from the country, according to the report.
Satoru Nagao, a fellow at the Hudson Institute think-tank in the US, said Japanese businesses were looking to pivot to India, as well as Vietnam, Thailand and other parts of Southeast Asia, after years of intensive investment in China.
‘We fed the dragon and it breathed fire,’ he said, referring to the increasingly competitive business environment in China.
Diplomatic tensions add to business pressures
Japanese companies have also been caught in the middle of a diplomatic dispute between Tokyo and Beijing that has lasted about a year.
The dispute was triggered by Prime Minister Sanae Takaichi’s remarks in parliament about Japan’s hypothetical military involvement in a conflict over Taiwan.
The comments drew a strong response from China, which has restricted exports of critical minerals to Japanese companies.
Travel between the two countries has also fallen sharply, apart from a few small-scale business delegations.
The latest figures from the Japan National Tourist Organisation showed that the number of mainland Chinese tourists visiting Japan fell 59 per cent year on year in August.
At a major annual travel expo in Guangzhou held ahead of China’s October 1 National Day, Japanese representatives were absent for the first time.
New investment slows as withdrawals rise
Teikoku Databank researchers said rising labour costs and worsening economic conditions in China were also contributing to the trend, following the collapse in real estate prices and significant industrial overcapacity.
Between 2024 and 2026, 1,221 Japanese companies entered China through local subsidiaries, factories or representative offices, according to the report.
That was the lowest number on record apart from during the Covid-19 pandemic.
Over the same period, a record 4,137 Japanese companies completely withdrew from China.
US President Donald Trump’s fluctuating tariff war with China has also added to the uncertainty, companies told the researchers.
Teikoku Databank found that about 60 per cent of Japanese manufacturers with production bases in China reported that US tariffs had affected their revenues.
