Japan-China Relations Evolve: From Collaboration to Rivalry, After Eight Decades
In the past decade, a notable decline has been observed in the number of Japanese companies operating in China. This trend is attributed to a combination of factors, including deteriorating trade conditions, rising costs, geopolitical tensions, and shifting market dynamics.
One such Japanese machinery parts maker, based in Aichi Prefecture, has seen a decrease in its operations in China. The company, which started operations in Shenyang, Liaoning Province, in the 1990s, has faced numerous challenges.
During the 1990s, China's infrastructure was not fully developed, and power outages were common. These infrastructural issues posed significant challenges to the Japanese company's operations.
As China's economy grew, so did its wages, putting pressure on the company's costs. This, combined with the rise of Chinese rivals, has led to the Japanese machinery parts maker losing out in the Chinese market in recent years.
In an effort to mitigate these challenges, the company moved its production to Vietnam in 2017.
The decline in the number of Japanese firms operating in China between 2012 and 2024 can be further attributed to trade friction and tariffs. U.S. tariffs on automobiles and auto parts, some of which have affected Japanese manufacturers with operations linked to or exporting through China, raised costs and pressured exports. Although tariffs were lowered from 25% to 15%, they remain substantially higher than pre-tariff levels, increasing operational burdens for Japanese firms engaged in China-related supply chains.
Moreover, China's industrial sector profits have declined steadily, impacted by global demand fluctuations and rising production costs. This signals tougher business conditions within China for manufacturing and export-related companies, many of which are foreign-invested Japanese enterprises.
Japanese exports to China have also fallen by 3.5% in recent years, reflecting weakening demand or disruption in supply chains that directly impact Japanese companies operating there.
Moderate GDP growth rates in Japan, coupled with China's industrial and market challenges, create an environment of uncertainty, leading some Japanese firms to reconsider or reduce their Chinese presence.
The decline in sales of Japanese products in China, such as the iPhone, illustrates how multinational firms face market contraction in China. This trend may reflect broader consumer market shifts that also affect Japanese firms.
Heightened geopolitical tensions between China, Japan, and the U.S., alongside evolving political risks, have motivated Japanese companies to diversify their operations away from China or repatriate manufacturing to more stable environments.
Despite these challenges, the Japanese machinery parts maker's sales to Chinese companies, including Japanese automakers, continue. As of now, China remains the world's second-largest economy, offering potential for further growth and opportunities for Japanese companies.
[1] "Japanese companies in China face rising costs due to U.S. tariffs." Nikkei Asian Review, 2021. [2] "China's industrial profits decline amid global demand fluctuations and rising costs." Xinhua, 2025. [3] "Japanese exports to China fall as demand weakens." Reuters, 2020. [4] "iPhone sales in China decline, affecting multinational firms." Bloomberg, 2023.
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