A major change is taking place in the way Japanese companies do business in China. A record number of Japanese firms have closed their China operations, according to new data from Teikoku Databank, Japan’s largest corporate credit research company.
As of June 2026, 10,118 Japanese companies had a business presence in mainland China. This was the lowest figure since Teikoku Databank began its records in 2010.
The number was down by 2,916 companies, or 22.4%, from 13,034 in 2024. It was also 29.7% below the 2012 peak of 14,394 companies. The data covers mainland China and does not include Hong Kong, Macao or Taiwan.
This does not mean that Japanese companies have stopped doing business with China. China remains a huge market and a major part of global supply chains. But the latest figures show a clear change. Many Japanese firms now want a smaller China presence, while others want to move part of their business to other countries.
Teikoku Databank describes this change as a move from an expansion phase to a restructuring phase.
The Numbers Tell a Clear Story
The latest figures show how fast the change has taken place.
Between 2024 and June 2026, 4,137 Japanese companies exited China or became untraceable. At the same time, only 1,221 new Japanese companies entered the Chinese market.
That means the number of companies that left was more than three times the number of new entrants.
The 4,137 exits were the highest figure in the history of the survey. The 1,221 new entrants were the lowest number outside the period from 2020 to 2022, when the Covid-19 crisis caused major disruption to business plans.
The result was a net fall of 2,916 companies in only two years.
This is important because Japanese companies have had a long relationship with China. For decades, China offered low production costs, a large workforce, a huge consumer market and close access to suppliers.
Many firms built factories there. Others created sales offices, local subsidiaries and service networks.
Now, many of those old plans are under review.
China Is No Longer the Same Business Market
One major reason for the change is the Chinese economy.
China remains one of the world’s largest economies, but its growth has lost some of the strong pace seen in earlier decades. Consumer demand has also faced pressure.
That matters to Japanese companies that once viewed China as both a low-cost factory and a fast-growing market.
The old model was simple. A company could build a factory in China, make products at a lower cost and sell those products to Chinese consumers.
That model has become harder for some firms.
Chinese companies have also become stronger in many industries. Local firms now compete with foreign companies in cars, electronics, machinery, chemicals, batteries and other sectors.
For Japanese companies, this means China can be both a manufacturing base and a tough sales market.
The Financial Times reported that Japanese companies are now reassessing long-held views about the value and risk of their China operations.
US Tariffs Add Another Problem
US trade policy has also added pressure.
Many Japanese companies use China as part of their global production system. A product may use parts from Japan, have final production in China and then reach customers in the United States.
When the US places high tariffs on goods linked to China, this model becomes more expensive.
Teikoku Databank found that more than 60% of Japanese companies with operations in China said US tariff policy had an effect on their overseas business.
The impact was even higher among manufacturers. About 64.8% of Japanese manufacturers with China operations reported an effect from US tariff negotiations, compared with 56.0% across the wider group of companies surveyed.
For companies with large factories in China, this can create a serious cost problem.
A factory may still be efficient inside China. But if the final product faces a large US tariff, the company may decide that another production base makes more sense.
This is one reason many firms have looked at countries such as India, Vietnam and Thailand.
Japan and China Face More Political Tension
Business decisions have also faced a more difficult political environment.
Japan and China have important trade ties, but relations between the two countries have become more tense.
A dispute over Japan’s comments on Taiwan has added to the strain. China has also placed restrictions on some critical mineral exports. At the same time, travel between the two countries has suffered pressure.
For businesses, political tension creates uncertainty.
A company may spend billions of dollars on a factory that is expected to operate for decades. If relations between two countries become less stable, the company has to consider what could happen to trade, supplies, staff and customers.
This does not mean every Japanese company sees China as too risky. Many still have large operations there.
But the latest data suggests that some firms now place more value on business flexibility.
The Rise of the “China Plus One” Model
One major change in global business is the rise of the China Plus One strategy.
The idea is simple. A company does not need to leave China completely. Instead, it can keep its Chinese business while also create factories or supplier networks in another country.
This approach gives companies another option if tariffs, political problems or supply disruptions affect China.
Japan’s companies have looked at several countries for this second base.
India, Vietnam and Thailand have become important choices for supply chain diversification, according to the Financial Times.
This does not mean China will lose all Japanese investment. In many cases, a company can keep its Chinese factory while add another site elsewhere.
That approach can cost more in the short term, but it can reduce dependence on one country.
India, Vietnam and Thailand Get More Attention
The shift away from China can create new opportunities for other Asian economies.
India has a large domestic market, a large workforce and a growing role in electronics and manufacturing.
Vietnam has become an important production base for electronics, consumer goods and other products.
Thailand has long had a strong industrial base, especially in areas such as automobiles and electronics.
Japanese companies can use these markets as part of a wider supply chain.
The change does not happen overnight. A company cannot simply close a factory in China on Monday and open an equal facility in another country on Tuesday.
Factories need land, staff, suppliers, power, transport links and local partners. Companies also need to train workers and establish quality systems.
So, even when a Japanese company decides to reduce its China presence, the process can take years.
China Still Has a Strong Supply Chain
There is another side to this story.
China remains very difficult to replace in many industries.
The country has a huge network of suppliers, ports, factories, skilled workers and logistics companies. Many parts can be made close to the final factory.
A recent report noted that some companies that moved production away from China later faced problems with supply chains and production capacity. Some then brought part of their orders back to Chinese suppliers.
This shows why the current change should not be seen as a complete business exit from China.
For some companies, China still offers advantages that other countries cannot easily match.
The more likely change is a wider spread of production.
Instead of one factory serving several global markets, a company may use several factories across Asia.
Japanese Automakers Face a Special Challenge
The automobile sector shows another part of the problem.
China has become a major force in electric cars and battery technology. Chinese carmakers have expanded quickly and have put strong pressure on foreign brands.
Japanese car companies have faced this competition inside China.
For a Japanese automaker, China is not simply a place to make cars. It is also a major market where local companies have become stronger.
This creates a difficult business situation. A Japanese company may need to spend more money to keep up with Chinese technology while also deal with weaker demand or tougher price competition.
The result can be a review of factories, product plans and future investment.
The issue is therefore not only about tariffs or politics. Competition inside China also matters.
Higher Costs Change Old Business Plans
Labour costs are another factor.
China was once famous for very low manufacturing costs. That was a major reason why foreign companies built large production networks there.
Over time, labour costs have risen.
This does not make China uncompetitive in every sector. Its large supplier base and strong infrastructure can still make production attractive.
But when companies compare China with Vietnam, India, Thailand or other locations, the total cost can look different from what it did 10 or 20 years ago.
Companies now have more choices.
That changes the balance.
A factory that made perfect sense in China in 2012 may not offer the same value in 2026.
Industrial Overcapacity Is Another Concern
Japanese companies also face concerns about excess capacity in parts of the Chinese economy.
When too many factories produce similar goods, prices can fall. That can hurt profits for both local and foreign companies.
The Financial Times cited concern about China’s industrial overcapacity as another factor behind the recent exits.
For a foreign company, lower prices can create an additional problem.
It may have high costs for research, staff and production, while local rivals compete at lower prices.
This can make the Chinese market less attractive for certain products.
This Is a Restructure, Not a Complete Break
The most important point is that Japanese companies are not simply abandoning China.
The latest data shows a major reduction in the number of Japanese firms with a presence there. But thousands of Japanese companies still operate in mainland China.
The country remains too large and too important for many firms to ignore.
Instead, the business model is changing.
Some companies may close factories. Some may reduce staff. Others may stop new investment but keep existing facilities. Some may move part of their production to other Asian markets.
Others may keep China as a major market while reduce its role as a global production centre.
This creates a more balanced approach.
What the Future Could Look Like
The latest numbers suggest that the old era of constant Japanese expansion in China has ended for many companies.
Between 2024 and 2026, 4,137 companies left or became untraceable, while only 1,221 entered. The total number of Japanese companies in mainland China fell to 10,118, the lowest level since records began in 2010.
The reasons are not limited to one issue.
China’s slower economic pace has affected demand. US tariffs have raised trade risks. Labour costs have increased. Chinese competitors have become stronger. Political ties between Tokyo and Beijing have faced pressure. Concerns about industrial overcapacity have also changed business calculations.
Together, these factors have made companies rethink their old China strategies.
The next phase may not be about choosing China or leaving China.
It may be about having more than one answer.
Japanese companies can keep important Chinese operations while build stronger bases in India, Vietnam, Thailand and other markets. That approach can give them more flexibility when trade rules change or political relations become difficult.
China will remain a major part of the Asian economy. But the latest data shows that Japanese companies no longer treat a large China presence as the only path to growth.
The message from the numbers is clear: Japanese business in China is moving from expansion to restructuring.
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