The Japanese Chamber of Commerce and Industry in China has recently released the results of a survey conducted from July 14 to 31 on the business outlook of 1,500 Japanese companies operating in China this year. A total of 1,434 responses were received, including 928 from manufacturing companies, 499 from non-manufacturing companies, and 7 from other organizations. This marks the seventh Survey on Business Sentiment Perception of the Business Environment by Member Companies conducted by the organization.
According to a previous report by NHK, upon releasing the survey results, Tetsurō Honma, Chairman of the Japanese Chamber of Commerce in China, told reporters attending the press conference that for the period from January to June 2025, compared to the previous period, the business conditions of member companies and the economic situation in China showed a worsening trend. The forecast for China's domestic economic situation in 2025 also indicates a deteriorating trend compared to 2024, though it has shown some improvement compared to an earlier period.
Regarding Japanese companies' attitudes toward continued investment in China, he pointed out that for investment in 2025, more than half of the companies stated they would "increase or maintain" their investment. Judging from the number of companies choosing to "increase" investment, the attitude appears relatively positive. In order to effectively advance these positive initiatives from Japanese companies, the Chamber will continue to urge the Chinese government to sustain and strengthen economic stimulus measures and implement policies that can truly boost the overall Chinese economy.
As for the specific attitudes of Japanese companies operating in China, analysts summarized several key points:
First, Japanese companies in China generally believe that Chinese economy this year has fallen short of expectations. The survey shows that Japanese companies generally perceive a "slight deterioration" in China's economic situation compared to the previous period, although the situation varies across industries and regions. According to the results, 14% of Japanese companies believe the outlook for China's economy this year will "improve" or "slightly improve" compared to last year, a drop of 1 percentage point compared to the survey conducted six months ago. At the same time, as many as 48% of Japanese companies expect the local economy to "deteriorate" or "slightly deteriorate", an increase of 4 percentage points from the previous survey. Since the proportion of companies expecting deterioration is significantly higher than those expecting improvement, China's economy this year is seen by these Japanese companies as performing below what was anticipated.
Second, nearly half of Japanese companies in China expect their profits to decline this year. The survey indicates that from January to June 2025, the business performance of member companies generally "worsened" compared to the previous period. Nearly half of the companies believe their profits will continue to decline in the second half of the year. 47% of surveyed Japanese companies in China expect their operating profits in China this year to "decline" or "slightly decline", an increase of 9 percentage points from the previous survey conducted at the beginning of the year. Analysts interpret this trend as a "slight deterioration".
Third, more than half of Japanese companies say they will increase or maintain investment in China, but the main driver behind this is China's stimulus policies. Specifically, regarding investment in China, 16% of Japanese companies said they would "significantly increase" or "increase" investment compared to last year, 40% said they would maintain the same level, while 43% stated they would "decrease" or "not invest" at all.
Looking at the reasons companies gave for increasing investment, some cited goals such as "pursuing long-term growth by investing in areas that have synergy with existing businesses" and "investing in startups". However, the primary motivation was the belief that "China will continue to roll out stimulus measures". Reasons for reducing investment in China included uncertainty about China's economic outlook and intensified price competition.
Fourth, while satisfaction with China's investment environment remains relatively high, there is significant concern over intense price competition. The survey shows that two indicators, namely "satisfaction with the business environment" and "receiving treatment equal to domestic companies", continue to maintain relatively high levels. Among areas where Japanese companies felt they were "not treated equally compared to Chinese firms", issues such as "government financial support/subsidies" remained at the top. Regarding business challenges, "decline in selling prices" ranked as the most pressing issue, followed closely by "rising labor costs". Concerns over the international situation remained unchanged from the previous survey.
Honma stated at the press conference that, "Among the areas where foreign companies are not treated equally to the Chinese firms, government financial support and subsidies ranked highest. As for business challenges, the impact of declining sales prices was the top concern. The Chamber will continue to request the Chinese government to address issues such as unequal competition between Chinese and foreign firms and excessive market competition, in order to improve the business environment for overseas companies, including Japanese enterprises".
Fifth, Japanese companies in China are highly concerned about the safety of their employees and their families. When it comes to suggestions for how China can improve its business environment, calls from Japanese companies for ensuring safety have been increasingly strong.
All in all, one clear observation is that Japanese companies' attitudes toward doing business in China are largely mixed, marked by both hope and concern.
It is evident that Japanese companies have been gradually adopting a more negative outlook toward their operations in China for some time. According to data from the Japan External Trade Organization (JETRO), from 2021 to 2023, the proportion of Japanese companies in China projecting a profit for the year fell from 72.2% to just above 60%. Additionally, the share of companies with a business expansion stance in China dropped below 30% for the first time in 2023. Conversely, the proportion of companies looking to scale down or even withdraw from the Chinese market increased significantly, with most categories seeing a rise of over 4 percentage points. Data from 2024 show that the proportion of Japanese companies planning to expand their business in China declined by 6% on the Mainland and by 7.8% in Hong Kong. As Japanese companies restructure their global supply chains, their operations in China have become increasingly focused on the domestic Chinese market. The weak performance of China's economy and intensifying competition from local Chinese companies, particularly in manufacturing, finance, and retail sectors, are the main reasons behind the increasingly cautious and pessimistic attitude of Japanese firms.
As it stands, the main drivers supporting Japanese companies' continued operations in China are increasingly becoming short-term in nature. Looking back at the history of China's reform and opening-up, since Japanese companies began gradually entering the Chinese market, the primary motivation for maintaining and expanding their presence has always been optimism and long-term expectations for the country's market potential. Even during times of heightened uncertainty, such as the period following the subprime mortgage crisis, this long-term outlook did not fundamentally reverse. However, the latest survey results from the Japanese Chamber of Commerce in China indicate that the current main reason Japanese companies choose to stay in China has shifted toward short-term factors, particularly government stimulus policies. Yet the actual effectiveness of various subsidy policies has shown that policy-driven stimulus alone cannot create sustained, broad-based improvements in the business environment. As a result, the favorable conditions that once supported Japanese companies in maintaining their operations in China may gradually weaken.
The trend of Japanese companies relocating out of China may now be irreversible. According to JETRO's full-year 2024 survey, the proportion of Japanese companies planning to expand operations in China has fallen to less than half of those with expansion plans in India. This suggests that, driven by U.S. geopolitical pressure and the proactive engagement between Japanese and Indian authorities, the momentum for Japanese companies to shift further toward India is likely to continue growing.
Combining the findings from the Japanese Chamber of Commerce in China and JETRO, it becomes evident that Japanese companies' overall attitude toward their China operations can be described as one of conflicted emotions, a mix of hopes and disenchantment, marked by hesitation and growing doubt, gradually shifting in a more negative direction. Moreover, this trend is likely to intensify, further accelerating the relocation of Japanese businesses out of China.
Final analysis conclusion:
Opening up to the outside world is a long-standing policy of the Chinese government. Large-scale and active foreign-funded enterprises and foreign capital are important proof of and contributors to the vitality of China's opening-up efforts. According to data from the country's Ministry of Commerce, in the first seven months of this year, Japanese direct investment in China increased by 53.7%, defying the overall downward trend of a 13.4% decline in total foreign investment. This growth is especially noteworthy. As a key foundation for ensuring China's continued participation in global supply chains and capital flows, the question of how China can genuinely retain Japanese companies deserves in-depth exploration.
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Zhou Chao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.
