Japan's corporate footprint in China has shrunk to its smallest since records began in 2010. Teikoku Databank, a Japanese credit research firm, said on September 28 that 10,118 Japanese companies had a subsidiary, factory or representative office in China as of June 2026, down 2,916 in two years.
That is a 22.4% drop from 2024 and nearly 30% below the 2012 peak of 14,394.
The decline is being driven from both ends. Only 1,221 Japanese companies entered China between 2024 and 2026, fewer than the 1,352 that arrived during the pandemic years of 2020 to 2022 and the lowest of any survey period. Over the same stretch, a record 4,137 companies were listed as withdrawn or whereabouts unknown, a category that includes sites that have shut down. Teikoku Databank concluded that Japanese business in China has moved out of an expansion phase and into one of restructuring.
Shanghai Loses 1,085 Sites and Beijing Is Down by Half
Shanghai remains the largest cluster of Japanese businesses in China, yet it lost 1,085 sites, about one fifth of its total, in two years. It now sits roughly 30% below its 2022 level.
Beijing counts just 555, about half the 2022 figure. The capital hosts many financial, consulting, IT and regional management offices, and Teikoku Databank said a heavier burden of regulatory compliance, along with companies streamlining their regional headquarters functions, has kept thinning those sites.
Inland China has not filled the gap. Japanese company counts also fell in Shaanxi, Chongqing and Sichuan, so there is little sign of the coast-to-interior relocation that some had expected.
Manufacturers Shift Output to Vietnam and Back to Japan
Manufacturing alone shed 933 sites over the two years, and wholesale and service companies also pulled back. Textiles, printing and publishing, and furniture, all labor intensive industries, shrank the most.
Some companies are moving production to Vietnam and other Southeast Asian countries, or bringing it home to Japan. China's role as a low cost production base, built on cheap labor that once made it the "world's factory," is fading, and small and midsize companies and labor intensive sectors are taking the hardest hit.
Takaichi's Taiwan Remarks Triggered Beijing's Economic Pressure
Teikoku Databank lists worsening Japan-China relations first among the risks facing companies operating there. Others on its list include China's property slump, economic coercion such as rare earth export curbs, the revised Counter-espionage Law, overcapacity, and price competition from state-backed Chinese rivals.
Relations began to sour on November 7, 2025, when Prime Minister Sanae Takaichi told the lower house of Japan's parliament that a Chinese naval blockade of Taiwan backed by force could amount to a "survival-threatening situation" for Japan. Under that designation, Tokyo could exercise collective self-defense and use force even if Japan itself had not been attacked.
Beijing responded by urging its citizens to avoid travel to Japan, halting imports of Japanese seafood and suspending academic and cultural exchanges. In a December 2025 report, Teikoku Databank said the abrupt policy shift and economic pressure had become a source of concern for businesses.
Chinese Rivals Named Top Threat in JETRO Survey
A fiscal 2025 survey by the Japan External Trade Organization (JETRO) found that 74.5% of Japanese companies in China regard Chinese firms as their biggest competitor. Japanese rivals came a distant second at 13.5%. More than 80% of manufacturers pointed to Chinese competitors, as did more than 90% of electronic components makers and nearly 90% of makers of auto and other transport equipment parts.
The picture was not uniformly bleak. In the same survey, 63.2% of respondents expected a profit for 2025, up from 58.4% a year earlier, and 64.3% planned to keep their China operations at the current scale. Companies intending to downsize, shift to a third country or leave altogether made up 14.4% combined.
The questionnaire, however, was fielded in August and September 2025, before Takaichi's remarks and Beijing's retaliation. Even then, only 21.3% of respondents planned to expand in China, the lowest share since non-manufacturers were added to the survey in fiscal 2007.
US Tariffs Weigh Heavily on Manufacturers With China Sites
Washington's trade policy adds another strain. In an October 2025 poll of about 450 Japanese companies with operations in China, Teikoku Databank found that 47.1% expected U.S. tariffs to cut their profits in fiscal 2025, compared with 33.4% across all companies. Among manufacturers with China sites, the share climbed to 58.4%.
Teikoku Databank Expects More Exits From China Over Time
A full exodus is unlikely in the near term. China still offers a vast domestic market, a complete parts supply chain and deep industrial clusters. Teikoku Databank said low cost manufacturing is giving way to higher value work in production, sales, research and development, and information services, with the remaining sites increasingly concentrated among midsize and large companies.
Its outlook beyond 2026 is that companies will keep operating in China and accept the risks in the short run. Over the medium to long term, however, it expects mergers and closures of local subsidiaries, the "exit from China" trend, to increase as firms cut their dependence on the Chinese market.
The shift carries implications for Taiwan, whose manufacturers are similarly embedded in East Asian supply chains. Worth watching is how Japanese companies redistribute capacity among China, Japan and Southeast Asia, and whether they ask suppliers to build production and sourcing outside China as well.
Taiwan Contingency: Full Timeline
From Prime Minister Sanae Takaichi's November 2025 remarks in parliament to the latest developments, our timeline tracks every key turn in the Japan-China standoff and is updated regularly.
