Japanese companies planning to expand their business in China have fallen to a record low, as geopolitical tensions and a slow economic recovery continue to weigh on the world’s second largest economy.
Among 710 firms surveyed in an annual report by the Japan External Trade Organization, only 27.7% said they see themselves increasing their presence in China in the next one to two years, the first time the percentage fell below 30% in comparable records that go back to 2007. That shows a sudden drop in appetite among Japanese firms for its biggest trading partner, given over 40% were planning on expansion there just two years ago.
A cloudy economic outlook in China is one reason for the waning interest, according to the survey. Some companies cited a decrease in sales due to less demand, while others blamed an uncertain future for automobile sales in China. Geopolitical risks in the country becoming increasingly problematic was also an issue, especially among larger firms.
The weaker interest in China was in sharp contrast to around three quarters of Japanese firms in India expecting to expand their business, while nearly 70% of companies in Brazil said they plan to increase their presence. The improved sentiment in these countries can be attributed to a boom in demand for cars and other products, according to the JETRO report.
China has seen some strength emerge among mixed economic data in recent months, but the property market crisis has kept worsening, even as policymakers attempt to boost the economy through stimulus efforts. Japanese companies also have geopolitical reasons to be wary of boosting business activities in China, as US-China tensions continue, and disputes over territory, nuclear wastewater, and semiconductors persist between Japan and its neighbor.
Still, there’s been some recent steps to improve the two countries’ relationship. After Chinese President Xi Jinping and Prime Minister Fumio Kishida met last week, they agreed to seek a resolution over the Fukushima wastewater dispute.
