'Dual pressures' facing Japanese enterprises in China: Pathways to transformation amid geopolitical tensions, market shifts

Editor's note: Zhou Jianjun is assistant researcher at the Institute of State System Research and School of Economics, Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

Amid a politically sensitive climate shaped by hardline anti-China rhetoric from figures such as Japanese Prime Minister Sanae Takaichi, Japanese enterprises in China now find themselves at a critical juncture. 

On the one hand, Japanese policies aimed at driving corporate "de-risking" have intensified uncertainty in public opinion. On the other hand, the Chinese market itself has undergone rapid evolution. In sectors such as new energy vehicles and consumer electronics, domestic brands have risen to engage in direct competition with Japanese firms. Under the dual pressures of geopolitical tensions and market shifts, Japanese enterprises in China are confronted with an arduous path of transformation.

Japanese enterprises in China have been both witnesses to and participants in China's reform and opening up, and withdrawal from the Chinese market is neither an optimal decision nor a realistic option.

Since the reform and opening up, Japanese enterprises in China have exerted a profound influence on the technological innovation and managerial transformation of Chinese enterprises. In 1978, Panasonic became one of the first foreign-invested enterprises to establish operations in China. Japanese manufacturing was once synonymous with high quality, and products made in Japan enjoyed broad popularity among Chinese consumers. 

Renowned Japanese companies such as Toyota, Honda, Sony, and Panasonic provided models for Chinese firms to follow, and their technologies and management practices were extensively studied and emulated. Japanese enterprises in China have served not only as witnesses to China's opening up but also as benchmarks for the growth of Chinese enterprises. 

Over nearly half a century, Japanese companies have cultivated China into their largest overseas market. Bilateral trade between China and Japan reached $308.3 billion in 2024, data from China's Ministry of Commerce shows.

China and Japan have long formed a deeply embedded relationship characterized by mutual interdependence. For Japanese enterprises, withdrawing from China is not the optimal choice and would inevitably inflict a severe blow to their own operations as well as to Japan's broader economic development.

Geopolitics has emerged as the greatest source of uncertainty confronting Japanese enterprises in China, and identifying certainty amid such uncertainty has become a formidable challenge.

Trade often follows political signals, and geopolitical dynamics exert a profound influence on market operations. China and Japan continue to be burdened by unresolved historical issues, as Japan has yet to acknowledge wartime crimes such as the Nanjing Massacre, an enduring "Sword of Damocles" over bilateral relations.

Since assuming office, Sanae Takaichi made erroneous statements related to China's Taiwan region, further aggravating China-Japan relations and placing substantial pressure on the normal operations of Japanese enterprises in China. 

On the one hand, the Japanese government has increasingly framed China as a risk-prone market and, through a range of policy measures, has sought to steer enterprises toward reducing their reliance on China. On the other hand, erroneous statements from Japan's right-wing forces have prompted countermeasures from China, subjecting Japanese enterprises in China to heightened public opinion pressure. 

In recent years, some Japanese enterprises have adjusted their operations in China in an attempt to mitigate geopolitical risks. Looking ahead, geopolitics may even evolve into the single greatest source of uncertainty facing Japanese enterprises operating in China. Identifying market certainty amid geopolitical uncertainty will thus constitute a critical challenge for these enterprises.

The Chinese market itself is undergoing critical and profound changes, requiring Japanese enterprises in China to prepare for increasingly intense competition.

After years of development, China is no longer a low-end market, but rather a mature one characterized by dynamic innovation and fierce competition. This critical and profound transformation implies that Japanese enterprises can no longer approach the Chinese market with outdated mindsets and business models formed decades ago. 

In fields such as new energy vehicles and consumer electronics, a growing number of high-quality Chinese brands are emerging, posing direct challenges to Japanese enterprises in China. In some industries, Chinese firms have already established clear competitive advantages. This reality requires Japanese enterprises to adopt a more pragmatic and grounded approach, prepare for cutthroat competition, and deepen their engagement with the Chinese market with greater humility. 

Only by humbly learning from Chinese counterparts, engaging in mutual exchange, developing products better aligned with the needs of Chinese consumers, and continuously revitalizing competitiveness through innovation can Japanese enterprises truly adapt to the Chinese market. This is not only a path to survival for Japanese enterprises in China but also a sustainable strategy for their long-term development in global markets.