Japanese investment in China continues to grow for a third year in a row with nearly half of Japanese companies in China planning to expand. Let's take a look why the Chinese market is attractive to them.

Shenzhen, China's hub of innovation and electronics manufacturing. Japan's AGC Display Glass has big plans.

MAKOTO SHIMIZU, CEO AGC DISPLAY GLASS CHINA "We have already invested in two factories in Shenzhen. We have also formed a joint venture with a Chinese company for display glass."

For many Japanese companies like AGC, Shenzhen has an irresistible advantage- proximity to clients. An upstream supplier for electronics industry, AGC is a wholly-owned Japanese company specializing in making glass for LCD screens. Their biggest customer in Shenzhen, CSOT, is right across the street.

MAKOTO SHIMIZU, CEO AGC DISPLAY GLASS CHINA "We are at the upstream of the electronics supply chain. You can't produce LCDs without glass. So we like to open up factories as close to our customers as possible. This greatly cuts logistics cost."

AGC is far from the only Japanese company planning to expand in China. According to a research done by Japanese External Trade Organization, almost half of the Japanese companies in China are planning to expand, with the hottest area being retail and manufacturing of high added value products. While according to the Japanese Chamber of Commerce and Industry in China, Japanese investment in China reached 3.8 billion U.S. dollars in 2018, a 16.5% hike year on year. AGC says they are optimistic in the Chinese market.

MAKOTO SHIMIZU, CEO AGC DISPLAY GLASS CHINA "China has great potential in terms of the display glass industry. We will increase our investment and supply in China in tune with the development of the sector, and we hope to have more and greater opportunities to grow in China."

There are, however, challenges facing Japanese companies, such as the rising labor cost and competition. But analysts believe Chinese market will remain attractive to Japanese capital.