Japanese companies have been leaving China one after another, with Sony, Daikin, and now Mitsubishi potentially ceasing production in the country due to the deteriorating business environment. Geopolitical tensions between Japan and China are intensifying, which is leading to a change in their “political cold yet economic hot” relations. Experts believe that Japan’s key supply chains will gradually separate from China in the short term for derisking and in the long term for decoupling.
Mitsubishi Motors has reported that it may end its car production in China and is discussing an exit strategy with its local joint venture partner, Guangzhou Automobile Group (GAC). However, Mitsubishi Motors stated that no decision has been made yet. The weak sales in China have caused Mitsubishi a loss of US$78 million, and it is projected that GAC Mitsubishi’s sales in China will be significantly lower in 2022 compared to 2021. GAC Mitsubishi has already laid off employees and discontinued the Outlander SUV in China due to poor sales. Additionally, GAC’s car manufacturing plant in Changsha had stopped production in March due to declining demand.
According to research company MarkLines, China’s passenger car sales in 2022 reached over 20 million units, with Chinese brand sales accounting for 50.7 percent. The market share of Japanese companies decreased to 18.3 percent, down by 2.8 percent from the previous year. If Mitsubishi stops production in China, it will join Sony and Daikin as major Japanese companies that have withdrawn from the Chinese market. Honda and Mazda have also expressed their consideration of moving production out of China to reduce reliance on the country.
Teikoku Databank, a Japanese research company, revealed that the number of Japanese companies in China dropped from 13,600 to 12,700 between 2020 and 2022, reaching a 10-year low. The decrease is approximately 7 percent compared to pre-pandemic levels. In the same period, 2,176 Japanese companies left China, and 116 companies went bankrupt and ceased operations.
Experts have identified the lack of transparency in the Chinese Communist Party’s labor regulations and domestic policies as one of the main factors affecting Japanese companies in China. When the Japanese government’s policies clash with the political interests of the CCP, the latter often stirs up anti-Japanese nationalism and targets Japanese companies or civilians in China. The CCP’s tightened control, monitoring of foreign companies, and arrests of foreign investors and Japanese employees have further worsened China’s business environment.
Japan’s economic relationship with China is closer than that of the United States, even though Japan aligns with the U.S. in the ongoing tensions between China and the U.S. Consequently, Japan is adopting a policy of accelerating the evacuation of Japanese manufacturers from China. This will not only derisk but also lead to long-term decoupling from China. With fewer Japanese companies being “held hostage” by the CCP, the Japanese government may be less tolerant of the CCP and will likely support the U.S. in East Asia and the Indo-Pacific region geopolitically.