Market scale, growth prospects seen outweighing bilateral fluctuations

Japanese companies will remain committed to the Chinese market over the long term as they expect the country's market scale, growth prospects and business opportunities to outweigh fluctuations in bilateral ties, said executives and market watchers.

They said Japanese investment in China is an integral part of global industrial specialization, with economic spillovers from these investments helping support China's industrial upgrading. The two countries remain deeply interconnected through their economic and supply-chain linkages.

Despite headwinds in Sino-Japanese relations occurring since late last year, the proportion of Japanese-funded businesses in China choosing to stay committed to the market is as high as about 85 percent, said a white paper issued by the Japanese Chamber of Commerce and Industry in China last week.

According to the chamber, China hosts about 30,000 of the more than 70,000 overseas affiliates operated by Japanese companies worldwide.

Tetsuro Homma, the chamber's president, said that China is no longer viewed simply as a vast consumer market by Japanese companies, but also as a vital manufacturing base and a hub of innovation.

"It is also a supply base for outstanding talent, and a training ground for Japanese-funded businesses to build and sharpen their competitiveness," he said.

The close and complementary economic ties between the two countries are also reflected in trade flows. Two-way China-Japan trade grew 13.6 percent year-on-year to 1.02 trillion yuan ($150.93 billion) between January and May, while China's imports from Japan surged 23.9 percent on a yearly basis, said the General Administration of Customs.

Zhou Minliang, a professor of public policies at Northwestern Polytechnical University in Xi'an, Shaanxi province, said that although rising costs have prompted some Japanese manufacturers to diversify production across Asia — especially to Southeast Asia — China's competitive edge extends well beyond labor and land costs.

China's mature industrial ecosystem, efficient infrastructure and vast domestic market continue to provide advantages that remain difficult to replicate elsewhere in the short term, Zhou said.

Rather than viewing China solely as a production base, many foreign corporations — including Japanese firms — are shifting their focus toward higher-value activities such as research and development, advanced manufacturing, digitalization and green technologies, aiming to benefit from the country's push toward innovation-led growth, said Pan Yuanyuan, an assistant researcher at the Chinese Academy of Social Sciences' Institute of World Economics and Politics.

The shift toward higher-value investment is reflected in the latest data. China saw the actual use of foreign direct investment in high-tech industries surge 20.3 percent year-on-year to 116.33 billion yuan in the first four months, accounting for 40.4 percent of the country's total FDI, said the Ministry of Commerce.

Stephen Ma, chairman for China at Japan's Nissan Motor, said that China's vast market and expanding domestic demand are unlocking opportunities for the auto industry.

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The Japanese automaker's sales reached 653,000 units in China last year, with unit sales rising 4.5 percent year-on-year in the second half.

Similar confidence is also evident among Japanese suppliers. Marelli Holdings Co, a Japanese automotive parts manufacturer, is expanding its presence in the country in areas such as smart lighting, electronics and intelligent cockpit technologies, underscoring China's growing role in the company's global operations.

"The competition in China's automotive sector is increasingly shifting toward faster product iteration, intelligent features and cost efficiency, requiring multinational suppliers to respond more quickly to demand for smarter user experiences and affordable innovation," said Shen Kelei, the group's executive vice-president.

Contact the writers at zhongnan@chinadaily.com.cn