Japan Inc sours on China after long years of brushing off risks

Japanese companies are increasingly abandoning an approach to business in China that once seemed immune to politics, a stark shift after years when they were the biggest single investors in their neighbour's economy.

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In an era defined by geopolitical risks and worry over China's faltering growth, the economic maths no longer adds up for the likes of Nippon Steel, which said.

July it was exiting its joint venture in China. Mitsubishi Motors suspended its local operations indefinitely in 2023, a casualty of slumping car sales and China's rapid shift to electric vehicles.

Almost half of Japanese firms in China polled in a recent survey said they will not spend more or will cut investment in 2024. Companies listed rising wages, falling prices and geopolitics as the biggest issues they faced.

"We are now past Japan's peak economic engagement with China," said Mr Robert Ward, director of geo-economics and strategy at the International Institute for Strategic Studies in London.

The hurdles range from the USChinese tech competition to rising tensions in the Taiwan Strait, according to Mr Ward. "Geopolitics is a significant factor" in the changing attitudes, he said.

The slow-motion rupture threatens an economic bond that dates back more than four decades, when Japan started to extend trillions of yen in development assistance to China by way of low-interest loans.

Commerce and trade have been a pillar of an otherwise contentious relationship between the two Asian giants summed up among academics by the catchphrase "hot business, cold politics".

This time, the chill of geopolitical winds is proving hard to contain.

New foreign direct investment (FDI) is on track to stagnate near 2023's multi-year low after volumes in the first quarter fell to the lowest since 2016.