Economic collaboration between China and Japan remains a crucial anchor of bilateral relations despite rising global protectionism, supply chain realignments and Japan's policy tilt to the right, experts say.

They made the remarks on Tuesday at the Beijing launch of the Blue Book of Japanese Economy: Annual Report on Japanese Economy and Sino-Japanese Economic and Trade Relations (2025), jointly compiled by the Institute of Japanese Studies at the Chinese Academy of Social Sciences and the Chinese Association for Japanese Economic Studies.

The book underscores the continuing importance of the Chinese market to Japanese companies, even as Japan's foreign direct investment in China has declined amid global supply chain shifts, the sharp depreciation of the yen and rising labor costs.

According to Japan's Finance Ministry, direct investment in China reached 493.1 billion yen ($3.23 billion) last year, ranking China ninth among destinations for Japanese investment.

Yang Bojiang, director of the Institute of Japanese Studies, said Japan's net investment in China last year was nearly 60 percent below the 2017 peak, a key reason being "the relocation of manufacturing lines for United States-bound exports out of China to avoid tariff barriers and geopolitical risks".

However, experts cautioned against viewing the drop in Japanese investment as the entire picture, saying there are also positive signs from Japan's business community expressing a desire to deepen economic ties with China.

A survey released in August by the Japanese Chamber of Commerce and Industry in China found that 56 percent of respondent companies plan to "increase or maintain" investment in China this year, while 54 percent regard the Chinese market as "the most important" or "one of the top three important markets".

Chang Sichun, an associate researcher at the Institute of Japanese Studies, said that in terms of investment stock, China remains Japan's fourth-largest destination for direct investment, after the US, the United Kingdom and the Netherlands.

"Moreover, Japanese companies in China have consistently maintained high returns on investment, making China a crucial part of their global strategy, particularly in the services sector, where recent performance has been strong," Chang said.

The Japanese Chamber of Commerce and Industry in China said the return on direct investment for Japanese companies in China rose from 12.1 percent in 2015 to 18.4 percent in 2022, outperforming returns in the US (8.8 percent) and the UK(14.7 percent).

This strong performance is translating into a rebound. China's Commerce Ministry said actual investment from Japan grew by 58.9 percent year-on-year in the first eight months of this year.

Modernization results

Yang pointed to China's modernization achievements as a source of attraction.

"There is a growing appreciation in Japan for China's path to modernization. The country's successes in areas like poverty reduction and the digital economy are being closely watched by Japanese businesses, many of which increasingly see China as a front-runner in AI and digital technology," he said.

"Given China's immense market size and comprehensive supply chains, Japanese firms continue to have an inherent incentive to deepen trade and collaboration with China."

However, experts also warned of potential uncertainties arising from Japan's increasingly rightward political shift.

Zhang Yulai, a professor at the Japan Institute of Nankai University in Tianjin, said, "For example, the so-called economic security issue may become a priority for the new administration, which could suppress Japanese investment in China, particularly in high-tech sectors, and lead to stricter thresholds for Chinese investment in Japan."

Despite these challenges, economic realities will provide a powerful counterweight, he said. "The significant presence of Japanese companies in China and their substantial accumulated investment form an important channel for stabilizing bilateral relations."

Yang said, "Strengthening bilateral exchanges and ensuring the healthy development of China-Japan relations not only serves the fundamental interests of both countries and creates more business opportunities, but also contributes to regional prosperity and global economic recovery."

yangran1@chinadaily.com.cn