1. The smooth debut of Takaichi’s diplomacy received initial praise
I visited Beijing, Shanghai, and Guangzhou from October 19 to November 1.
While I was China, three important meetings took place: a Japan-US summit on October 28, a US-China summit on October 30, and a Japan-China summit on October 31.
Japan’s Prime Minister Sanae Takaichi managed her meetings with the US and Chinese leaders without a major hitch, although these meeting took place soon after she took office. In short, Takaichi’s diplomacy got off to a smooth start.
She gave due consideration to Japan-China relations by, for example, refraining from visiting Yasukuni Shrine.
PM Takaichi is known as a hardliner toward China. Out of wariness, Beijing sent a congratulatory message on her inauguration from Premier Li Qiang, rather than President Xi Jinping.
For this reason, some observers worried that a Japan-China summit meeting would not take place during the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju, South Korea. The meeting did take place.
Until then, I often heard officials of Japanese firms stationed in China praise the more-than-expected ability of PM Takaichi to navigate diplomacy in a levelheaded manner.
The Japanese company officials are often China business veterans with 10 to 20 years of experience residing in the country. They suffered frequent headwinds against their operations in China whenever Japan-China relations turned sour, not least when the Senkaku Islands dispute erupted.
In such headwinds, Japanese firms doing business in China are suffering sluggish sales in the Chinese market and worsening business performance in the near term. They can also suffer longer-term damage from the pervasiveness of negative views in Japan toward China business.
Managers at these firms stationed in China worked hard to cultivate the Chinese market. They wanted to capitalize on business opportunities created by such efforts to improve business performance. So, they proposed plans to invest more in China business to their management at the head office for approval, only to be turned down. This is what repeatedly happened to them.
Because of such bitter experiences, they praised the smooth debut of Takaichi’s diplomacy. They were beginning to have high expectations for better Japan-China relations.
Some of them expressed concerns, however. They wished that she would carefully steer clear of the red lines regarding such as issues associated with Taiwan, the bilateral history, and the territorial dispute.
2. The setback over the Taiwan issue and the ripple effect
It was under such circumstances that a thorny issue arose. Right after the Japan-China summit meeting, PM Takaichi posted on social media a photo of her posing with a Taiwanese representative.
Commenting on this issue, Mr. Kenji Minemura, a colleague at the Canon Institute for Global Studies well-versed in Chinese domestic politics and foreign policy, told a Japanese weekly magazine, “Mr. Xi must be seething with rage for what [he thinks] made him lose face right after the summit meeting” (Shukan Post, November 7, 2025).
Mr. Minemura’s view must have been shared by many of the Japanese company officials stationing in China. And things did not stop there.
In answering a question from Mr. Katsuya Okada of the Constitutional Democratic Party of Japan at the meeting of the Lower House Budget Committee on November 7, PM Takaichi gave a blunt explanation as to how she interprets a “survival-threatening situation.” Her remarks became a target of severe criticism from the Chinese side.
The ripple effect was not confined to the diplomatic arena. The Chinese government called on Chinese tourists to refrain from visiting Japan and on Chinese students to think twice about going to Japan for study.
Many are worried about the possibility that Beijing will ramp up restrictions again on issuing short-term visas for Japanese nationals as well as on importing Japanese marine products.
I’m afraid that many of the Japanese company officials who were delighted at the smooth debut of Takaichi’s diplomacy, most notably those with long experience residing in China who remain at the forefront of China business, are in a dismal mood, thinking about possible adverse effects on their China business.
3. Japanese firms turn positive in China amid its economic slowdown
I gained two important insights during my latest visit to China. They seem mutually contradictory at first glance.
One insight is the prospect that the Chinese economy will follow a declining trend in the near term. Thanks to pump-priming measures from September last year, the real estate market and the business sentiment were showing some positive signs for about six months until around March this year.
In the April-June quarter this year, however, the Chinese economy entered another downward phase, with consumption, investment, the real estate market, and the business sentiment all on a mild decline.
This trend is continuing in this October-December quarter. A similar trend will persist into next year, according to most economists.
Thus, if the current macroeconomic policy is maintained, many economists predict that the economy will slow below this year’s projected rate of around 5% and will remain in the low 4% range next year.
The other insight I gained is that despite this headwind, the tide is turning for Japanese businesses’ investment in China.
A positive investment stance was indicated by the latest of the periodic questionnaire surveys of Japanese firms operating in China conducted by a major Japanese financial institution. Although previous surveys showed that the percentage of the respondents that said they would reduce their investment in China declined gradually between 2023 and 2025, the latest survey revealed that the percentage of the respondents that said they would do so in one or two years plunged to 20%. About two-thirds said they will maintain the current levels and 10-odd percent said they will increase their investment.
The positive change in Japanese firms’ attitudes toward investing in China is largely attributable to two factors:
One is that only firms that are aggressive in relative terms have survived in China with other firms having implemented their policies of downsizing or withdrawing their operations. The other is relaxed regulations on the issuance of short-term visas since November in last year. The second factor is of special importance.
Thanks to the second factor, a surging number of executives and manager-level employees at head offices of Japanese companies are visiting China. As a result, these head offices now have a better understanding of the realities of the Chinese market.
To be sure, the Chinese economy is losing a lot of steam as far as macroeconomic data are concerned.
Another problem attracting attention through media reports is excessive competition as represented by the term “involution 内巻” (nèijuǎn). What with businesses boosting production without profit and suppliers operating at a loss, negative news abounds.
If you visit China, however, you will notice that cutting-edge technologies in high-tech industries, which are not covered by Japanese media, excel their Japanese counterparts.
What is more, you will be overwhelmed by the occupational dedication of outstanding young employees at such businesses. Such hands-on experiences in China are changing the perception of China by management at Japanese companies.
Such changing perception is promoting Japanese firms to invest more actively in China as described earlier.
4. Savvy business judgments needed
From all the information above, it is safe to say that Japanese companies’ stance on investing in China will reach a turning point in 2025 and that surviving companies will likely enter an offensive phase.
Japanese firms’ willingness to invest in China is something to welcome for the government of China as well, whose economy is in a recession phase for which no viable breakthrough can be found in the near term.
Beijing somewhat separates foreign and economic policies.
It is quite conceivable that local governments in China, in particular, will maintain the stance of welcoming investment from Japanese businesses. This is something Japanese firms strongly hope for as well.
I recall that Chinese consumers continued to buy products of Japanese companies even when Japan-China relations hit a nadir after the Senkaku Islands dispute arose in 2012.
Yet the Japanese auto industry suffered severe, lingering damage. For several years, many Chinese consumers continue to shy away from Japanese automobiles, which were considered to symbolize Japan.
The reality, however, was that no major damage was done to consumer goods except automobiles.
There was another problem. Head offices in Japan came to see a reputation risk in expanding investment in China and thus became reluctant to do China business.
In terms of the medium- to long-term impact on Japanese firms’ China business, the negative stance of the Japanese side on investments in China—rather than the reluctance of the Chinese side to buy Japanese products—had a more adverse effect on not a few Japanese firms.
It is necessary to closely watch how the latest diplomatic challenge will affect diplomatic and economic relations between Japan and China.
In the process, it should be considered that China tends to make a distinction between its severe diplomatic stance and its stance on accepting Japanese firms.
The damage will be repeated if management at head offices in Japan fail to pay adequate attention to insights on the ground and make a negative judgment based on what the media say.
I strongly hope that even against a strong headwind caused by deteriorating Japan-China relations, Japanese corporate managers value firsthand local information from China or even visit China themselves to make a levelheaded assessment of the local business climate and act accordingly in a savvy manner.
The idea is not to stop the tide from turning positive for China business, avoiding the backslide into negative behaviors.
The Chinese economy, which overtook the Japanese economy in 2010, is now becoming five times big. Steady business growth of Japanese firms in the huge Chinese market will underpin the revival of Japan’s economic prowess.
Hopefully, the turning tide this year will result in Japanese companies expanding their operations in China again. That can provide a major boost to the Japanese economy, which is waking up from 30 years of sleep and regaining its long-term and stable growth potential.