Japan and China's economy is becoming increasingly "selective dependent" - take advantage of business opportunities by dispersing the supply network - 1 year since responding to the Taiwan crisis

Seven days will mark one year since Prime Minister Sanae Takaichi's response to the Diet regarding the Taiwan emergency situation. Both Japan and China are gaining momentum in reconsidering their mutual dependence from the perspective of economic security. China is diversifying its procurement sources for semiconductor manufacturing equipment and Japan for important minerals such as rare earths. Still, ties to huge markets and cutting-edge technology remain strong, and there is a clear sense of ``selective dependence'' in pursuing business opportunities while minimizing risks.

Business world urges to improve relations; China's export controls weigh on corporate activities - 1 year since Taiwan's response

◇Japanese technology and Chinese resources

The "de-Japanization" of the Chinese semiconductor industry is only halfway done. A report released in October by Huaxi Securities, a major Chinese securities company, shows the reality of domestic production. Approximately 70% of semiconductor manufacturing equipment is made overseas. The proportion of Japanese-made products in imports decreased from about 30% in 2021 to just over 20%, but the import value, on the other hand, increased by about 1.5 times. Only about 5% of some precision parts are made in China. One Japanese semiconductor giant said, ``The boom in artificial intelligence (AI) investment has led to an increase in trade between Japan and China,'' indicating that Japan is unable to let go of Japanese technology.

China controls the world's supply of rare earths. Although Japan is trying to diversify its procurement sources, it is still at its mercy. After the fishing boat collision off the coast of the Senkaku Islands in 2010, the proportion of Chinese products was lowered from about 90% to just over 60%. However, even Japan, the world's second-largest producer of high-performance magnets, relies on China for the refining and processing of raw materials (a major machinery company). This year, some raw materials for electric vehicle (EV) magnets will not be available due to China's tightened export regulations to Japan, and Japanese companies are rushing to secure Australian-made materials and develop alternative technologies.

◇Japanese companies continue to expand, even with withdrawal and reorganization

We will also look for new business opportunities while reviewing our supply network. Restaurant chain Sushiro has expanded its number of stores in mainland China to 135, and Mister Donut also re-entered the Chinese market in September for the first time in seven years. On the other hand, in the automotive parts sector, Sumitomo Electric Industries and Koito Manufacturing have reviewed their businesses, and the situation is ``different depending on the industry'' (Libo Shanghai, a Chinese credit bureau). Chinese companies such as BYD, a major EV company, and Alibaba Group, a major e-commerce company, are making an offensive into the Japanese market.

In contrast to these developments, foreign companies' direct investment in China has fallen to its lowest level in 10 years. The disbursement amount in 2025 decreased by about 40% from the peak in 2022. China's Ministry of Commerce cited "geopolitical conflicts and protectionism" as headwinds. The number of Japanese companies has decreased by more than 20% in the past two years, with withdrawals and reorganization progressing due to friction between the United States and China.

The Chinese government is trying to attract foreign investment to stem the decline in investment, but it also plans to tighten economic security regulations. Wang Guangtao, vice professor of Japanese studies at Fudan University, believes that Japan-China relations will "move to a 'new normal' characterized by low-intensity conflict." As political tensions become commonplace, how can we balance practical benefits and security? Governments and companies in both countries are constantly forced to draw the line between "selective dependence." (Beijing Jiji)