The number of Japanese firms planning to expand in China has fallen to less than 30% for the first time, according to a survey published on Tuesday, with economic slowdown, increasing competition and geopolitical tension putting many off.
The waning appetite for Japanese businesses to augment operations in Japan's biggest trade partner, alongside the United States, underscores fraught bilateral ties between the east Asian neighbors.
In an annual survey by the Japan External Trade Organization, a semigovernmental export promotion agency, 27.7% of 710 companies said they were expecting to expand operations in China in the next a year or two.
The percentage declined from 33.4% last year and 40.9% in 2021.
Some 31 firms attributed their downsizing to economic uncertainty and a sluggish market, while 15 blamed a slump in Japanese auto sales in China, the world's top car market.
Japanese car makers, like other foreign brands, face the rise of domestic players in China, the popularity of electric vehicles and growing price competition.
Seven firms also noted rising geopolitical risks, with bilateral relations, rarely smooth, have been particularly strained over recent months.
China last month arrested a Japanese executive, an employee of Japanese drugmaker Astellas Pharma, on suspicion of espionage. The arrest has had a chilling effect on business, Japanese officials say.
Japan infuriated China when it began releasing treated radioactive water from its wrecked Fukushima nuclear plant into the ocean in August, leading to a Chinese ban on Japanese seafood.
Chinese President Xi Jinping and Japanese Prime Minister Fumio Kishida last week said they would pursue mutually beneficial relations in their first face-to-face talks in a year.