Japan’s service firms to hurt the worst in China split

In recent years, the Japanese government has made its desire to decouple from China amid rising Sino-American economic rivalry increasingly clear.

As early as 2020, the Shinzo Abe administration handed subsidies worth 70 billion yen (US$446.5 million) for Japanese manufacturers to move production from China to Southeast Asia or back to Japan.

Revisions to its Foreign Exchange and Foreign Trade Act the same year also enabled closer scrutiny by the Japanese government of trade in sensitive items with China on national security grounds, often in collaboration with US and European authorities.

However, multiple analyses have observed that the two countries’ deep and comprehensive trading relationship presents a substantial obstacle to decoupling. Indeed, Japan’s current economic relationship with China is defined by intricately intertwined supply chains.

As Japan’s largest trading partner, China purchases more than 21% of Japan’s exports while providing more than 24% of the goods that help the Japanese economy tick along. For Japan to genuinely decouple from China these figures need to be reduced.

Headlines show Japanese manufacturing is decoupling from China, if gradually and cautiously, due to multiple factors. The most prominent is a fear of being shut out from the lucrative US market as Washington ramps up tech and trade sanctions on China and starts to shut down China’s transshipment and other roundabout efforts to circumvent the punitive measures.

Whereas only 27% of Japanese firms with business ties to China expressed a desire to expand those ties, a slew of major Japanese manufacturers desire to establish new production facilities in the US. Many of these firms, notably Toyota and Panasonic, have received US