Japanese banks are withdrawing from China

Japanese banks are withdrawing from China. Major regional banks in Japan have reduced their branch networks in China by 20% over the past five years. This move is attributed to the poor performance of Japanese companies and rising labor costs in China, creating headwinds for the China strategies of these regional businesses. This withdrawal contrasts sharply with their active expansion into Southeast Asia and India.

According to a report and hearings from the National Association of Regional Banks, the Nikkei Asian Review surveyed the number of branches of 61 major banks operating overseas. While offices, branches, and local subsidiaries in China accounted for nearly half of the total, this number decreased from 50 in April 2021 to 40 by the end of March 2026.

In May 2025, Hokkaido Bank closed its Shenyang office. The office had operated for 19 years, primarily for gathering local information and helping clients expand their sales channels, but later shifted its operations back to Japan.

Kyoto Bank also closed its Dalian office in the same year, consolidating its operations in its Shanghai office. The increased burden of branch maintenance and the disappearance of customer demand have led to a downsizing (Kyoto Bank). Yaju Bank (now Yaju Nagano Bank) closed its Hong Kong branch in 2024.

In the 2000s, Japanese regional banks began establishing a presence in China. Against the backdrop of China’s sustained rapid economic growth, these banks conducted thorough investigations into local tax systems and regulations, and played a pioneering role in facilitating the entry of auto parts companies and other businesses into China. An executive of a Japanese company stated, “We look forward to the role of strategic partners, including information sharing, more than just financing.”

However, with Japanese automakers like Mitsubishi Motors and Honda withdrawing from or reducing production in China, Japanese regional banks are preparing to close a quarter-century chapter in their history. It is increasingly difficult to expect Japanese regional companies to adopt a proactive strategy again in China, a market with enormous potential.

Financing in China by Japan’s three largest banks is also sluggish. Sumitomo Mitsui Banking Corporation’s loans in China decreased by 40% over the five years starting from the end of March 2021, from $51.9 billion (including local subsidiaries in Hong Kong). Mitsubishi UFJ Bank’s loan volume also decreased by 20% from approximately 3.5 trillion yen during the same period. Mizuho Bank’s loans to its local subsidiaries in China also decreased by more than 30% combined.

The background is a decline in demand for funds. Many of the banks’ clients are Japanese-owned manufacturing companies, and soaring labor costs and rents in China have become a heavy burden for these companies. In the automotive sector, with the increasing popularity and improved quality of Chinese-made pure electric vehicles (EVs), the market share of Japanese cars is gradually declining.

Furthermore, there is a high level of vigilance regarding risks from China, such as the Hong Kong National Security Law (National Security Law). Many regional Japanese companies are considering diversifying their transactions, citing concerns about sudden disruptions to imports and exports (such as a machinery manufacturer in Chiba Prefecture).

In contrast to the situation in China, Japanese regional banks continue to expand into the Southeast Asian market. Labor costs are relatively low in many Southeast Asian countries, and the population is continuously increasing.

Chiba Bank established a branch in Singapore in January 2025. As a base targeting a wide range of regions beyond Thailand and Vietnam, including Australia, it will expand its sales network to non-Japanese companies. Bank 77, based in Miyagi Prefecture, has also established a presence in Singapore. In 2026, Bank Saikyo, based in Yamaguchi Prefecture, established a local subsidiary in Indonesia.

India, with the world’s largest population, is also a potentially lucrative market. Sumitomo Mitsui Banking Corporation has invested approximately 300 billion yen in a major Indian bank, and by 2025, three of Japan’s largest banks have made similar investments.

Regarding regional banks in Japan, Kyoto Financial Group plans to establish an office with representatives in India. The company has close ties with manufacturing companies such as Nidec and Kyocera and aims to attract clients such as Indian semiconductor companies.

Source: Nikkei