Export Curbs Put Japanese Firms in Beijing-Tokyo Crossfire

China restricted exports of dual-use goods, including rare earths, and in principle banned 40 Japanese companies from shipping them. Japanese companies are trying to keep business moving through a diplomatic rift, caught between two governments using economic ties as a security tool.

The state sets the terms

“It's necessary to approach from various angles, not just political and diplomatic ones,” said Ken Kobayashi, chairman of the Japan Chamber of Commerce and Industry, who intends to keep seeking contact with China. The business community’s appeal for communication comes as dialogue between Tokyo and Beijing on export controls has remained suspended since September 2025.

The dispute began after Prime Minister Sanae Takaichi said at a Lower House Budget Committee meeting on Nov. 7, 2025, that Japan's Self-Defense Forces could be deployed under the right to collective self-defense in “worst-case” scenarios, such as a Chinese naval blockade of Taiwan. She said such a scenario could constitute a “survival-threatening situation” for Japan. China responded with export restrictions and other measures, advised its citizens not to travel to Japan, and tightened controls on exports of military-civilian dual-use goods.

The effects have reached businesses linked to ordinary travel and trade. The Japan National Tourism Organization said Chinese visitor numbers to Japan in January-September were half the level recorded in the same period a year earlier. Outdoor clothing seller Goldwin said sales to Chinese visitors fell 20% to 30%.

Japanese Trade Minister Ryosei Akazawa acknowledged businesses’ concerns about stable rare-earth supplies. The government plans to work with private companies on export curbs, drawing on state stockpiles and diversifying procurement sources. That plan manages dependence; it doesn't remove the governments’ leverage over supply.

Dependence with a price tag

China dominates global rare-earth supply, and Japan remains heavily dependent on it despite efforts to diversify. After a 2010 collision between Japan Coast Guard patrol ships and a Chinese fishing boat off the Senkaku Islands in Okinawa Prefecture, Japan cut China’s share of its rare-earth imports to about 60%, down from around 90%.

Japan ranks as the world's second-largest producer of high-performance magnets. Yet an official of a major Japanese machinery maker said the country “still relies on China for refining and processing raw materials.” Tighter Chinese export restrictions this year caused procurement difficulties for some raw materials used in electric-vehicle magnets. Japanese companies secured materials from Australia and developed alternative technologies in response.

The machinery maker’s predicament contrasts with China’s reliance on Japanese technology. A report released in October by major Chinese broker Huaxi Securities said about 70% of chipmaking equipment used in China came from outside the country, while only about 5% of some precision parts were made in China. Japanese products accounted for slightly more than 20% of chipmaking-machine imports by volume, down from about 30% in 2021, while the value of imports from Japan had risen about 50%.

“Transactions between Japan and China have increased amid an artificial intelligence investment boom,” an official with a major Japanese chipmaker said, adding that China still relies heavily on Japanese technology. The two countries are diversifying sources while preserving selected dependencies. Security calculations and commercial opportunity shape that strategy; vulnerability hasn't disappeared.

Business carries on, under pressure

Some companies continue to pursue opportunities in China as they review supply networks. Sushiro expanded to 135 outlets in mainland China, and Mister Donut returned to the Chinese market in September 2026 after a hiatus of about seven years. Sumitomo Electric Industries and Koito Manufacturing reviewed their auto-parts operations in China. BYD and Alibaba Group Holding are pursuing opportunities in Japan.

Meanwhile, the Japan Business Federation, or Keidanren, postponed a delegation to China that had been scheduled for mid-November. The Kansai Economic Federation was planning a mission to China at the end of 2026. Keidanren chief Yoshinobu Tsutsui said Friday, “We must promote multilayered communication.” He added, “We urge the government to make efforts to this end as well.”

Foreign direct investment in China fell to its lowest level in 10 years. Executed investment in 2025 stood about 40% below its 2022 peak. China's Commerce Ministry cited geopolitical conflicts and protectionism. The number of Japanese firms operating in China fell by more than 20% in the past two years amid consolidation and withdrawals during the U.S.-China trade war. China seeks foreign capital while planning tighter economic-security regulations. Wang Guangtao, an associate professor of Japanese studies at Fudan University in China, predicted a new normal of low-intensity conflicts. Takaichi’s remarks reached their first anniversary on November 7, 2026. Companies still have to navigate the machinery of state rivalry.