Japan’s direct investment in China in 2014 dropped 38.8 percent from the previous year to $4.33 billion, the Commerce Ministry said Thursday.
The plunge, which compares with a decline of about 4 percent in 2013, reflects soured bilateral relations over territorial and wartime historical issues, as well as rising labor costs in China.
In addition, analysts say, the depreciation of the Japanese yen is making it more difficult for Japanese companies to expand operations in China.
This is the biggest shrinkage since 1989, when Japan’s investment in China fell about 35 percent on year following the 1989 Tiananmen Square military crackdown, which had an immediate chilling effect on Beijing’s foreign relations, according to the Japan-China Economic Association.
In 2014, China attracted a total of $119.56 billion in foreign investment, up 1.7 percent year-on-year, according to the ministry.
While FDI inflows, excluding those in the financial sector, jumped nearly 30 percent from both South Korea and Britain, the ministry said investment from the United States dropped 20.6 percent and that from the European Union decreased 5.3 percent.