Despite the global rise in protectionism, supply chain realignments, and Japan’s political shift to the right, economic collaboration between China and Japan continues to be a cornerstone of their bilateral relationship. This was highlighted during the Beijing launch of the 2025 Blue Book of Japanese Economy, a report co-authored by the Institute of Japanese Studies at the Chinese Academy of Social Sciences and the Chinese Association for Japanese Economic Studies. The report emphasizes the enduring significance of the Chinese market for Japanese businesses, even as Japan’s foreign direct investment in China has seen a decline due to global supply chain shifts, the yen’s depreciation, and rising labor costs. According to Japan’s Finance Ministry, China ranked ninth among destinations for Japanese investment last year, with direct investment totaling 493.1 billion yen ($3.23 billion). Yang Bojiang, director of the Institute of Japanese Studies, noted that Japan’s net investment in China last year was nearly 60 percent below its 2017 peak, largely due to the relocation of manufacturing lines for U.S.-bound exports out of China to avoid tariff barriers and geopolitical risks. However, experts caution against interpreting this decline as the full picture. A survey by the Japanese Chamber of Commerce and Industry in China revealed that 56 percent of respondent companies plan to ‘increase or maintain’ investment in China this year, with 54 percent considering the Chinese market as ‘the most important’ or ‘one of the top three important markets.’ Chang Sichun, an associate researcher at the Institute of Japanese Studies, pointed out that China remains Japan’s fourth-largest destination for direct investment, following the U.S., the U.K., and the Netherlands. Japanese companies in China have consistently maintained high returns on investment, particularly in the services sector, where recent performance has been strong. The Japanese Chamber of Commerce and Industry in China reported that the return on direct investment for Japanese companies in China rose from 12.1 percent in 2015 to 18.4 percent in 2022, outperforming returns in the U.S. (8.8 percent) and the U.K. (14.7 percent). This strong performance has led to a rebound, with China’s Commerce Ministry reporting a 58.9 percent year-on-year increase in actual investment from Japan in the first eight months of this year. Yang also highlighted China’s modernization achievements as a key attraction for Japanese businesses, noting growing appreciation in Japan for China’s path to modernization, particularly in areas like poverty reduction and the digital economy. However, experts warned of potential uncertainties arising from Japan’s increasingly rightward political shift, which could suppress Japanese investment in China, particularly in high-tech sectors. Despite these challenges, the significant presence of Japanese companies in China and their substantial accumulated investment form an important channel for stabilizing bilateral relations. Strengthening bilateral exchanges and ensuring the healthy development of China-Japan relations not only serves the fundamental interests of both countries but also contributes to regional prosperity and global economic recovery.