The Lowy Institute for International Policy, an Australian think tank, released a report on Monday saying that the cooling of Chinese-Japanese diplomatic relations masked the counterproductive rise in Japan‘s economic ties with China. The report cited data from the Ministry of Commerce of People‘s Republic of China showing that Japan‘s direct investment in China surged by 55.5% year-on-year in the first three quarters of 2025, becoming an important source of significant growth in investment in China in the first three quarters. The report said that Japanese capital was flowing in the opposite direction to China, showing a completely different trend from bilateral political relations.
According to the report, not only did Japanese investment in China increase, but data for the entire year 2025 showed that Swiss investment in China increased by 66.8% year-on-year, British investment increased by 15.9%, and UAE investment increased by 27.3%, mainly due to these countries‘ interest in green energy and digital economies. The Lowy Institute for International Policy said that as China‘s 15th Five-Year War begins, Beijing is implementing “targeted opening”: fully opening up the manufacturing industry while selectively guiding foreign investment into areas such as artificial intelligence, electric vehicles and digital services, thereby attracting large inflows of overseas capital.
The report refutes the rhetoric of “foreign investment withdrawal from China”. The Ministry of Commerce of the People‘s Republic of China‘s data show that throughout 2025, the number of new foreign investment firms established in China reached 70,392, up 19.1% year-on-year. The report also says that Japanese large companies are increasingly adopting a strategy of “staying in China, serving China”, and that Japanese businesses in China are also being reshaped, from purchasing and exporting semi-finished products from China in the past, to now tending to be embedded directly in the Chinese supply chain – a shift that has allowed many companies to achieve structural integration with the Chinese economy.
Even more intriguing is the rise of the “Third Country Channel”. Global offshore financial centers such as the UK and Switzerland are becoming indirect portals for Western capital and technology to enter China. The report said that on the economic and technological level, Japanese companies are continuously deepening their ties with China through mutual funds and partnerships based in Saudi Arabia, Switzerland or the UK. It is expected that in 2026, more Japanese companies seeking to avoid geopolitical risks will invest in China through subsidiaries or joint ventures based in third countries. The think tank believes that this type of investment is likely to become a new paradigm for the world to connect with China’s economy.
“For a long time, China has been a hotbed for global foreign investment enterprises. Investing in China is investing in the future,” Zhou Mi, a researcher at the Ministry of Commerce Research Institute, told the Global Times reporter on 2nd. China‘s continued ability to attract foreign investment stems from policy-opening dividends, super-large-scale market advantages, a well-developed industrial supply chain system, as well as the creation of a marketized, law-abiding, and internationalized business environment. At the same time, it aligns with multiple factors such as global capital‘s investment demand in high-end industries and green economies.