CCP Sanctions on Japanese Firms May Trigger Reciprocal Retaliation — The Show Has Just Begun

CCP Sanctions on Japanese Firms May Trigger Reciprocal Retaliation

[People News] The Chinese Communist Party’s “wolf warrior” diplomacy has long been criticized internationally as aggressive and confrontational, reinforcing perceptions of a “China threat” and often resulting in what critics call “lifting a rock only to drop it on one’s own foot.” Recently, China’s Ministry of Commerce announced sanctions against 20 Japanese companies. In the eyes of many observers, this move also amounts to another self-inflicted blow. It signals a further escalation of tensions stemming from remarks made last year by Japanese politician Sanae Takaichi, who said, “If Taiwan faces a crisis, Japan faces a crisis.”

On February 24, China’s Ministry of Commerce announced that 20 Japanese companies had been added to an export control list. These include subsidiaries of Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and IHI. Another 20 companies were placed on a dual-use export monitoring list. The measures took effect immediately: Chinese exporters are prohibited from supplying dual-use goods to the listed firms, and foreign companies are barred from exporting China-made products to them. The companies involved participate in the development and production of military equipment such as ships, aircraft, radar systems, and missiles.

Political commentator Cai Shenkun wrote on X that this marks a major shift in China’s trade policy toward Japan and appears aimed at crippling Japan’s defense industry. As Japan is currently in a critical phase of its “doubling defense budget” plan, China’s sanctions could be seen as an attempt to undermine that effort at its core.

The news triggered sell-offs in Tokyo’s defense and heavy machinery sectors. Mitsubishi Heavy Industries’ stock reversed gains and fell as much as 3.6% intraday. Kawasaki Heavy Industries saw losses expand beyond 5%.

Cai argued that foreign companies and buyers will now worry whether they too could be added to such lists if their governments clash with China in the future. This uncertainty may accelerate Western companies’ efforts to relocate supply chains to countries such as India, Vietnam, or Mexico. Beyond cost considerations, supply security becomes paramount. Western research institutions may begin excluding Chinese components at the design stage of next-generation products—potentially causing long-term harm to China’s manufacturing sector that exceeds direct export bans.

According to Cai’s analysis, Japan, the United States, and Australia may increase subsidies to restart rare earth processing plants that had previously closed due to high costs. Japan and South Korea could collaborate on developing alternative materials. Although short-term costs would be high, once a non-China supply chain becomes viable, China’s pricing power and influence in these sectors could permanently decline. The sanctioned companies represent substantial procurement demand. While Chinese exporters must comply with policy directives, the actual loss of orders—and subsequent layoffs—will likely be borne by domestic small and medium-sized enterprises in related industries. Such confrontational sanctions could provoke reciprocal retaliation. Japan might impose stricter restrictions on semiconductor equipment and advanced chemical materials (such as photoresists), further constraining China’s high-tech sector. “The show has just begun,” Cai wrote.

Just before China announced sanctions on 40 Japanese firms, the Japanese Chamber of Commerce and Industry in China released the results of its eighth “Survey on Member Companies’ Business Conditions and Perception of the Operating Environment” on February 10. The survey covered 1,427 Japanese-invested enterprises in China between July and December 2025, spanning manufacturing and services. Only 1% of respondents believed China’s economy had “improved,” while nearly half judged that it was “continuing to deteriorate” or would worsen. This proportion shows little change compared to the first survey three years ago.

The Chamber warned that if current conditions persist, Japanese companies’ willingness to invest, the scale of personnel deployment, and business strategies in China may undergo further adjustments. Some respondents suggested that actual operational pressures may be even greater than survey results indicate.

Regarding investment intentions, Japanese firms are becoming increasingly cautious. Only 17% plan to increase investment in China, while more than 40% plan to reduce or halt investment altogether. Most intend to maintain current scale while cutting costs; some are evaluating downsizing or phased withdrawal from the Chinese market.

Shandong-based scholar Mr. Chen told Radio Free Asia that Japanese firms’ more conservative stance is linked to geopolitical risks. “Japanese politicians’ recent statements on security and Taiwan have created friction in China-Japan political relations. Changes in U.S.-China relations also influence Japanese investment decisions. In addition, many multinational corporations have shifted part of their production to Southeast Asia and India to diversify risk. Naturally, Japanese companies are reassessing whether China must remain their central focus,” he said.

Chen added that the survey’s results reflect a widespread lack of confidence in China’s economic outlook.

The findings suggest that economic policies introduced by the Chinese authorities over the past three years have failed to address structural problems or effectively lift the economy out of stagnation. At such a time, imposing sanctions on Japanese firms could invite reciprocal measures, accelerating the departure of Japanese enterprises already under significant operational pressure. This, in turn, may intensify unemployment pressures within China and deliver greater economic damage domestically.

For critics, it is yet another example of “lifting a rock only to drop it on one’s own foot”—and the consequences may only be beginning to unfold.