About three-quarters of the 1,700 respondents in a survey said they expected the Chinese economy to worsen or to remain the same.
China is Japan’s largest trading partner, and one of the biggest investment destinations for Japanese companies.
Uncertainty about China’s economic prospects and pessimism about weak demand were cited as top reasons why 48% of the companies surveyed said they did not invest in China or reduced their investment in 2023 compared to a year earlier.
The companies also said they were concerned how Chinese laws on espionage and cross-border data flows would play out.
A month before China amended the anti-espionage law last April and broadened its definition of spying, it had detained a Japanese businessman suspected of spying.
Despite the poor prospects and difficult operating environment, half of the companies surveyed still thought China was the most important market globally or among the top three most important in 2024.
Improvements in the Chinese business environment the companies hoped to see included fewer visa restrictions for Japanese citizens and lower labour costs, according to the report.
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