Japanese Regional Banks Reduce Operations in China, Shift Focus to Southeast Asia and India
According to a report by Nikkei Asia, numerous Japanese regional banks are downsizing their operations in China, shifting their focus towards Southeast Asia and India. This change in strategy is driven by increasing labour costs in China and escalating challenges faced by Japanese manufacturers in the country.
The findings by Nikkei Asia are based on a study conducted by the Regional Banks Association of Japan and several interviews. They examined the overseas networks of 61 Japanese regional banks. Despite the ongoing contraction, China remains a significant presence, accounting for nearly half of the overseas offices, branches, and local subsidiaries of these banks.
The Shrinking Footprint of Japanese Regional Banks in China
The number of Japanese regional bank locations in China witnessed a decline from 50 in April 2021 to 40 by the end of March 2022. This contraction can be observed through various individual bank branch closures. For instance, in May 2025, Hokkaido Bank ended its 19-year-long operation in Shenyang by closing its office there. Similarly, Bank of Kyoto shut down its Dalian office in 2025, consolidating its operations into its Shanghai office. According to the bank, this decision was driven by the increasing burden of maintaining the branch and a decrease in customer needs.
During the 2000s, Japanese regional banks expanded rapidly into China, attracted by the country’s robust economic growth and the influx of Japanese manufacturers. These local offices played a crucial role in assisting companies, such as automotive parts makers, in understanding tax systems and regulations as they ventured into the Chinese market.
Motivation Behind the Shift from China
The business landscape has since evolved. Several Japanese carmakers, including Mitsubishi Motors and Honda Motor, have either withdrawn from China or scaled back their production. As their corporate clients retreat, regional banks are also winding up operations that have been in place for nearly a quarter of a century in some cases.
Even Japan’s three largest banks have noted a slowdown in lending activity in China. Sumitomo Mitsui Banking Corporation (SMBC) saw a reduction in loans in China by 40% over five years from the end of March 2021, amounting to $51.9bn. This figure includes Hong Kong and other local subsidiaries. Similarly, MUFG Bank’s loans fell by 20% from about 3.5 trillion yen ($21.9bn) over the same period. Mizuho Bank, inclusive of its local subsidiaries, also recorded a decline of over 30%.
The reasons behind this shift are multifaceted. Higher labour costs and rents in China are pressing on Japanese manufacturers, which form a significant client base for these banks. Additionally, there are concerns about risks specific to China, including stricter regulations under Hong Kong’s national security law.
Expansion into Southeast Asia and India
As the exposure to China decreases, Japanese banks are continuing their expansion in other parts of Asia. Southeast Asia is particularly attractive due to its relatively low labour costs and burgeoning populations. For instance, Chiba Bank opened a branch in Singapore in January 2025 to serve nearby markets, including Thailand, Vietnam, and Australia.
India is also emerging as an attractive market. In 2025, Japan’s three largest banks each made significant investments in India. Among regional banks, Kyoto Financial Group, the parent company of Bank of Kyoto, plans to open a representative office in India. This move would mark the first expansion into India by a Japanese regional bank.
These strategic shifts by Japanese regional banks signify an evolving global banking landscape. They reflect an adaptable response to changing market conditions, driven by both economic and regulatory factors.
Source: Retail Banker International
