Japanese firms to struggle with China's environmental policies, growth strategy

China's environmental restrictions and a new economic growth strategy called "dual circulation" could pose obstacles for Japanese companies to expand their local operations.

Japan's Toyota Motor Corp. said total hybrid car sales in China have exceeded 1 million units, as Beijing promoted eco-friendly vehicles through subsidies.

However, other Japanese firms have complained about China's environmental policies for being too strict to follow.

One of the Japanese firms said that additional equipment to meet standards get stricter every year, resulting in increased costs that have become burdensome.

According to a survey conducted this year by the Japan External Trade Organization (JETRO), over 70 percent of 233 Japanese companies operating in China answered local regulations are "strict" or "a little strict."

JETRO revealed that five of the 233 Japanese manufacturers in China have already started considering transferring their factories or parts of thereof to other countries.

Under its dual circulation strategy, designed to bolster domestic demand while increasing exports, China would foster enterprises that focus on 5G wireless networks, semiconductors, and biopharmaceuticals.

It is expected that China's target for carbon neutrality by 2060 may give a tailwind to Japanese firms in the short run, but the dual circulation strategy hinders them in the medium to long term.