As of 2025, 29 Chinese cities had entered the “trillion-yuan GDP club.” This group includes major urban centers such as Shanghai, Shenzhen, Guangzhou, and others. They serve not only as engines of regional growth, industrial upgrading, and economic openness, but also as critical pillars underpinning China’s broader economic stability and development. And Japanese enterprises play a significant role in shaping the internal dynamics of these prosperous cities.

These 29 cities have developed an interconnected relationship with Japanese companies. Compared with other foreign investors, Japanese firms are particularly concentrated in these cities and their surrounding regions, forming a substantial component of foreign investment. Through capital inflows, technology transfer, supply chain integration, and export capacity, Japanese enterprises have directly contributed to these cities surpassing the trillion-yuan GDP threshold, while continuing to strengthen the foundations of China’s manufacturing sector and foreign trade.

This relationship has not emerged easily. It is closely linked not only to China’s reform and opening-up and its integration into the global economy, but also to the development of a unified domestic market and the broader trajectory of China-Japan relations. The future direction of bilateral ties will largely determine whether this cooperative framework between Chinese and Japanese enterprises can be sustained. 

Current geopolitical signals, however, suggest that the outlook remains uncertain.

A new pattern has emerged: when China’s relations with other countries encounter friction or deterioration, there is a tendency to impose sanctions, export restrictions, or blockades. What was once a carefully calibrated geopolitical strategy at the highest levels now appears to be applied more broadly, following an approach originally with the United States. Across cases involving the United States, Japan, South Korea, Australia, France, the Netherlands, and even Panama, such tactics have diminished in effectiveness when overused. Beyond their limited impact, they risk generating significant side effects, including potential threats to the economies of China’s “trillion GDP cities.”

Sanctions, blockades, and embargoes are economic instruments, and all such measures carry costs for both the economy and industry. As a major power, China would be expected to pursue a diplomatic strategy commensurate with its status. Substantial resources are devoted annually to diplomacy with the aim of building and maintaining international relationships. Yet when tensions arise, these efforts often recede, while measures involving rare earths, industrial leverage, and enterprises move to the forefront, producing undesirable consequences for all parties involved.

Historically, during earlier phases of China’s diplomatic development, the economy was underdeveloped and characterized by scarcity, with limited competitive goods and minimal economic interdependence. Diplomacy at that time was conducted largely through diplomatic channels, emphasizing negotiation, institutional and party-to-party engagement, and the balancing of state relations. It also drew on conceptual frameworks related to social movements, with different groups and blocs adopting structured positions within a coherent system.

Although the relevant institutions and departments in China remain in place and continue to receive significant funding, their effectiveness appears limited. At the first sign of tension, responses often shift quickly toward economic measures like restricting rare earth exports, curtailing trade, or halting industrial cooperation. This effectively severs relationships built over decades. If this pattern persists, economic and trade authorities may increasingly overshadow traditional diplomatic institutions.

China should therefore avoid treating long-established external economic ties as instruments that can be readily deployed or withdrawn. In an era of deep globalization, economic relationships extend beyond trade and investment; they have become integral components of a country’s external relations framework and strategic assets for stabilizing expectations, sustaining cooperation, and preserving policy flexibility.

The relationship between Japanese enterprises and China’s “trillion-yuan GDP cities” illustrates this point. It is not the product of short-term capital flows, but the cumulative outcome of decades of institutional alignment, industrial coordination, local governance, and market liberalization. Japanese firms are deeply embedded in China’s high-end manufacturing, research and development systems, and export networks. They have not only helped numerous cities reach critical development milestones, but have also enhanced the efficiency, resilience, and global integration of China’s manufacturing system. Disrupting such ties would entail losses far beyond individual projects or investments, affecting local industrial ecosystems, market confidence, and prospects for economic upgrading.

At the core of the issue is a broader global trend: many countries, particularly the United States, increasingly resort to the “weaponization” of economic relationships in response to geopolitical tensions, employing sanctions, embargoes, and decoupling strategies. While such measures may appear decisive, they often exchange long-term cooperative foundations for short-term strategic advantages. If mismanaged, they can undermine systemic stability and even erode domestic political foundations.

In this context, China would benefit from a particularly cautious approach. Although it is a global manufacturing hub and a major market, it does not possess the same capacity for global consumption absorption as the United States. The U.S. derives its stronger leverage in sanctions and decoupling from its vast consumer market, the centrality of the dollar system, and its financial networks, which enable it to redistribute external shocks through market absorption, rule-setting, and capital allocation.

China’s comparative strengths lie in the completeness of its industrial chains, manufacturing efficiency, and long-term market potential, rather than in serving as the ultimate absorber of global demand. The distinction between a consumption-driven economy and an industrial-driven one remains significant. This underscores the importance for China of maintaining and safeguarding its international economic linkages. 

The stability of China’s economy depends not only on “internal circulation,” but also substantially on “external circulation,” including access to foreign markets, technological collaboration, capital flows, and industrial support systems. Disrupting these linkages prematurely may not exert effective external pressure and could instead weaken China’s own openness and resilience.

That doesn’t mean China must abandon necessary countermeasures, but it should avoid prematurely elevating economic ties to the primary arena of confrontation. The more deeply embedded and hard-earned a cooperative relationship is, the more carefully it should be managed. Effective external relations are not defined by the ease of severing ties, but by the capacity to preserve connections, stabilize expectations, and maintain strategic flexibility in a complex environment. Only through such an approach can the long-term gains of openness be translated into durable national resilience.

As long as China’s economy maintains stable growth, China-Japan industrial relations are likely to recover following a period of adjustment. This outlook is based on two main considerations. First, the enduring importance of China’s large domestic market, alongside the relatively limited access of Japanese industry to major markets in the Americas. Second, Japan’s potential shift toward a more independent and conservative policy stance, which may gradually reduce its reliance on the U.S. and encourage greater engagement with Asia and Africa.

As things stand, the current challenges facing China–Japan industrial relations are likely to be temporary. At the same time, a cautious approach to managing strategic economic assets and preserving policy flexibility remains a clear geopolitical imperative for China, one that will ultimately support the stability and long-term development of its economy.