Japan’s local banks move to India and Singapore from China amid supply chain changes

Japanese local and regional banks are increasingly reducing their presence in China, marking a shift in their international operations. Historically, China served as the primary hub for Japanese banks’ overseas expansion, closely following Japanese manufacturers to finance factories, supply chains, and trade facilitation. 

However, over the past five years, the branch networks of Japanese local banks in China have shrunk by approximately 20%, while lending by Japan’s three megabanks in China has contracted by up to 40%, according to an article by Nikkei Asia. 

This retreat shows broader economic and geopolitical challenges, including slowing Chinese growth, rising labour costs, and intensifying competition from domestic Chinese firms.

Pivot to Singapore and Southeast Asia

In response to these challenges, Japanese regional banks are establishing new operational hubs outside China, particularly in Singapore and Southeast Asia. 

Banks such as Chiba Bank and 77 Bank have opened new centres in Singapore, while Saikyo Bank is preparing to launch a subsidiary in Indonesia. 

These moves aim to support Japanese companies diversifying their investments across Southeast Asia, aligning with the broader “China+1” strategy adopted by many Japanese manufacturers seeking to mitigate risks by expanding production beyond China.

A growing interest in India

India has surfaced as a particularly attractive market for Japanese banks, driven by its large and growing economy, favourable demographics, and expanding industrial base. 

Although Japanese regional banks have yet to open full branches in India, they maintain representative offices and strategic partnerships, often using Singapore as a regional base to service Indian operations. 

Major Japanese financial groups are also making some of their largest-ever investments in India’s banking and financial services sectors, signalling a long-term commitment to the market.

What is driving this shift and what is the future?

Japanese banks are shifting their focus to align with the changing needs of corporate clients. 

Manufacturers in Japan are grappling with challenges in China, including reduced demand in key sectors such as automotive manufacturing and intensified competition from Chinese electric vehicle producers.

These factors have prompted reductions in manufacturing capacity and investment in China, leading banks to follow their clients’ evolving footprints. 

While Japanese banks are not exiting China entirely, their future growth capital and management attention are increasingly directed toward markets offering greater long-term opportunities.

The banking realignment in Asia is changing the supply chain space. Japanese banks are adjusting their operations, impacting capital flows and regional supply chain structures. In this, Singapore and India are likely to benefit by becoming key hubs in response to geopolitical risks, cost-effectiveness, and industrial strategies.