As BYD dominates the Chinese market, Japanese automakers are being called on to pursue a de-risking strategy focused on protecting data and technology, rather than simply withdrawing from China or fully localizing operations. The revised National Defense Mobilization Law will take effect in October 2026, and the relationship between local assets and national security is expected to receive even greater attention.
As competition in EVs and software-defined vehicles intensifies in the Chinese market, Japanese automakers are once again being asked how they should manage assets in China, including production facilities, sales networks, R&D operations and parts procurement. China is not only one of the world's largest markets, but also a front line in EVs, batteries, automotive semiconductors and AI, leaving Japanese companies facing the challenge of how to safeguard their local assets.
A wide range of functions has taken root locally beyond factories, including parts suppliers, logistics networks, sales networks, after-sales service and R&D centers. From a global value-chain perspective, asset accumulation is progressing in a modular form. With the shift to EVs, the scope of corporate assets is expanding to include battery-related procurement networks, automotive semiconductors, software, vehicle data and AI technology.
The implementation of the revised National Defense Mobilization Law provides an opportunity to consider the links between local assets and national security policy, while avoiding the simplistic interpretation that local factories and technology will be mobilized immediately. Companies need to understand the institutional framework for the transition from peacetime to an emergency and organize their policies regarding data handling, storage locations and the scope of applicable laws and regulations.
For the management of core assets such as data, software and AI, it will be important to pursue a de-risking strategy that divides localization and direct head-office control by function. Companies should localize production, sales and after-sales service while establishing a framework under which core technologies, source code and critical data are managed by the Japanese head office or in a third country.
Ultimately, rather than choosing between withdrawal and full localization, companies should establish boundaries defining what is to be localized and what is to be managed by the head office, then revise those boundaries as circumstances change. This de-risking strategy will be an important factor determining the sustainability of their China operations.