Japanese chemical makers accelerate the shift of investment from China to India

Japanese chemical manufacturers are sharply scaling back investment in China while ramping up expansion into India in earnest. Major companies led by Mitsui Chemicals are studying and advancing local production in India, and the once-popular "China plus one" diversification strategy is evolving into a clearer "shift to India." This move by Japan's chemical industry, aiming simultaneously to diversify geopolitical risk and tap into a high-growth market, serves as an important leading indicator for manufacturers in general considering entering India.

Rapid change in the numbers — investment in China down 46%, Indian business locations up 400

According to data from the Japan External Trade Organization (JETRO), Japan's direct investment in China fell sharply, down 46% year on year in 2024. This is not a single-year fluctuation but part of a structural downward trend that has been underway since 2021. Intensifying US-China tension, the lingering effects of the zero-COVID policy, and stagnant domestic demand within China are combining to make Japanese manufacturers rapidly scale back new investment in China.

By contrast, the number of Japanese-affiliated business locations in India has now reached 5,205, a net increase of more than 400 over the past three years. A defining feature of 2025-2026 is that, following automakers, electronic component makers, and consumer goods companies, chemical manufacturers have begun joining this trend in earnest.

Mitsui Chemicals' plan to enter India — toward local production of polyolefin and EPDM rubber

Mitsui Chemicals sees the Indian government's "Make in India" policy as a business opportunity and is considering setting up local production sites for polyolefin elastomers, EPDM rubber (ethylene propylene diene rubber), and similar materials. It aims to begin local production by 2030, with a plan to capture India's strong demand from the automotive and manufacturing sectors.

Mitsui Prime Advanced Composites, a Mitsui Chemicals subsidiary, is already producing polypropylene compounds in Neemrana, Rajasthan, India. The company is expected to expand its high-performance materials production lines in stages, building on this existing base.

India's annual vehicle production exceeded 6 million units in 2025 and is projected to reach 8 million by 2030. Demand for automotive rubber parts, sealing materials, and vibration-damping materials is steadily expanding, and Mitsui Chemicals' timing for entry makes sense.

Companies accelerating their withdrawal from and scaling back in China

As the flip side of the shift to India, Japanese chemical manufacturers are accelerating the scaling back of their China operations. DIC has withdrawn from its liquid crystal display materials business in China, and Sanyo Chemical Industries has transferred its stake in a Chinese subsidiary. Sumitomo Chemical sold its stake in a polypropylene compound subsidiary in China, and Mitsui Chemicals has also transferred its stake in a phenol joint venture.

These moves are not simply the business decisions of individual companies; they point to a structural "de-China" trend across Japan's chemical industry as a whole. The Chinese market itself is not shrinking, but geopolitical risk, concerns over intellectual property protection, and intensifying price competition with domestic Chinese chemical makers are worsening the cost-to-risk ratio of continuing operations in China for Japanese companies.

India's chemical industry — why there is an opportunity for Japanese manufacturers

India's chemical industry was estimated at a market size of about $220 billion as of 2025, with projections putting it at $300 billion by 2030. The Indian government is actively courting foreign investment in the chemical industry through measures such as setting up Petroleum, Chemicals and Petrochemicals Investment Regions and the Production Linked Incentive (PLI) scheme.

India's appeal for Japanese chemical makers is not simply market size. India's chemical industry is centered on basic chemicals, leaving substantial room for global players to enter the fields of high-performance materials and specialty chemicals. Needs are rapidly expanding in fields where Japanese companies hold strengths, such as high-performance plastics for automobiles, electronic materials, and agrochemical intermediates.

In addition, India has a talent pipeline in chemistry and materials engineering centered on the IITs (Indian Institutes of Technology), giving it strong appeal as an R&D hub as well. The fact that Mitsui Chemicals and Sumitomo Chemical are considering setting up not just manufacturing sites but R&D centers in India owes much to this talent advantage.

Challenges and risks — entering India is not a cure-all

Of course, entering India comes with its own challenges. First is infrastructure. Operating a chemical plant requires a stable power supply, industrial water, and wastewater treatment facilities, but many regional areas of India still lack sufficient infrastructure in these areas. Locating within an industrial estate (an SEZ or industrial park) becomes a realistic option.

Second is the complexity of the regulatory environment. India's chemical regulations can be applied differently from state to state, and there are reported cases where obtaining environmental assessments and operating permits took longer than expected.

Third is securing and retaining talent. India has an abundant supply of chemical engineers, but the number who are well versed in Japanese-style quality control and process management is limited. Developing and retaining locally hired talent will be key to medium- to long-term business success.

Implications for Japanese Companies

The chemical industry's shift "from China to India" is a leading indicator of a trend common to manufacturers in general. For Japanese companies considering shifting investment to India, the following three points are worth noting.

First, a phased entry that makes use of an existing network of overseas locations is effective. As Mitsui Chemicals is doing by expanding from its existing base in Neemrana, an approach of starting small and building a track record, rather than jumping straight into a large greenfield investment, is preferable from a risk management standpoint.

Second, be mindful of aligning with the Indian government's industrial policy. Investment aligned with the PLI scheme and "Make in India" is more likely to receive subsidies and tax incentives, which can shorten the payback period.

Third, leverage the brand strength of Japanese quality. Price competition with Chinese and local products is unavoidable in India's chemical market, but Japanese products hold a clear advantage in quality, safety, and environmental compliance. Focusing on the segments where this advantage can be highlighted is a condition for success.

If you are considering entering India's chemical and manufacturing sector, Please get in touch with SoJapan. MUFG's large-scale investment in a major Indian financial company and Uniqlo's sourcing hub strategy Please also refer to that article.

Reference Information

• JETRO