Japanese chemical firms pivot from China to India
Opportunities in semiconductors and other industries drive the shift
by Katsumori Matsuoka, special to C&EN
Recurring stories and special news packages from C&EN.
March: DIC decides to withdraw from its business in liquid-crystal display materials and transfer related intellectual property to Shijiazhuang Chengzhi Yonghua Display Materials.
September: Sanyo Chemical Industries agrees to transfer interest in its Chinese subsidiary San-Dia Polymers (Nantong), which operates superabsorbent-polymer, surfactant, and urethane-resin businesses, to Nantong JiangTian Chemical.
December: Sumitomo Chemical sells all shares of its two polypropylene-compound subsidiaries in China to Guangzhou Suptech Material Technology.
April: Sumitomo Chemical transfers its business in large‑size liquid-crystal-display polarizing film in China to a local manufacturer, Hubei Sunnytomo Optoelectronics.
June: Mitsui Chemicals decides to transfer its 50% interest in a Chinese phenol joint venture, Shanghai Sinopec Mitsui Chemicals, to Shanghai Gaoqiao Petrochemical.
December: Kuraray decides to transfer all shares of its acrylic-sheet subsidiary in China to Jiangsu Shuangxiang Group.
After decades of betting big on China, Japanese chemical giants like Mitsui Chemicals and Sumitomo Chemical are quietly changing their playbook. The shift is understated but undeniable: factories that once seemed permanent Japanese addresses in China are being sold off, while long-term expansion plans are quietly placed on the shelf.
Instead of China, Japanese executives are redirecting their attention to another economic giant: India. What began as the concept of China Plus One diversification some years ago has become a full-scale strategic pivot, driven by a confluence of geopolitical tensions, economic uncertainty, and compelling opportunities in industries like semiconductor materials where Japanese firms are market leaders.
The numbers reflect the shift: Japan’s overall investment in China was down 46% year over year in 2024, according to the Japan External Trade Organization (Jetro). Meanwhile, Japanese companies now operate at 5,205 sites in India (PDF), an increase of more than 400 in just 3 years.
“As India’s economic development gains greater global weight, its significance will grow not only as a market in itself but also as a supply base for the Middle East, Africa, and neighboring Asian countries,” Teiichi Goto, CEO of Fujifilm Holdings, told Bloomberg in November. In contrast to China, where downsizing and restructuring have become the reality for Japanese firms, India is increasingly being positioned as a destination for growth-oriented investment.
For decades, Japanese chemical companies invested in everything from commodity chemicals to specialties in China, making the country an engine of corporate growth. The China Plus One concept first emerged among Japanese manufacturers and supply‑chain experts in the mid‑2000s, as concerns grew over dependence on China. The idea was to diversify risk by establishing a second strategic investment destination alongside China.
The concept gained further traction after the 2008 global financial crisis. By the 2010s, the term was widely used in the Japanese business media and occasionally appeared in government documents. But until recently, no country could rival China in terms of market size and business infrastructure. So Japanese foreign investment in Asia remained concentrated in China.
In recent years, though, India’s growing economy and middle class “has created the possibility that it could become the ‘One’ in China Plus One,” says Mikiya Yamada, a stock analyst at Mizuho Securities. “With China’s economic outlook increasingly uncertain, companies are not in a position to expand investment.”
In 2022, the Japanese government announced a five-year, ¥5 trillion ($33 billion) public and private investment package for India. The objective was reached in just 3 years. Building on this momentum, Japan has set a new target of twice as much, or $66 billion in private-sector investment over the next decade.
The case for India is compelling. “New investment that once would have gone to China will be increasingly directed to India,” notes Masashi Kono, Research and Analysis Department director at Jetro. “India is gaining attention both as a risk hedge and as a high-growth market.”
According to the International Monetary Fund, India will surpass Japan this year to become the world’s fourth-largest economy. Chemical manufacturers are especially encouraged by the growth of the upper-middle-income class, which in India means annual income in the $15,000–$35,000 range. This segment grew from 3.2% of the population in 2010 to 8.6% in 2020 and is projected to reach 29.0% of the population in 2030 and 41.9% in 2040, according to Jetro. By then, 70% of households will earn over $15,000. More-affluent customers usually buy products made with better-quality raw materials.
An Indian policy to produce semiconductors domestically instead of relying on foreign supplies is another driver of Japanese investment. Although India accounts for 7% of global semiconductor demand, it relies almost entirely on imports, with more than half coming from China. Seeing an opening, Japanese companies are considering local production of semiconductor-related materials. Feasibility studies are also underway for materials used in specialized semiconductors for solar power and automotive applications.
Sumitomo Chemical is skilled at making semiconductor chemicals, notably isopropyl alcohol, hydrogen peroxide, aqueous ammonia, and sulfuric acid, with technologies that reduce impurities to the parts-per-trillion level. It operates plants in Japan, South Korea, and China and opened a new facility in Baytown, Texas, last spring. The company also agreed in November to acquire Asia Union Electronic Chemical, which brings operations in Taiwan and the US.
“With the idea that the first mover captures the largest share, we aim to localize production.”
In India, companies like Sumitomo find themselves courted. Tata Electronics is building the country’s first semiconductor plant, in Dholera. With start-up targeted for 2027, Tata is recruiting materials suppliers now, and Sumitomo wants to be one of them. “With the idea that the first mover captures the largest share, we aim to localize production, focusing on high-purity chemicals,” says Yasuo Yoshino, a general manager in Sumitomo’s semiconductor materials and mobility business.
Sumitomo already operates Sumitomo Chemical India, an agrochemical subsidiary publicly listed on the Indian stock market. Yuya Miyajima, a general manager in Sumitomo’s AgroSolutions Division, says he expects “India to become one of the world’s largest agrochemical markets in the near future.”
The firm is expanding sales of the herbicide flumioxazin, the plant-growth-regulator gibberellic acid, the fungicide inpyrfluxam, and insect pheromone products, Miyajima says. Sumitomo’s semiconductor materials business plans to leverage the agrochemical subsidiary’s resources, including land and infrastructure, for its own facilities.
Fujifilm, which offers products covering nearly all semiconductor manufacturing processes, also aspires to supply Tata’s project with locally produced chemicals, says Tomoki Nakatani, senior manager of India strategy in the firm’s Electronic Materials Division.
Although India will be a new location for Fujifilm, the firm operates 20 production sites across Japan, the US, Europe, and Asia. “Leveraging our technology and track record in front-end materials, we aim to begin local production of process chemicals and developers, which incur high transportation costs,” Nakatani says.
Japanese chemical producers’ pivot to India extends beyond semiconductors and agrochemicals. Executives at Mitsui Chemicals perceive the Indian government’s Make in India manufacturing-investment campaign as a call to action across the firm’s product range.
Mitsui is already evaluating setting up local production bases for its Tafmer polyolefin elastomers, used to make solar-panel encapsulant sheets, and its ethylene propylene diene monomer (EPDM) rubber, a widely used elastomer.
“India’s solar-power industry is moving to localize solar-panel production, which has relied heavily on imports from China,” says Jun Kawaguchi, managing director of Mitsui Chemicals India. “EPDM demand will also grow, driven by automotive applications.” The company aims to begin local production by 2030.
In composite materials, Mitsui Prime Advanced Composites, which is majority owned by Mitsui, already produces polypropylene compounds in Neemrana, India. Mitsui plans to add production of functional compounds that it currently gets from a local contract manufacturer.
Mitsui is also focusing on food-related applications. It is strengthening sales in India of adhesive resins used in multilayer packaging films and expanding technical development capabilities for polyolefin and polyurethane dispersions that are compatible with the recycling of food packaging materials. A coating technical center established last year in Gurugram, near Delhi, enhances evaluation and development work with customers. “We aim to establish full formulation development capabilities by 2027,” Kawaguchi says.
And in agrochemicals, Mitsui is also considering production in India. The company aims to make the country one of its two bases outside Japan, the other one being Brazil.
Mitsubishi Chemical Group, Japan’s largest chemical maker, has begun considering investment in methyl methacrylate (MMA) in India, CEO Manabu Chikumoto disclosed at an investor event late last year. The company holds a 30% global market share in MMA, which is used to make acrylic products.
“Although India’s [MMA] market size is small, on the order of several hundred thousand tons annually, it is resistant to external pressure as long as we operate there. We are in the initial stage of considering local production,” Chikumoto said in response to a question from C&EN at the event.
As these companies forge ahead, the lessons learned from China loom large. In the 2000s and 2010s, Japanese companies executed a major investment spree in China, supported by unprecedented market expansion.
Atsushi Komoriya, Mitsui’s managing executive officer, recalls how the firm aggressively pursued the solar-encapsulant-sheet business in China. “As solar power expanded as a national policy, demand grew explosively,” he says. “But local companies rapidly expanded capacity, and the market collapsed. Our biggest mistake was underestimating local suppliers. We need to strategically determine whom to compete against and whom to partner with.”
Companies should invest in markets not simply because they are large but also because they can sustain competitive advantage in them, says Yamada, the Mizuho Securities analyst. “Practical marketing, including price positioning that protects brand value, is essential, and Japanese firms did not execute this well in China.”
How effectively Japanese firms apply the lessons learned in China to their India strategies, he adds, will determine their success.
Katsumori Matsuoka is a freelance writer based in Japan.
This story was updated on Feb. 26, 2026, to clarify that Mitsui Chemicals has yet to choose a site in India to produce functional compounds for composites.
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