Astellas’ chief executive has ruled out an exit from China after Beijing arrested a local executive at the company last month, a move that rocked Japanese business community in the country.
In his first public statements since his employee’s arrest in late March on espionage charges, Naoki Okamura said Japan’s second-largest pharmaceutical company by revenue plans to take further steps to diversify its supply chain in China, but warned the incident will be a catalyst for withdrawing its presence .
“It is true that geopolitical risks are increasing,” Okamura said in an interview at the company’s Tokyo headquarters. “Rather than deciding to cut China off, we are preparing for such risks by preparing alternative options [to secure products] and increasing safety stocks.”
“Right now we’re not thinking about exiting China,” he added, noting that the country’s huge market is “obviously attractive.”
China accounts for less than 5 percent of the company’s annual sales, but the country is important for Astellas to secure raw materials for its medicines.
Chinese authorities arrested a local senior Astellas executive in Beijing last month as he was about to board a flight back to Japan. Chinese Foreign Ministry spokesman Mao Ning said the person was suspected of “engaging in espionage activities”.
The unusual arrest of a senior official at a major company has stunned the Japanese business community, which has begun to reassess risks and halt business trips to China, where it had hoped to ramp up activity, after Beijing started late last year lift the strict zero-Covid policy.
The arrest also comes amid rising tensions between China and Japan over economic security, particularly around advanced technologies such as semiconductors.
“The impact of this Astellas incident on Japanese companies is tremendous, and there will be companies that will need to consider exiting China due to concerns about the safety of their employees,” said Kenji Minemura, Senior Research Fellow at Canon Institute for Global Studies think tank.
While Astellas has not identified the detained employee, people with knowledge of the incident said the individual, who was in his 50s, had spent more than two decades in China and was known for promoting bilateral economic ties.
The executive branch was also involved in the Japan Chamber of Commerce and Industry in China, the people added, which has transformed from a largely networked entity into a more effective lobbying organization.
Since China passed a counterintelligence law in 2014, 17 Japanese nationals have been arrested, five of whom remain in detention, including the Astellas operative, according to Japan’s foreign ministry.
“Japan is an easy target because the State Department-led government’s hostage diplomacy efforts are weak. It also lacks an intelligence agency that can gather information so Japan can also take hostages to negotiate the return of its citizens,” Minemura said.
It remained unclear whether the arrest was politically motivated or specific to Astellas. Japan’s Foreign Minister Yoshimasa Hayashi urged the executive branch’s release during his visit to Beijing this month.
“That really scared Japanese companies. The Chinese government has expressed an interest in maintaining dialogue with Japan, so it is difficult for Japanese companies to digest this contradictory message,” said a CEO of a large listed Japanese group.
News of the arrest came shortly after Japanese Prime Minister Fumio Kishida’s visit to Kiev, which coincided with Chinese President Xi Jinping’s trip to Moscow.
China has urged Japan to lift new restrictions on semiconductor manufacturing equipment exports announced last month. Tokyo has argued that the measure was not aimed at China, but Beijing sees it as consistent with US moves to cut China’s access to tools needed to manufacture advanced chips.
People close to two of Japan’s biggest business lobby groups, Keidanren and Keizai Doyukai, said members deliberately withheld visits to China after the arrests. Spokesmen for both groups said there are currently no plans for such trips.
A major Japanese trading house has also ordered its employees to temporarily halt business trips to China, according to a person with direct knowledge of the guidance.
Recommended
“I think Japanese companies are probably slower to change their China strategy than US companies, but you can definitely hear people discussing it among our suppliers,” said a director of a large Japanese company.
“I think the Astellas incident isn’t exactly a ‘watershed event,’ but it will make it easier for companies to accelerate their plans to not have Japanese executives in mainland China.”
According to company officials, prior to the arrest, Astellas was considering appointing a Chinese executive to oversee its local operations.
“The era of posting expats is coming to an end,” Okamura said, adding, “This isn’t just about China. . . We want to build a local talent pool for each location.”