SHANGHAI -- An increasing number of Japanese companies in China are heading for the exits, as slowing economic growth and surging labor costs are making it hard for them to continue doing business there.

It has been only a few years since large and sometimes violent anti-Japan protests demanded that Japanese firms get out of China, after Tokyo's decision to nationalize a group of islands in disputed waters. Most Japanese companies kept their heads down and stayed because they saw great potential.

Fast-forward to today, and a growing number of Japanese businesses are leaving the country on their own. And locals are angry that Japanese firms are getting out.

Bad behavior

A Japanese businessman left China on a cold day January under the cover of night, rushing to Shanghai Pudong International Airport and buying a ticket out of the country on the spot.

One of the few remaining workers at the soon-to-be-closed Citizen Holdings watch parts factory in Guangzhou, Guangdong Province, helps clear out the facility in late May.

Just several hours earlier, the man had been surrounded by Chinese suppliers at the company's sewing factory on the outskirts of Shanghai, demanding to be paid. "We won't let you go until we confirm the payment," one of the suppliers told the Japanese man.

The factory began operating 20 years ago. At its peak, it employed 200 or so workers and supplied clothing to major Japanese apparel companies. The operation was profitable, thanks to low labor costs. But things turned sharply south in the past several years, to the point that the local unit could no longer pay its suppliers.

By then, the Japanese parent's financial health had deteriorated so much it could not help. The Japanese businessman apologized to his suppliers and sought payment extensions, enlisting the help of local mediators, but the situation was dire. "Running away was the only way for him to get out alive," said a person familiar with the matter.

Good times over

Japanese companies have expanded into China since the 1980s, attracted by the cheap and abundant labor and huge market potential. More than 20,000 Japanese companies are operating in China today.

But the days of double-digit economic growth are over. Even Xiaomi, a major Chinese smartphone maker that has grown to become a global presence in the past several years, is experiencing a steep demand downturn.

Chinese salespeople at the Beijing office of a Japanese electronics parts maker broke some bad news to company executives in Tokyo via a video linkup in late April. Xiaomi had asked to delay shipments of a large volume of parts for the second time this year.

It was a sobering reminder of the tough economic situations in China. To make matters worse, however, labor costs have roughly doubled over the past five years. For Japanese companies, the weaker yen has been a double whammy.

Hasty exit

Citizen Holdings closed a watch parts factory in Guangzhou, Guangdong Province, in February. The company issued termination notices to workers on Feb. 5, just before the Chinese New Year holidays. The 1,000 or so employees were told that they would lose their jobs because the factory would close the next day.

The workers were understandably upset about the sudden termination, but Citizen Holdings pressed them to accept cancellation of their employment contracts. More than 300 of the factory's employees said they had received threatening phone calls from a man late at night, telling them that they would face serious problems if they did not sign the document.

"I hate the Japanese managers," said a 40-year-old man who has worked at the general affairs department of Citizen Holdings' Chinese unit for about 19 years.

As of Saturday, he was still working, helping the company clear out the closed factory. In a month or so, though, the cleanup will be finished, the factory will close, and he will lose his job.

"They must think we are disposable," the man said. "I need money because I have a son in junior high school. But it will be difficult for someone over 40 like me to find a job."

Easier way out

Unfortunately, stories like this are not exactly rare in China today, and there are plenty of opportunities for liquidators, who often buy entire factories and their equipment for as little as $100, and make money by selling the assets and charging commissions. They are forceful toward factory employees' terminations and often fly through normally cumbersome formalities with local governments by making the most of personal connections.

They seem to have a plenty of opportunities in the factory districts up and down the Chinese coast. Many businesses on the way out would rather hand over their factories to liquidators than face the painful and uncomfortable process of unloading workers who have worked for them, in many cases for years.

(Nikkei)