China and Japan’s worst diplomatic crisis since 2005 is putting at risk a trade relationship that has tripled in the past decade to more than US$340 billion.
Toyota Motor Corp and Nissan Motor Co halted production at some plants, while Panasonic Corp reported damage to its operations in China as protesters smashed store fronts and cars in demonstrations sparked by Japan’s purchase last week of islands claimed by both countries. Fast Retailing Co shuttered 42 Uniqlo shops in China and was the biggest decliner in the benchmark Nikkei 225 index.
Panasonic, Sony Corp and Canon Inc said they were shutting some plants in China through yesterday and the China Automobile Dealers Association said the protests would hurt sellers of Toyota, Nissan and Honda Motor Co cars in China more than the Japanese quake last year.
“The escalating dispute is adding one more layer of uncertainty,” said Liu Li-gang (劉利剛), a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd, who previously worked at the World Bank. “Japan is now more reliant on China for economic growth than vice versa. Its already weak economic recovery may falter. China will suffer less.”
China was the largest market for Japanese exports last year, while Japan was the fourth-largest market for Chinese exports. China’s shipments to Japan totaled US$148.3 billion last year, while it imported US$194.6 billion of Japanese goods, according to Chinese customs data.
Foreign direct investment by companies from Japan surged 19.1 percent from a year earlier to US$4.73 billion in the first seven months of this year, according to the Chinese Ministry of Commerce. Investment from the EU fell 2.7 percent and funds from the US rose 1 percent during the same period.
In 2005, demonstrations were held across Chinese cities in a row over school textbooks that critics said downplayed Japan’s wartime atrocities. Demonstrators called for a boycott of goods from Japan, and some companies in the country reconsidered their investment plans for China. Still, Chinese imports from Japan surged 15.2 percent in 2006, almost triple 2005’s pace.
The trade and economic interests of the world’s second and third-biggest economies have become increasingly intertwined, Liu said.
An escalation of the islands dispute could deal “a blow to the Asian economy and the global one as a whole,” he said.
Toyota, Nissan and Honda all reported damage to dealerships in the eastern Chinese city of Qingdao. Separately, Phoenix Satellite Television Holdings Ltd showed footage of Japanese cars that had been overturned, with their windshields smashed by protesters.
Nissan halted production at two factories in China yesterday, spokesman Chris Keeffe said by telephone. Toyota halted output at some China plants, according to spokesman Joichi Tachikawa.
Honda suspended production in China until today, Mazda Motor Corp halted output at its Nanjing plant until Friday and Suzuki Motor Corp closed one factory. Mitsubishi Motors Corp halted production at a factory in Hunan Province, according to spokesman Yuki Murata.
Many dealerships in China that sell Japanese cars have shut after some outlets were attacked and vandalized, China Automobile Dealers Association deputy secretary general Luo Lei (羅磊) said.
Meanwhile, Sony shut two of its seven Chinese plants and plans to reopen them today, spokeswoman Mami Imada said by telephone.