Island Spat With China Shakes Japan's Economy

[News_Editor]

TOKYO—The craggy island specks in the East China Sea aren’t even an economic backwater. They have no factories, no highways, no shops, no people — only goats. But the high-pitched row between Beijing and Tokyo over their ownership is exacting a growing toll on Japan, threatening to send its recovery from last year’s disasters into reverse.

Sales of Japanese cars in China are in a free-fall. At the China Open last weekend, a representative of Sony Corp., which is a sponsor of the tennis tournament, was loudly booed at the title presentation for the women’s final. Chinese tourists are canceling trips to Japan in droves. And some analysts say Japan’s economy will shrink in the last three months of the year.

The business and economic shockwaves come after Japan last month nationalized the tiny islands, called Senkaku in Japan and Diaoyu in China, which were already under Tokyo’s control but are also claimed by Beijing. The move set off violent protests in China, and a widespread call to boycott Japanese goods. Toyota Motor Corp. and Honda Motor Co. dealerships were burned down in one city.

Seeing footage of Toyota cars getting smashed by angry rioters, Toyota President Akio Toyoda had looked almost tearful, confiding in reporters: “I couldn’t bear to watch. It hurt as though I was getting beaten.”

A report by J.P. Morgan, released Tuesday, projected Japanese auto exports to China will crash 70 percent during the October-December period. The export of auto parts will slip by 40 percent — about the same drop estimated for exports of other consumer products, such as electronics, it said.

The aftermath of the latest phase of the sizzling territorial spat with China will cause Japan’s economy, the world’s third biggest, to shrink 0.8 percent in the fourth quarter, according to J.P. Morgan. It had previously forecast no growth in the quarter.

J.P. Morgan chief economist Masaaki Kanno fears the fallout could get worse in the months ahead, as the September sales numbers for Japanese automakers only account for damage that started the middle of the month.

Toyota said Tuesday that sales of new vehicles in China dropped 49 percent in September from a year earlier to 44,100 vehicles. Honda said September sales plunged 41 percent to 33,931 vehicles. China sales for Nissan Motor Co. slid 35 percent last month to 76,100 vehicles.

Even the most optimistic scenario does not foresee a recovery in Japan’s economy until the second quarter of next year, Kanno said.

“What we have ahead of us is going to be terrible,” he said. “It’s like last year’s disaster all over again.”

The quake and tsunami in northeastern Japan last year hobbled the economy for months. Auto production was particularly hard hit because parts suppliers had been located in the disaster area. Flooding in Thailand that followed added to the automakers’ woes. They had only bounced back toward the end of last year, after months of rebuilding.

Kanno’s report said the number of Chinese tourists would decline by 70 percent while Japanese tourists to China would fall by 30 percent.

Ayumi Kunimatu, spokeswoman for Japanese carrier All Nippon Airways, said 43,000 seats had been cancelled for flights from September through the end of November — 28,000 of them from China to Japan, and 15,000 from Japan to China. Up to now, China flights had made up a quarter of ANA’s international passengers.

A person who answered at China International Travel Service in Beijing confirmed group tours to Japan had been called off. The Chinese state-run news agency Xinhua reported that more than a hundred thousand Chinese cancelled Japan trips, and the number of tour groups to Japan had plunged by 40 percent.

The tourism fallout to hot springs and ski resorts is likely to deal a serious blow to Japan’s regional economies, which are already more vulnerable to such slowdowns.

China, with its growing middle class, had been one of the emerging markets that Japanese companies were counting on to boost sales amid a long stagnation in their domestic market.

Japan’s trade with China reached record levels over the last 12 months, totaling more than $340 billion. China is Japan’s biggest export market.

Although the immediate damage is being felt in Japan, the souring relations and the realization of the so-called “China risks” are likely to crimp investments from Japan, hurting the Chinese economy as well, in the long run. Japan not only exports to China but also has significant manufacturing investments there in areas such as autos.

The unfolding dispute between the two Asian neighbors underlines how easily historical animosities can be revived — and so emotionally — no matter how closely intertwined the economies have grown. Enmity between the two nations started with Japan’s military victory against China’s dying Qing empire in 1895 and then exploded as Japan invaded swathes of China in the 1930s and 1940s and enforced a brutal occupation. China’s communist government has nurtured anti-Japanese sentiment in successive generations through its control of education and the media.

Carl Weinberg, chief economist at High Frequency Economics, based in Valhalla, New York, said the territorial dispute is not going to set off a shootout.

“However, economic conflict has already begun. This can and will cost the woebegone Japanese economy dearly in the form of exports,” Weinberg wrote in his weekly report, estimating that the loss of 40,000 vehicles for Toyota is worth about half a billion dollars.

Increasingly, Japanese have been looking to other nations such as Vietnam, Thailand and Indonesia as destinations for investment, and a hostile China could speed up that trend.

Japanese supermarket chain Aeon Co. said damage at one of its stores had totaled 700 million yen ($8.8 million) as looters smashed windows, broke in and ran amok, toppling shelves and kicking merchandise. That doesn’t account for the loss of sales from the store’s closure or boycotting consumers.

But spokesman Toshiyuki Mukohara was calm, noting the company remained committed to China, and its 34 other outlets were doing business as usual.

“We are dealing with regular Chinese people,” he said.

Although the flare-ups have calmed in recent weeks, it would still require courage to be seen in a Japanese car in some Chinese cities.

Japanese automakers temporarily closed some of their China factories. Production is back up this week but reduced to lower levels as demand has collapsed.

Toyota, which makes the Prius hybrid, Camry sedan and Lexus luxury models, had planned to sell 1 million vehicles in China this calendar year.

“But that may be very difficult to achieve,” company spokesman Dion Corbett said.

Source: Irrawaddy.org

[coma]

I think Japan waved its right to any land claims after its war atrocities during WW2. Therefore they should suck it up and save themselves an economic nightmare. The hint of the old Japanese Imperialism sends shivers down the spine.

[Credo]

The day is dawning when China sneezes and the rest of the world catches a cold.

[maidu]

I think Japan waved its right to any land claims after its war atrocities during WW2. Therefore they should suck it up and save themselves an economic nightmare. The hint of the old Japanese Imperialism sends shivers down the spine.

the word is 'waived,' not 'waved.' But I don't agree with the line of thought you presented. The law sides with Japan on this issue. China has territorial disputes with nearly every country it shares borders with, and with some it doesn't share borders with. It's pushing its weight around, and it's not a pretty sight. Sometime b4 2 long, push will come to shove, and armed hostilities will break out. I don't look forward to it, but it's inevitable. Hopefully, if China gets jolted enough, it will afford Tibetans the opportunity to take back their country.

Edited October 10, 2012 by maidu

[Steely Dan]

The article makes much of Japan's economic fallout from this spat, but appearances can be misleading. As was correctly pointed out China is involved in more than one territorial spat, for example the Spratley Islands, where frankly they don't have a leg to stand on, I suspect the upsurge in Chinese nationalism coincides with the Chinese economy being in serious difficulties and as with all totalitarian regimes an external enemy makes a good diversion from domestic problems.

Finally, Japan's past atrocities are well documented, but all in the past as Japan has grown up, however judging by some bizarre manifestations of patriotic furvour such as burning one's own Japanese made car the same can't be said of the Chinese.

[Briggsy]

The Chinese are coming late to the party of exerting military muscle in the Pacific. And everything is sort of already done and dusted in terms of international boundaries, maritime agreements, UN-recognised sovereign rights, etc.

So it's not really clear what the Chinese can hope to achieve in terms of real expansion.

Traditionally the superpowers (here it would be US and China) have used proxies to fight these battles. e.g. South East Asia (Soviets vs US), Korea (China vs US), Afghanistan in the 80's (Soviets vs US). The trouble for China is they haven't any puppet govts except for North Korea and that's where it starts getting messy.

[maidu]

It's troubling to see how quick and monolithic the Chinese peoples' support is, of anything Beijing politburo decrees. In some ways, they haven't developed much from their myopic crazed followers of the Cultural Revolution period. Beijing heavies could declare Togo mulched trees with dead babies, and within an hour, every Chinese would be foaming at the mouth with hatred for Togolese, ransacking their embassy, jamming their internet, etc. Mob consciousness is alive and well in China. Glad I don't reside there.

[jcgodber]

who ever claims to owns a rock sticking out of the ocean it seems can then claim 200 miles or whatever the distance is.

distance of 200 nautical miles (370 km) beyond a coastal state’s 12-mile territorial sea, and grants sovereign rights over the natural resources and exploitation in the zone.

What we are talking about is oil and gas plus minerals

[coma]

I think Japan waved its right to any land claims after its war atrocities during WW2. Therefore they should suck it up and save themselves an economic nightmare. The hint of the old Japanese Imperialism sends shivers down the spine.

the word is 'waived,' not 'waved.' But I don't agree with the line of thought you presented. The law sides with Japan on this issue. China has territorial disputes with nearly every country it shares borders with, and with some it doesn't share borders with. It's pushing its weight around, and it's not a pretty sight. Sometime b4 2 long, push will come to shove, and armed hostilities will break out. I don't look forward to it, but it's inevitable. Hopefully, if China gets jolted enough, it will afford Tibetans the opportunity to take back their country.

Unfortunately I have to disagree with you on this one. Your memory is short. China has never ever done anything as evil and destructive as what Japan had done in the years leading up to and during WW2. They conducted themselves in a way that was nothing short of outrageous. There was a reason why they were not allowed to have a military and it should remain that way. When it comes to warfare they are nothing short of horrible animals. Anybody with a relative that suffered at the hands of these would not full and well what they are like.

p.s Please feel free to do your spell check thing for me again if you will.

[theslime]

The Japanese can get rooted, My Uncle worked in the Coal mines in Japan after Singapore fell, but what the Japanese did to China before and during WW2 negates any claim they have to any pissy land speck. I dont hate the Japanese that imprisoned my Uncle and screwed up his Head but be real, after Nanking they showed what they thought of the Chinese and don,t deserve anyones favours .

[geriatrickid]

The Chinese are coming late to the party of exerting military muscle in the Pacific. And everything is sort of already done and dusted in terms of international boundaries, maritime agreements, UN-recognised sovereign rights, etc.

So it's not really clear what the Chinese can hope to achieve in terms of real expansion.

Traditionally the superpowers (here it would be US and China) have used proxies to fight these battles. e.g. South East Asia (Soviets vs US), Korea (China vs US), Afghanistan in the 80's (Soviets vs US). The trouble for China is they haven't any puppet govts except for North Korea and that's where it starts getting messy.

With all due respect;

Myanmar and Laos will line up with China. Money talks and Laos is indeed a puppet state.

Thailand will do its usual vacillating routine.

It will be up to Vietnam and to a lesser extent the Phillipines to flex their muscles. The Phillipines will crumble if China pushes back, but the Vietnamese have taken on the Chinese before and are aligned with Russia and are now rebuilding a relationship with the USA.

Key player will be Vietnam. Japan is a nation of the elderly and a very spoilt, pampered midgeneration demographic that are very much removed from the people that were willing to become kamikazes.

[Ulysses G.]

Your memory is short. China has never ever done anything as evil and destructive as what Japan had done in the years leading up to and during WW2.

Does what they have done to their own people count? 30 million dead counts for something.

China has big, big, problems on the horizon with its economy and with controlling the populace.

[coma]

Your memory is short. China has never ever done anything as evil and destructive as what Japan had done in the years leading up to and during WW2.

Does what they have done to their own people count? 30 million dead counts for something.

China has big, big, problems on the horizon with its economy and with controlling the populace.

That is their business.

[theslime]

Your memory is short. China has never ever done anything as evil and destructive as what Japan had done in the years leading up to and during WW2.

Does what they have done to their own people count? 30 million dead counts for something.

China has big, big, problems on the horizon with its economy and with controlling the populace.

Having a famine and slaughtering captured people, doesn,t quite sound the same. The whole world has big big problems coming which is nothing new , China bashing is nothing new either. There are only a few Countries which have tried to make a workers State and for sure Monumental mistakes have occured(Famine) but these are new systems, Not much Famine now.

[maidu]

Your memory is short. China has never ever done anything as evil and destructive as what Japan had done in the years leading up to and during WW2.

Does what they have done to their own people count? 30 million dead counts for something. China has big, big, problems on the horizon with its economy and with controlling the populace.

That is their business.

Atrocities happened all over Asia during the mid-20th Century and prior. The most lives lost in Asia in WWII period were in China's war with Japan re; Mauchuria (or Manchukio for the Japs). But that's what 'war reparations' are for. I was surprised that China did not demand significant war reparations from Japan (except getting back Manchuria), but it's largely explained by their internal civil war at the time. Reparations are like a divorce settlement. You get what you get. Is Coma now saying that China should feel justified in taking the islands because it now realizes how it suffered 70 years ago? No.

The islands are legally Japan's. Taiwan also wants them, but because China covets Taiwan, it becomes a bigger can of worms. I predict China will get its nose bloodied, and will grudgingly retreat. I'm more concerned about the mob consciousness of Chinese people. When any slight is perceived against their country, they go apeshit. There could be rampant killings (of Japanese tourists, etc) in many cities. Not a pretty prospect. Note to Japanese considering going to China for any reason: Don't go!

[Briggsy]

With all due respect;

Myanmar and Laos will line up with China. Money talks and Laos is indeed a puppet state.

Thailand will do its usual vacillating routine.

It will be up to Vietnam and to a lesser extent the Phillipines to flex their muscles. The Phillipines will crumble if China pushes back, but the Vietnamese have taken on the Chinese before and are aligned with Russia and are now rebuilding a relationship with the USA.

Key player will be Vietnam. Japan is a nation of the elderly and a very spoilt, pampered midgeneration demographic that are very much removed from the people that were willing to become kamikazes.

Some good points there but...

Myanmar is currently repositioning itself far further from Chinese influence than it was.

The surprise cancellation of Chinese dam projects was a slap in the face for the Chinese and signalled a very clear move.

Laos has a small population and is much closer politically to Vietnam than it is to China but it walks a path between these two, and Thailand, trying to play each off against each other.

More importantly, both these countries have no Pacific coastline!

So, other than North Korea, there is no Chinese proxy in the Pacific.

Plenty of American-allied nations though.

Vietnam and Russia's relations cooled significantly many years back but they have and will take on the Chinese as you stated.

So there we have it, the trigger will be North Korea.

[geriatrickid]

So there we have it, the trigger will be North Korea.

I hope you're wrong. I think you hope so as well.

Unfortunately, I think we both know you are probably right.

[meatballs]

China has no right to yell or complain about anything. They've been keeping their currency undervalued for years and stealing manufacturing from the rest of the world. The world should be the ones upset about China.

[theslime]

China has no right to yell or complain about anything. They've been keeping their currency undervalued for years and stealing manufacturing from the rest of the world. The world should be the ones upset about China.

What a Joke, The World should be upset you say ,as I a Westerner with 5 houses, 4 cars ,Gas home heating/ Air Con, Holidays O/S Pension . I don,t get it, I am Happily doing my Thing and using up plenty of the Worlds resources and think the poor of China should be the ones complaining.