China-Japan tensions threaten trade

Investors Tuesday were closely watching the continuing dispute between China and Japan over last week's Japanese purchase of long-contested islands in the East China Sea and how it might affect trade between the two.

Toyota, Honda, Sony shut down some Chinese factories as tensions rise

Residents of Xi'an in northwest China's Shaanxi province, look at an over-turned Toyota car after an anti-Japan protest on Saturday. (Associated Press)

Investors Tuesday were closely watching the continuing dispute between China and Japan over last week's Japanese purchase of long-contested islands in the East China Sea and how it might trade between the two.

Japan's benchmark Nikkei 225 index fell 0.4 per cent to 9,123.77 and Hong Kong's Hang Seng lost 0.3 per cent to 20,601.93 as traders wondered what effects the crisis would have on a trading partnership that was tripled in value over the last decade to $345 billion US.

China, the world's second-largest economy, and Japan, its third-largest, are closely interdependent. 

China, as the buyer of $195 billion in goods and services, is Japan’s biggest customer while at the same time being Japan’s number four supplier, with exports worth $148 billion.

Known as the Senkaku to the Japanese, and as the Diaoyu to the Chinese, the islands are believed to hold natural gas reserves increasingly valued by Japan as it moves to reduce its reliance on nuclear power after the Fukushima disaster last year.

In China, anger against Japan has led to demonstrations, riots and violent attacks on Japanese businesses on the mainland.

Toyota and Honda, who suffered damage from arson attacks at their factories on the weekend, were among dozens of Japanese business shutting down temporarily to keep workers safe.

A Toyota dealership in Qingdao was burned and others had display models damaged.

Honda Motor Corp. said all five of its assembly plants in China would be closed Tuesday and Wednesday, mainly to adjust production due to the impact of the anti-Japanese backlash on sales.

Honda dealerships also have been damaged in recent protests, the company said. Honda's China sales account for about one-fifth of its global total, with Toyota's accounting for about 10 per cent and Nissan Motor Co.'s for over one-quarter.

Until recently, all three were outperforming their domestic rivals, despite a cooling in demand over the past two years.

Kobe Steel shut four of its various steel, aluminum and construction machinery plants in China from yesterday or today, said spokesman Gary Tsuchida.

"As a precautionary measure, we decided it would be better to cool things," he said.

Sharp. Corp., which gets about a fifth of its sales from China, said its various factories are operating as usual, with no impact so far on their production.

However, spokesman Yuta Oga said the company was taking precautions in having employees avoid unnecessary travel or excursions.

Kawasaki Heavy Industries, which has a big shipbuilding joint venture in the Yangtze River city of Nantong, near Shanghai, has likewise continued business as usual.

Sony Corp. said it had suspended production at two factories out of the seven it operates in China, to protect its employees.

Chinese tourists rest after shopping in Tokyo's Akihabara electronics shopping district Tuesday. (Shizuo Kambayashi/Associated Press)

Uniqlo, Asia's biggest clothing retailer, had closed some of its outlets but opened its huge flagship store on Shanghai's main Nanjing Rd. shopping street by the early afternoon. Amid calls for a boycott of Japanese products, the popular store was busy with shoppers.

The Japanese government has been urging Beijing to do more to protect Japanese businesses from trespassing, looting and other damage, Chief Cabinet Secretary Osamu Fujimura told reporters.

"Japanese companies play an important role in the Chinese economy and employment. We believe we should be calm and make rational judgments from a broad perspective," Fujimura said.

Some private and government-level meetings and events have been postponed or cancelled, he said.

Although Chinese manufacturers are upgrading their technology and equipment as they close the gap with their global rivals, many rely heavily on advanced robotic machinery and other Japanese technology, as well as state-of-the-art materials and components.

Pain from the protests was being felt in Tokyo, too, where business has slowed for the many shopkeepers catering to Chinese tourists.

"It makes me wonder how Japan will emerge from this," 20-year-old Yui Watanabe said of the protests. "We just really need to be level-headed," she said.

With files from The Associated Press