China-Japan Dispute Over Islands Risks $340 Billion Trade
China and Japan's worst diplomatic crisis since 2005 is putting at risk a trade relationship that's tripled in the past decade to more than $340 billion.
Toyota Motor Corp. (7203), Honda Motor Co. (7267) and Panasonic Corp. (6752) reported damage to their operations in China as thousands marched in more than a dozen cities on Sept. 16 after Japan last week said it will purchase islands claimed by both countries. Protesters called for boycotts of Japanese goods and in some instances smashed store fronts and cars.
Tensions between China and Japan further complicate policy makers' efforts to fortify growth in Asia's biggest economies as the European debt crisis saps demand for exports. Panasonic and Canon Inc. (7751) yesterday said they're shutting some plants in China through today and the China Automobile Dealers Association said the protests will hurt sellers of Toyota, Honda and Nissan Motor Co. cars in China more than Japan's March 2011 earthquake.
"The escalating dispute is adding one more layer of uncertainty," said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. (ANZ), 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."
In 2011, China was the largest market for Japanese exports, while Japan was the fourth-largest market for Chinese exports. China's shipments to Japan totaled $148.3 billion last year as it imported $194.6 billion of Japanese goods, according to Chinese customs data.