x Abu Dhabi, UAESunday 21 January 2018

Islands row with China hits Japan blue-chips

Protests in China have hit the value of Japanese blue-chip companies and could force major brands to review their long-term plans in the second-biggest economy in the world.

BEIJING // Protests in China have hit the value of Japanese blue-chip companies and could force major brands to review their long-term plans in the second-biggest economy in the world.

As thousands marched nationwide in a row over a group of islands claimed by both countries, Japanese companies' share prices fell in the wake of factory closures in China.

Fast Retailing has been forced to close 19 Uniqlo clothing stores, while Canon, Panasonic, Nissan, Toyota and Honda have shut factories.

"We believe we should be calm and make rational judgments from a broad perspective," Osamu Fujimura, Japan's chief cabinet secretary, told the AP.

At stake are billions of dollars in investments and far more in sales and trade. Already the fallout from the row has caused market waves in Tokyo.

Honda shares were down 2.5 per cent at ¥2,604 yesterday, while Toyota dropped 0.62 per cent to ¥3,195. Nissan's shares fell 5.01 per cent, closing at ¥701, while Panasonic was off 0.7 per cent at ¥560. Uniqlo closed down 6.97 per cent at ¥17,480.

"Japanese components makers with a number of production bases in China will feel an impact [from factory closures]," Citibank told Dow Jones.

If tensions continue or deteriorate, the consequences could go beyond a short-term profit hit.

Analysts have warned Japanese companies may decide to cut back their investments in China or move elsewhere.

"International tensions certainly factor into investment decisions," said David Hoffman, the vice president and managing director at the Conference Board China Centre for Economics and Business.

Anger has increased in China because of a Japanese government decision to buy some of the disputed Japanese-controlled islands, known as Senkaku in Japan and Diaoyu in China, from their private owners.

Given the countries are major trading partners, Japanese companies cannot simply pull out of China overnight.

Last year, bilateral trade was valued by China at US$342.9 billion (Dh1.25 trillion). But Duncan Clark, the chairman of the investment consultancy BDA in Beijing, said companies may reconsider future investments.

"Some of this was already happening with rising labour costs in China," he said."[This] means putting plants into Vietnam and Malaysia … for example, in Hanoi, you will see Canon has a huge plant."

Whether the balance tips further may depend upon how long the islands row lasts.

"This one seems to be different" from other flare-ups, said Mr Clark, with 18 years of experience in China. "It's going to be difficult for both sides to go back.

"If it goes beyond … the Japanese election and the Chinese leadership transition … it will affect that calculation, it will negatively impact foreign investment in China."

Others were sceptical of a long-term strain in relations.

"In the face of the current tensions it is important, however, to keep things in perspective," said Patrick Chovanec, an associate professor in the School of Economics and Management at Tsinghua University in Beijing.

Many Japanese brands are popular and successful in China and will have to "ride it out", although they may look again at the situation if anger fails to subside.

"A lot of Japanese companies here are looking to sell to [the Chinese market] and it would take a lot for them to give up on that market," said Mr Chovanec.

"If you want to sell automobiles to the Chinese customers, you have to be making them in China."

The latest spat is not the first to affect Japanese companies.

Mr Chovanec pointed to 2010, when China restricted exports of rare earth metals after the Japanese authorities detained a Chinese fishing-boat captain whose vessel sailed into disputed waters.