Japanese Firms look to Diversify Away from China.

Monday, September 24, 2012 6:21
Posted in category Invest in China, The Big Picture
Comments Off on Japanese Firms look to Diversify Away from China.

When you piss China off, its people never forget. Ever.

And the past few weeks have been a testament to that fact.

What has been interesting for me is the impact that the nationalistic side of China, which has deep roots and a long standing conflict with China, is in direct conflict with the pragmatic side of China, and the fact that Chinese consumers buy Japanes brands, Japanese manufacturers are huge employeers in China, and Japan is one of China’s largest investors.

Pride against profit. A conflict  by the large number of paid volunteers citizens across China marching against Japanese embassies, burning Japanese cars, throwing hot noodles in the face of Japanese.  Actions only topped by the rhetoric a call to wipe Japan off the map.

All over a couple of islands.

Islands that, as one of my friends put it, were orphans that China  gave away, didn’t fight for, and now want back at the age of 35 because they are out of school, married, ahave a beautiful kid, and are filthy rich.  Which is to say when they were just a few rocks in the middle of the ocean, no one in Zhongnanhai could have cared if Japan owned them, but once energy reserves were proven everything changed.

The problem with this is that the fight over these rocks has degraded into China pulling air and using its nails.  Calling for boycots,  tourists being force to canceling their holiday, factoriesbeing shut down (and set on fire), and generally making it difficult for Japanese businesses who are legally operating in China, employing Chinese, paying taxes, and investing billions to safely operate.

2point6billion lists the closures in their post The Economic Costs of China’s Anti-Japanese Sentiment:

Well-known Japanese corporations operating in China that were closed down this week include:

  • Toyota Motor Corp.: Arsonists damaged their stores in Qingdao, however they have not revealed the total number of closed factories. Their Chinese sales account for 10 percent of global revenue. Toyota has now stated that it may scale back its expansion plans in China.
  • Honda Motor Co.: Arsonists damaged their stores in Qingdao, forcing them to close all of their factories on Tuesday and Wednesday. Their Chinese sales account for one-fifth of their global revenue.
  • Nissan Motor Co.: Reported damage to its dealerships in Qingdao, and that they have halted production in two of its factories. Their Chinese sales account for over one-quarter of their global revenue.
  • Panasonic: Halted production in a factory in Qingdao after it was sabotaged by its Chinese workers. Also closed plants in Suzhou and Zhuhai.
  • Canon Inc.: Suspended three of its four main plants on Monday and Tuesday, including a laser printer and digital camera factory in Guangdong, and a copier plant in Jiangsu.

Its a spillover that could have a lasting impact, as the recent article  Japanese firms say China protests affect business plans highlights

About 41 percent of Japanese firms see an escalating territorial row with China affecting their business plans, with some considering pulling out of the country and shifting operations elsewhere, a Reuters poll showed on Friday.

[…] Customs officials in the port city of Tianjin near Beijing have told Japanese companies their imports will be inspected more frequently, the Asahi newspaper reported, in a worrying sign that Japan’s shipments to China could slow. Automaker Honda Motor Co said it was already making contingency plans. “We are trying to forecast things in advance and preparing as much as possible to avoid any impact on our business,” Takanobu Ito, Honda’s chief executive, told a news conference.

With the end of the article stating:

“We have had many diplomatic clashes in the past, and in the end this always comes back to hurt Japanese companies who are in China,” said Naoto Saito, a senior economist at Daiwa Institute of Research.

“This is likely to happen again, so companies will seriously start to question whether they want to go to China or tap other markets.”

Perhaps this isn’t something the average Chinese thinks about, much less cares about, Japanese companies pulling out of China.  Perhaps the average Chinese is thinking about this and feels adamant about the Japanese packing it up, going home, and enjoying another lost decade.

But here is the risk… when it comes tot he point that consumers set their cars on fire, Japanese brands are hanging Chinese flags in show of support, customs officials are publicly stating Japanese firms can expect delays at port, it has … well, perhaps it is time to remove the unnatural fuel source?  Perhaps it is time to admit that this was part government diversion and part opportunity for brands to align to the cause, and move on before China sees a shift of investment.

UPDATE: CNBC reports that Toyota and Nissan Will Extend the holiday vacation as a result of reduced orders in China:

All Toyota plants in China are scheduled to reopen October 8, but the production levels “will be adjusted according to the situation at that time to meet demand,” Corbette added.

According to Lin Huaibin, analyst at IHS Automotive in Shanghai, orders of Japanese cars in China have indeed suffered a drop in October, a traditionally strong month for sales. Still, he predicts that the impact will be short-lived.

“It seems like for October, there is some kind of big drop. We are hearing 30 to 50 percent from our sources, but we have some doubts whether it’s going to be long term,” Lin said. “The situation will calm down within the next one month or so, and then demand will resume again.”

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