China-Japan island row disrupts trade

ONE REGIONAL dispute which has positive trade dimensions for Korea, at least in the short term, is the row between China and Japan over the latter’s decision last month to buy a chain of disputed islands, which Tokyo calls the Senkaku and Beijing calls the Diaoyu, from a private Japanese owner. The dispute has done unprecedented damage to trade links between the two Asian powerhouses.

There are more than 22,000 Japanese enterprises operating in China, and the two economies are interdependent, so a slowdown in exports could harm both countries.

Japan is China’s second biggest trading partner after the US, accounting for €267 billion, or 9 per cent, of overall trade.

It began with violent protests against Japanese factories and showrooms in China but has transformed into something deeper and more worrying.

Japanese airline ANA says 40,000 seats have been cancelled on flights between Japan and China, while JAL says between 50 and 100 passengers per flight have been cancelling, leading to the suspension of flights on three routes.

No one wants to buy a Japanese car right now – a man was beaten senseless by a mob during riots this month because he was driving a Toyota Corolla.

Toyota’s China sales fell about 40 per cent in September from the year before, while those of rivals such as Hyundai and BMW jumped, highlighting the scale of the impact of the row on trade. Toyota sold about 50,000 cars in China in September, down from about 86,000 in September last year.

Meanwhile, South Korea’s Hyundai saw sales up 15 per cent to 84,188 vehicles last month.

Suzuki is cutting operating hours at its Chongqing plant, switching shifts at the Chongqing Changan Suzuki facility from a day-and-night rotation to a day-only shift. Nissan suspended operations at three of its plants, while Toyota and Honda are also examining various measures, such as extending workers’ holidays or reducing working hours.

Japanese companies have been kicked out of the Western China International Fair in Chengdu, the Japan Times reported. More than 60 Japanese companies and local authorities had entered the trade fair, one of the biggest in China, with 4,500 companies from about 50 countries and territories participating.

Backed by the Chinese government, the event generated 1.2 trillion yuan (€150 billion) worth of business and investment deals for those who took part last year.

Chinese hospitals are sending back pharmaceuticals to their Japanese distributors, while some Japanese companies have sent families of employees home. Visas have been delayed, goods held up in ports as customs tighten up inspection procedures.

The territorial dispute has derailed efforts to come up with a free trade zone involving the two countries and South Korea.

Chen Yulu, a professor at China’s Renmin University and an adviser to the monetary policy committee of the People’s Bank of China, said he hoped a move to suspend the free trade zone talks would be a temporary one.

“It will be a big loss for Asia if the process is terminated,” said Chen.

Some of China’s biggest travel agencies, including China International Travel Service, China Comfort Travel and China CYTS Tours, have halted travel to Japan.

Senior diplomats have been meeting to try to repair relations between the two countries, but statements from senior leaders on both sides have remained defiant.

The more pragmatic members of the business community in both countries will be hoping a solution can be found.