Factories shut down
After days of protests which saw Japanese businesses attacked many factories shut down across China. Panasonic said its factory in Qingdao would remain shut until 18th September, while Canon also temporarily suspended operations at three plants. Meanwhile Honda, Mazda and Nissan stopped car production for two to four days [BBC / FT].
Even branches of the Japanese owned 7-Eleven convenience stores closed their doors in some parts of the country on Tuesday but most were said to be open again the following day. All 180 7-Eleven outlets in Beijing and Chengdu, capital of southwest China's Sichuan province, reopened after Tuesday's closure to dodge potential vandalism, according to Liu Yue, a deputy manager with the company's Beijing office [China Daily].
Economic fears
There are fears amongst some analysts that any long term protests could impact on Japanese investment in China.
After days of protests which saw Japanese businesses attacked many factories shut down across China. Panasonic said its factory in Qingdao would remain shut until 18th September, while Canon also temporarily suspended operations at three plants. Meanwhile Honda, Mazda and Nissan stopped car production for two to four days [BBC / FT].
Even branches of the Japanese owned 7-Eleven convenience stores closed their doors in some parts of the country on Tuesday but most were said to be open again the following day. All 180 7-Eleven outlets in Beijing and Chengdu, capital of southwest China's Sichuan province, reopened after Tuesday's closure to dodge potential vandalism, according to Liu Yue, a deputy manager with the company's Beijing office [China Daily].
Economic fears
There are fears amongst some analysts that any long term protests could impact on Japanese investment in China.
China, once seen as being a low-cost manufacturing base, has seen a steady rise in labour costs in recent times, negating a big advantage it had on other countries in the region. The protests could result in some Japanese firms starting to look beyond China for further expansion, analysts warn.
"They might want to consider expanding manufacturing operations in Thailand or in other nations that are more welcoming towards Japanese investment," says Shaun Rein of China Market Research Group. Such moves could have an impact on China's economic growth and also on the overall trade ties between Asia's two biggest economies. "The trade relations are going to be damaged by the continuing protests, for sure," Rein says.
Chinese threats
China has already hinted that it might target Japan with economic sanctions in what could become a tit-for-tat battle between the two major economies.
The Hong Kong Economic Journal has already reported that China is drawing up plans to cut off Japan's supplies of rare earth metals needed for hi-tech industry.
Meanwhile Jin Baisong, a senior advisor to the Chinese government who is based at the Chinese Academy of International Trade, a branch of the commerce ministry, says China should use its power as Japan's biggest creditor with $230bn [£141bn] of bonds to "impose sanctions on Japan in the most effective manner" and bring Tokyo's festering fiscal crisis to a head.
Writing in the China Daily, Jin called on China to invoke the "security exception" rule under the World Trade Organisation to punish Japan, rejecting arguments that a trade war between the two Pacific giants would be mutually destructive.
The "nationalization" of the Diaoyu Islands by Japan after "purchasing" them from a "private owner" is ridiculous and cannot change the fact that they are Chinese territory, Jin insists.
Describing the "intensifying tension" between China and Japan over the Islands as "a well-orchestrated plan of the Japanese government", Jin says "China should take strong countermeasures, especially economic sanctions, to respond to Japan's provocations." [Telegraph]
Military threat
Despite the belligerent tone, Jin was cautious of any military intervention which he says "should be the last choice". But it is just such military action that some observers are concerned about.
Speaking in Japan during a week-long trip to Asia US Defence Secretary Leon Panetta called for "calm and restraint on all sides".
"It is in everybody's interest for Japan and China to maintain good relations and to find a way to avoid further escalation," he said, after meetings with the Japanese foreign and defence ministers.
His words will seem somewhat hollow to politicians in Beijing after confirmed the United States' commitment to establish a new land-based x-band radar, formally known as a AN/TPY2, in the southern part of Japan, but not on Okinawa, where the US military presence is deeply controversial.
"The purpose of this is to enhance our ability to defend Japan, it is also designed to help forward deployed US forces and it will also be effective at protecting the US homeland from the ballistic missile threat," Panetta said at a news conference with Japanese Defence Minister Satoshi Morimoto.
The new deployment, according to Panetta, showed the US commitment to Japan and to its new defence strategy that emphasizes the Asia-Pacific region. For his part the Japanese Defense Minister Satoshi Morimoto said the cooperation on missile defence would "ensure the safety of Japan and the region." [WSJ]
US fears
However the military expansion will be seen by Beijing as further foreign interference in its own internal affairs and a threat to China [BBC]. But speaking in an interview broadcast later by the BBC, Panetta said, "The danger is like any other dispute. It could get out of control."
Panetta spoke of his concern particularly of provocative acts by both nations of sending ships and fishing vessels to the area which could escalate things further. "These kinds of incidents could very easily drag the United States into it in one capacity or another," Panetta said, "That's the last thing we want."
It might be the last thing the US wants but the mood in many Chinese cities is far more hostile with some protesters calling for a declaration of war against their neighbour. The bad mood was further heightened on Tuesday with the anniversary of the 1931 invasion by the Japanese marked with angry protests across the country [China Daily / CNN / Reuters].
On Wednesday there were further concerns after protesters surrounded and attacked an of final car carrying the US ambassador to China Gary Locke [YouTube / CNN video].The car was only slightly damaged by the protesters which seemed driven by an anti-US agenda as they shouted, "æåįžå¸!" [Dadao Mei Di - Down with American Imperialism!] [LA Times / IBT / WSJ].
"They might want to consider expanding manufacturing operations in Thailand or in other nations that are more welcoming towards Japanese investment," says Shaun Rein of China Market Research Group. Such moves could have an impact on China's economic growth and also on the overall trade ties between Asia's two biggest economies. "The trade relations are going to be damaged by the continuing protests, for sure," Rein says.
Chinese threats
China has already hinted that it might target Japan with economic sanctions in what could become a tit-for-tat battle between the two major economies.
The Hong Kong Economic Journal has already reported that China is drawing up plans to cut off Japan's supplies of rare earth metals needed for hi-tech industry.
Meanwhile Jin Baisong, a senior advisor to the Chinese government who is based at the Chinese Academy of International Trade, a branch of the commerce ministry, says China should use its power as Japan's biggest creditor with $230bn [£141bn] of bonds to "impose sanctions on Japan in the most effective manner" and bring Tokyo's festering fiscal crisis to a head.
Writing in the China Daily, Jin called on China to invoke the "security exception" rule under the World Trade Organisation to punish Japan, rejecting arguments that a trade war between the two Pacific giants would be mutually destructive.
The "nationalization" of the Diaoyu Islands by Japan after "purchasing" them from a "private owner" is ridiculous and cannot change the fact that they are Chinese territory, Jin insists.
Describing the "intensifying tension" between China and Japan over the Islands as "a well-orchestrated plan of the Japanese government", Jin says "China should take strong countermeasures, especially economic sanctions, to respond to Japan's provocations." [Telegraph]
Military threat
Despite the belligerent tone, Jin was cautious of any military intervention which he says "should be the last choice". But it is just such military action that some observers are concerned about.
Speaking in Japan during a week-long trip to Asia US Defence Secretary Leon Panetta called for "calm and restraint on all sides".
"It is in everybody's interest for Japan and China to maintain good relations and to find a way to avoid further escalation," he said, after meetings with the Japanese foreign and defence ministers.
His words will seem somewhat hollow to politicians in Beijing after confirmed the United States' commitment to establish a new land-based x-band radar, formally known as a AN/TPY2, in the southern part of Japan, but not on Okinawa, where the US military presence is deeply controversial.
"The purpose of this is to enhance our ability to defend Japan, it is also designed to help forward deployed US forces and it will also be effective at protecting the US homeland from the ballistic missile threat," Panetta said at a news conference with Japanese Defence Minister Satoshi Morimoto.
The new deployment, according to Panetta, showed the US commitment to Japan and to its new defence strategy that emphasizes the Asia-Pacific region. For his part the Japanese Defense Minister Satoshi Morimoto said the cooperation on missile defence would "ensure the safety of Japan and the region." [WSJ]
US fears
However the military expansion will be seen by Beijing as further foreign interference in its own internal affairs and a threat to China [BBC]. But speaking in an interview broadcast later by the BBC, Panetta said, "The danger is like any other dispute. It could get out of control."
Panetta spoke of his concern particularly of provocative acts by both nations of sending ships and fishing vessels to the area which could escalate things further. "These kinds of incidents could very easily drag the United States into it in one capacity or another," Panetta said, "That's the last thing we want."
It might be the last thing the US wants but the mood in many Chinese cities is far more hostile with some protesters calling for a declaration of war against their neighbour. The bad mood was further heightened on Tuesday with the anniversary of the 1931 invasion by the Japanese marked with angry protests across the country [China Daily / CNN / Reuters].
On Wednesday there were further concerns after protesters surrounded and attacked an of final car carrying the US ambassador to China Gary Locke [YouTube / CNN video].The car was only slightly damaged by the protesters which seemed driven by an anti-US agenda as they shouted, "æåįžå¸!" [Dadao Mei Di - Down with American Imperialism!] [LA Times / IBT / WSJ].
Market effects
While China has yet to act against its neighbour, either militaristically or economically, there has already been fallout from the recent protests. Shares in some Japanese firms affected by the crisis fell on Tuesday with Honda and Nissan seeing their stock fall around 2% and 5% respectively [BBC / WSJ].
However in contrast to falls seen in Japan there were significant gains observed in China with stocks belonging to the military supplier North Navigational Control Technology jumping some 30% in the last few days.
No quick resolve
There likely won't be any quick resolution in the dispute between China and Japan for control of an obscure group of islands.
As a large economy China will likely ride the storm and is unlikely to be affected in the long term by any pull out of Japanese business.
In the short term things could prove difficult for both sides. The protests have rocked an otherwise stable ship. Many businesses, least of all Japanese ones, might see China as too volatile or dangerous a place to set up shop. Tourism might well be seriously affected by scenes of burning factories, looted shops and angry mobs of Chinese nationalists rampaging in the streets. Japanese tourists, which bring much needed currency to China, will very likely stay clear for some time.
With China's economy slowing and many countries looking to reestablish domestic industrial bases, China risks scaring away much needed business. In fact the tide may have already begun to turn, with the Daily Telegraph's Ambrose Evans-Pritchard suggesting the sun was setting on China's industrial miracle.
Japan may have ignited the candle, but China, with its almost blatant encouragement of nationalistic protests, which some see as deliberately engineered [CNN], has fanned the flames considerably.
tvnewswatch, London, UK
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