China-Japan Territorial Dispute Hurts $340bn Trade Ties

September 18, 2012Asiaby EW News Desk Team

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Trade relations between two of Asia’s largest economies could take a hard hit as tensions over a territorial dispute escalate. Some of Japan’s largest firms have suspended operations at their Chinese plants as concerns over safety grow and anti-Japan sentiments and protests turn violent.

As the trade and economic interests of China and Japan have become increasingly intertwined, analysts warn that an escalation of the region’s territorial dispute could deal “a blow to the Asian economy and the global one as a whole.”

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Japanese car manufacturers Toyota, Honda and Nissan announced yesterday they would halt production at some Chinese plants citing concerns over employees’ safety, while Panasonic and Canon said they would shut their plants and stores throughout China as protestors have turned violent.

According to the China Association of Automobile Manufacturers, sales of Japanese branded cars fell last month in China, compared with gains of more than 10 percent for German, American and South Korean vehicles.

Luo Lei, deputy general of the China Automobile Dealers Association told Bloomberg that the protests will likely hurt Japanese automakers more than Japan’s 2011 twin tsunami and earthquake disasters. 

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 totalled $148.3 billion last year as it imported $194.6 billion of Japanese goods, according to Chinese customs data.

Liu Li Gang, economist at ANZ bank, told Bloomberg:

The escalating dispute is adding one more layer of uncertainty. Japan is now more reliant on China for economic growth than vice versa. Its already weak economic recovery may falter. China will suffer less.

Trade between China and Japan, the second and third largest world economies respectively, have tripled in the past decade to more than $340 billion. But the disputed islands, known as Diaoyu in China and Senkaku in Japan, have been a contentious issue between the two countries and the focus of diplomatic strains since 2010.

The dispute flared up again over the weekend after Tokyo said it had agreed to purchase the islands from a private Japanese owner, leading to thousands of protesters taking to the streets in various parts of China.

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