Rising risk causing more Japanese companies to leave China

○ Japanese carmakers take direct hit

When the Japanese government announced Sept. 10 that it would nationalize the disputed Senkaku Islands (called Diaoyu in China), Japanese cars in China came under ruthless attack by Chinese protesters en masse. Angry Chinese demonstrators turned Japanese cars upside down or burned them in many regions, leading to an intensifying campaign to boycott the purchase of such vehicles.

The number of vehicles produced in China by six Japanese automakers in September, including Toyota, Nissan and Honda, was 221,099, down 28.4 percent year-on-year. Vehicle production fell 20.4 percent to 90,394 at Nissan, 20.7 percent to 50,735 at Honda, 41.9 percent to 47,253 at Toyota, and 46 percent to 17,000 at Suzuki.

The Japanese business daily Nihon Keizai Shimbun predicted that sales of passenger cars by Toyota, Nissan and Honda in China will fall about 20 percent this year.

○ Mass projections of slowing performance

According to a recent survey on performance outlooks for 469 companies listed on Japan`s main stock market for fiscal 2012 (from April 2012 to March 2013) by SMBC Nikko Securities, 37 percent of the companies cut their sales targets and 32 percent reduced their estimates for net profit. The slowing Chinese economy and boycotts of Japanese products in China were the main factors behind the negative projections.

Until as recently as early this year, watchers predicted that Japanese companies would post a V-shaped recovery amid the rebounding global economy as they were seen to overcome the aftermath of last year`s powerful earthquake and tsunami in Japan. But the situation has turned into quite the opposite due to China risks.

The business outlook for Japanese companies overall will also likely be determined by their China operations. If the boycott of Japanese products by Chinese consumers subsides, such companies can recover from their slowed performance, but if not, they will likely continue to struggle.

○ ‘Exodus from China’

As their business in China deteriorates, certain Japanese companies are moving to relocate their plants out of the country. According to a survey of more than 10,000 companies nationwide by private survey agency Teikoku Data Bank last month, 30 percent of the companies said worsening relations with China caused by the row over the Senkaku Islands are negatively affecting their business in China. Thirty-five percent also replied that the charm of China as a production bases has waned.

When 1,600 companies that are doing direct trade with China were asked on the plans for their business in China in the future, 55 percent said they would maintain their business at the current level, while 16 percent said they could consider reducing their China operations or outright withdraw.

When Reuters surveyed executives of 400 Japanese companies on Oct. 1–17 through questionnaires and interviews, about 37 percent of them mentioned growing fears over the use of China as their production bases. Half of them predicted falling sales this fiscal year, 24 percent replied that they would delay or reduce investments in China. Another 18 percent said they were considering relocation of their plants to a third country.

Japanese companies are expected to continue their exodus from China over the next few years. Honeys Apparel will move its plant from China to Myanmar to reduce its dependence on the Chinese market. Toyo Tire and Rubber is also considering expanding investment in Malaysia in lieu of China.

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