Riots Prompt Japanese Firms to Reassess China Operations

The Financial Times has what appears to be a preliminary look at the economic implications of the China-Japan rift:

Riots Hurt Japanese Firms̢۪ Sentiment on China

Three in 10 Japanese companies operating in China are reassessing expansion plans after violent anti-Japanese demonstrations in April, reflecting widespread concern that sour political relations are poisoning business ties between Asia̢۪s two largest economies.

The survey, conducted by the Japan External Trade Organisation (Jetro) in May and published on Thursday, found that 54.8 per cent of companies planned to expand their existing operations in China. That compared with more than 86 per cent when the same question was asked in December.

Of 414 companies surveyed, 7.5 per cent said they “were planning to postpone or cancel investment projects in Chinaâ€, while 5.6 per cent said they would “downsize production in China or shift production bases to other countries.â€

From this report, I couldn’t tell whether the organization polled companies that had specifically intended to expand last year. But, according to the press release, questionnaires were sent to “those firms who, in a November-December 2004 JETRO survey, included China in their business plans.” Moreover, labor issues were prominent:

While most firms were concerned the April events may effect their future sales performance, manufacturers with production bases in China were more worried about how the events might affect their production activities, with many forecasting “worsened relationships with Chinese employees” and “difficulty in securing personnel locally”.

Obviously, both countries suffer from the diplomatic row, but I nonetheless wonder: which one loses more? Is it Japan, whose firms want access to a large market and relatively cheap labor? Or is it China, whose consumers use Japanese products, whose workers seek employment, and whose public officials aim for economic growth?

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Robert Garcia Tagorda
About Robert Garcia Tagorda
Robert blogged prolifically at OTB from November 2004 to August 2005, when career demands took him in a different direction. He graduated summa cum laude from Claremont McKenna College with a Bachelor of Arts in Philosophy, Politics, and Economics and earned his Master in Public Policy from Harvard's Kennedy School of Government.


  1. DC Loser says:

    The Japanese products are easily replaced by other countries’ products (U.S., European, Taiwanese, etc.). Japan’s loss of the China market will be near fatal, as they have not recovered from the 90s recession, and the Chinese market has kept their economy from going into a depression.