Diaoyu Islands rift takes toll on China-Japan economic ties

17  January 2013

BEIJING – Japan’s unilateral move of the so-called  “purchase” of the Diaoyu Islands, which are Chinese territories, two weeks ago has taken its toll on bilateral economic and trade ties, experts said on Tuesday.

Chinese people intending on traveling to Japan have been bogged down. Heavyweight travel agencies, including China International Travel Service Limited, China Comfort Travel and China CYTS Tours Holding Co Ltd, have halted travel business to Japan.

As far as Chinese travel to Japan is concerned, the impact of Diaoyu Islands rift could go as deep as the 2011 Fukushima earthquake, said a manager from the Marketing Department of the China CYTS, who preferred to be anonymous.

More Chinese organizations and groups canceled their travel plans to Japan in a bid to show strong protests and firm opposition to Tokyo’s rash move of “purchase”, media reports said.

Flights between China and Japan have been hampered in terms of flights being cut and delays of new routes opening. All Nippon Airways Co Ltd and Japan Airlines Co Ltd canceled up to 23,000 seats on routes to China during the last few weeks.

Chinese airlines, including Air China, China Hainan Airlines and China Southern, have either canceled or cut flights to Japan in September and October. China Eastern Airlines and Juneyao Airlines postponed plans to open new routes to Japanese Sendai and Okinawa separately.

Moreover, Japanese automakers, including Tokyo, Honda and Nissan, shut down several factories in China under the pressure of Chinese demonstrations over the “purchase.”

Insiders expect the automakers’ losses to hit at least $250 million, adding that September sales of Japanese auto products in China, the largest auto market in the world, could decline 50 percent month on month.

Japanese electronic appliance makers also felt the chill from Chinese consumers’ spontaneous boycott of Japanese products. Sales revenue of Japanese home appliance makers slumped sharply, retailers in Beijing said.

Chinese Vice Minister of Commerce Jiang Zengwei said on September 13 that the so-called “purchase” would inevitably have a negative impact on China-Japan economic and trade ties.

Commerce Ministry spokesman Shen Danyang told a press conference on September 19 that Japan should take full responsibility for the damage of economic and trade relations between the two countries caused by Japan’s “nationalization” of the Diaoyu Islands.

In 2011, Sino-Japanese trade volume totaled over $340 billion. China has been Japan’s largest trade partner since 2007 while Japan is China’s fourth largest trade partner, after the EU, US and the ASEAN. China is the biggest destination for Japanese exports and biggest source of its imports.

Meanwhile, China’s imports account for 23.7 percent of Japanese exports volume. Bilateral trade volume last year took up 21 percent of Japanese gross trade volume for the year, while it merely accounts for 9.4 percent of China’s annual gross trade volume.

“China will lose less than Japan if economic and trade wars have to be our choice ultimately,” said Mei Xinyu, a researcher at the International Trade and Economic Cooperation Institution under China’s Ministry of Commerce.

The Chinese market is hard to replace for Japan, whose economy has been witnessing sluggish growth for years, said Mei, adding that if major fluctuations happened on Sino-Japanese trade relations, the shock waves would be felt strongly worldwide.

In May, China, Japan and the Republic of Korea agreed to start their talks on Free Trade Area within the year. However, the FTA talks cannot stay unharmed from the Diaoyu Islands rift, said Shen, the MOC spokesman, on September 19. For the time being, China has to further study the FTA issue, Shen said on the same occasion.

China has repeatedly urged Japan to stop any words or acts that undermine China’s sovereignty and territorial integrity and let talks get back on track. But thus far, Japan has done little to go in that direction.

The negative effects to Sino-Japanese economic and trade relations are still at the preliminary stage, said Huo Jianguo, director of the Chinese Academy of International Trade and Economic Cooperation Institution, adding that a chain reaction could emerge on trade, investment and other fields if the situation deteriorated.