Is China Burning?
Chinese streets were quiet today after anti-Japan protests, many of them violent, rocked more than a 100 cities last week. Large demonstrations continued through Tuesday, the 81st anniversary of Japan’s invasion of Manchuria.
The disturbances, triggered by a territorial dispute over the Senkaku Islands in the East China Sea, are commonly described as the worst anti-Japan riots to hit the country since at least 2005, and they may have even been more destructive than that.
In any event, the damage to Japan’s business interests in China was substantial. More than a dozen Japanese companies halted operations in the country as fire bombings, sabotage, and looting took their toll. Manufacturers Honda, Nissan, Toyota, Mazda, Mitsubishi, Yamaha, Komatsu, Hitachi, and Canon shuttered plants. Panasonic locked the doors of a factory after employees broke windows, ruined equipment, and set fires. Retailers Aeon, Fast Retailing, Ryohin Keikaku, and Seven & I closed stores.
Japanese tourists are canceling trips to China, and hard-hit Panasonic is, not surprisingly, reducing business trips from Japan to the country. As a result, Japan Airlines reduced flights to and from Chinese destinations. It halved Tokyo-Beijing and Osaka-Shanghai flights, for example. All Nippon Airways reported an increase in cancellations on its flights from China to Japan. And it is not only Japanese carriers that have been hurt. China Eastern, China’s second-biggest airline, is delaying the October 18 start of its Shanghai-Sendai route due to insufficient bookings.
With the streets calm for the time being, Japanese businesses are getting back to work. Toyota, for instance, restarted its China operations today. Most Japanese stores have reopened by now. Aeon has resumed selling at all but two China locations.
The short-term effect of the rioting, therefore, should be limited. Moody’s says the longer-term consequences will be “difficult to determine,” but they could prove to be detrimental to China’s economy for three principal reasons.