China: Anti-Japan protests cool, but economic effects could be long-lasting

TAIPEI, Taiwan — Enter into a territorial dispute with China at your own economic peril. That was the gist of what analysts had to say about the most recent round of anti-Japanese protests in China.

For nearly a week, thousands had been taking to the streets in dozens of Chinese cities to demand boycotts, economic sanctions and sometimes war against Japan, with whom the Middle Kingdom has long been locked in a territorial dispute over a rocky uninhabited outcrop of natural gas-rich islands in the East China Sea.

Earlier this month, Japan said it purchased the islands — called Diaoyu in China and Senkaku in Japan — from private owners, which further enflamed tensions.

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After reaching a crescendo last weekend, the protests appeared diminished Wednesday as US Secretary of Defense Leon Panetta arrived in Beijing to discuss the island row with China's presumptive next president, Xi Jinping. The United States reiterated Wednesday that it does not take a stand on ownership of the islands but wants Japan and China to resolve their dispute through peaceful diplomatic means.

Observers say that Beijing was probably behind the protests, using them as a way to unite the masses behind a given cause. But analysts say Beijing's tactic could ultimately backfire, damaging economic relations between the two Asian powerhouses in the long term. 

Parris Chang, a former deputy secretary of Taiwan’s National Security Council, said that in the past, Beijing has controlled and manipulated protests. 

“In the run-up to this transition of power different factions of the leadership have been agitating anti-Japanese sentiment. This could lead to things getting out of control, because they don’t want to be seen as soft on the Diaoyu islands,” said Chang.

“They may be hurting themselves. It could harm the relationship for years to come, but with an upcoming Party congress, nobody wants to show that they’re soft on Japan or foreigners.”

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Anti-Japan protests broke out in 2010, but these recent protests drew more participants and occurred in more cities, including Shanghai, Guangzhou, Shenzhen and Beijing. Although labor and land resettlement demonstrations have been on the rise in China, particularly in rural areas and western cities, it’s rare for the government to allow large-scale protests in first-tier boomtowns.

“The Chinese are fabulously nationalistic and the Communist Party feeds into this 'us against the world' strategy,” a British hardware trader, who has lived in Shanghai for 20 years and spoke on condition of anonymity, wrote in an email to GlobalPost.

“I was here in 2008, when [French President] Sarkozy said he would boycott the Olympic Games and people took to the streets, smashing French businesses and any Caucasian they came across. They feel more like race riots than political protests.” 

This time around, protests led to attacks on Japanese businesses, cars, restaurants and citizens. There were also calls for economic boycotts, a worrying sign for economists pinning their hopes on a global economic recovery led largely by growth in Asia. 

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An editorial in the Communist Party’s mouthpiece, the People’s Daily, said that Japan's economy would be impacted for two decades if China chose to roll out sanctions. "Japan's economy lacks immunity to Chinese economic measures," the editorial said, "if Japan continues its provocations China will inevitably take on the fight."

Two-way trade between China and Japan totalled $342.9 billion in 2011. China is Japan's largest trading partner, and Japan is China's fourth-largest. 

Carrier All Nippon Airways Co reported a sharp rise in cancellations on China-bound flights from Japan.

Japanese businesses such as Panasonic, Canon, Toyota and Honda suspended operations out of fears for the safety of their Japanese personnel. Media reported that some Japanese firms cautiously returned to business as usual in China on Wednesday.

But the spat between the world's second-largest and third-largest economies, their worst since 2005, has led some analysts to believe that the longer term economic fallout might be severe.

Global ratings agency Fitch Ratings warned in a research note that "Japanese companies' sales and reputation with Chinese consumers are likely to be affected, at least in the short term," adding that electronics- and auto-makers are particularly vulnerable to the rising tide of Chinese consumer apathy.

Fitch wrote that 26 percent of Nissan's global car sales are made in China, followed by Honda with 20 percent. Toyota's China sales account for about 10 percent of its global total. The same is also true for electronics makers such as Sharp, Panasonic and Sony.

"There is little visibility on the extent to which their sales in China might be affected," Fitch wrote.

Xi, China's current vice president, told Panetta on Wednesday that Japan “should rein in its behavior and stop any words and acts that undermine China’s sovereignty and territorial integrity,” according to state-run Xinhua news agency.

“With nationalism running high in the mainland and hawkish dominance in Japanese politics, Sino-Japanese military conflicts and skirmishes would sooner or later become a real possibility," Lo Shiu Hing, a Chinese political expert at the Hong Kong Institute of Education, wrote in an email to GlobalPost.

Beijing said Tuesday that it “reserves the right to take further action” to settle the dispute, and Japan reported at least 10 Chinese patrol boats near the islands. That same day, about 50 relatively sedate protesters gathered outside a train station in Tokyo’s trendy Shibuya district, calling for a more assertive Japanese response to the spat.

“By and large the Chinese leadership tends to do a fairly good job of reigning in these protests once they get to a certain level. They’ll let it go to a point and then they’ll put the kibosh on it. I would hope we would see a similar situation unfolding here because they want as smooth a leadership transition as possible. And this year in Chinese politics has been anything but smooth,” said Greer Meisels, a China expert at Washington-based Center for the National Interest.

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