Japanese Brands Are Being Bashed in Chinese Protests

Carmakers like Toyota and Nissan Are Biggest Targets, But Other Japanese Companies Are Worried, Too

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Two years ago, Sherry Wang bought a Toyota Camry because it offered a comfortable way to commute to her job as a researcher in the Chinese city of Xi'an.

But lately, she's been taking the bus.

Demonstrators hold banners as they protest outside the Japanese Embassy in Beijing, China, on Tuesday, Sept. 18, 2012.
Demonstrators hold banners as they protest outside the Japanese Embassy in Beijing, China, on Tuesday, Sept. 18, 2012. Credit: Bloomberg

"I'm afraid that my car or I will become a target " of anti-Japanese protesters, who have thronged China's streets in recent days, Ms. Wang said. "I just hope life will get back to normal as quickly as possible."

Ms. Wang illustrates why Japanese carmakers such as Toyota Motor Corp, Nissan Motor Co. and Honda Motor Co. are bracing for what may become a bigger crisis in China than last year's tsunami in Japan. As violent protests over control of islands claimed by both nations flare up, China's Passenger Car Association predicts Japanese brands will lose their lead over German nameplates in the country for the first time since 2005.

"The repercussions for Japanese carmakers are very serious and will last for a long time," said Cui Dongshu, deputy secretary general of the Passenger Car Association. "There are plenty of choices. Why bother with Japanese brands if there are concerns of safety due to anti-Japan sentiment?"

Consumers shunning Japanese models may turn to market leaders General Motors Co., which this year has sold 1.84 million cars in China under brands including Buick, Chevrolet and Cadillac, and Volkswagen, whose two joint ventures have sold a total of 1.49 million vehicles this year. The Japanese leader, Nissan, has sold some 485,000 vehicles in China so far this year.

Japan's three biggest carmakers -- Toyota, Nissan and Honda -- have reported attacks on their dealerships in the eastern port city of Qingdao and halted production at Chinese plants.

Other anxious Japanese businesses shuttered their doors for fear of being targeted by protesters. Some outlets of the Uniqlo clothing store were dark, as well as dozens of 7-Eleven convenience stores, news reports said. Canon suspended operations at three factories, the Financial Times reported.

While automakers have been among the hardest-hit Japanese companies, the diplomatic crisis puts at risk bilateral trade in goods ranging from rice to tractors that has tripled in the past decade to more than $340 billion.

The protests center around a decades-long dispute over a group of islands, known as Diaoyu in China and Senkaku in Japan. Tokyo Governor Shintaro Ishihara reignited the row in April when he said he may use public funds to buy the islands. Protests in China have since escalated, with some demonstrators torching auto showrooms and smashing Japanese-branded vehicles.

Thousands of protesters marched in Chinese cities yesterday on the 81st anniversary of the Manchurian Incident, an attack on a Japanese railway that historians say was used as an excuse for Japanese soldiers to invade China. Demonstrators in Shanghai gathered at the Japanese consulate chanting "Down with the Japan devils, give back Diaoyu."

Many dealerships in China that sell Japanese cars have closed after some showrooms were attacked and vandalized, according to Luo Lei, deputy secretary general of the state- backed China Automobile Dealers Association.

Unverified photos posted on online forums this week showed Toyotas with their badges covered by logos of Chinese brands such as BYD Co. And Japanese car dealerships have hung Chinese flags and banners proclaiming patriotism for China.

"Everyone's attitude toward Japan is so hostile now," said Zhang Jian, a salesman in Chengdu at a Mitsubishi dealership that sported a Chinese flag in its windows and signs vowing support for China's claim to the islands. "Although we are selling a product from a Japan-China joint venture brand, it has nothing to do with how we feel about the Diaoyu islands. We are Chinese and support China's claim."

Walk-in customers dropped by half over the weekend at the dealership and sales will be hurt should the tensions persist, Mr. Zhang said.

The collective market share of Japanese car brands, No. 1 among foreign nameplates in China since 2005, will probably fall to 22 % this year, while German marques could increase their share to 22 .5%, according to projections by China's Passenger Car Association.

Some analysts said concerns may be overblown.

"Since neither Japan nor China are really interested in a serious conflict that would harm both economies, I expect a solution to be found soon," said Klaus Paur, Shanghai-based global head of automotive at researcher Ipsos. "With an appropriate marketing and communication offensive, Japanese carmakers may then quickly try to regain some lost ground."

In the short term, anti-Japan sentiment will hamper expansion plans by Japanese carmakers, with September sales probably hitting the low point for the year, Mr. Paur said.

Nissan has the biggest plans in the country, with its China venture budgeting $7.8 billion in investments to raise sales to more than 2.3 million vehicles in China by 2015 from 1.3 million in 2010. Toyota said this month it aims to increase Chinese deliveries to 1.8 million vehicles by 2015, more than double the tally last year, by adding at least 20 new models.

While the tensions will almost certainly hurt sales in the short term, over time Japanese cars will likely find buyers, said Zhou Jincheng, an analyst at researcher Fourin.

"Chinese consumers understand that Japanese products are good quality," Mr. Zhou said. "So Japanese carmakers shouldn't have to worry about the products themselves, but they may need to review their business plans in the country with regard to the nation's political situation."

--Bloomberg News--

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