Courtesy IDN-InDepth NewsReport
LONDON (IDN) – The 81st anniversary of the so-called "Mukden Incident" that marked the 14-year long Japanese occupation of China (1931-1945), was accompanied by anti-Japanese protests on September 18, which reportedly took place in Beijing, Shanghai, Guangzhou, and Chengdu. These followed demonstrations on a similar scale over the weekend of September 15-16.
Despite heavy police presence, episodes of violence and vandalism were widely reported by both Chinese and foreign media, with damages caused to Japanese-owned businesses and Japanese-branded cars.
On September 19, 2012, Japanese Prime Minister Yoshiko Noda demanded that the Chinese government take the responsibility for the damages. In reply, China said the affected Japanese businesses and diplomatic missions should take the cases to the police and relevant government agencies including the Ministry of Commerce.
According to knowledgeable sources, China is witnessing the strongest expression of anti-Japanese nationalist sentiment since 2005, when Japan attempted to become a permanent member of the UN Security Council. On that occasion, Sino-Japanese relations hit their lowest point in 30 years as anti-Japanese protests spread across China in March and April of that year.
According to reports, anti-Japanese public rage erupted in the wake of the Japanese government's decision on September 11 to purchase three of the disputed Senkaku/Diaoyu islands in the "East China Sea" from its private owner. The islands are claimed by China and Taiwan, but effectively controlled by Japan.
Tensions between China and Japan have been mounting since the Governor of Tokyo, Shintaro Ishihara, said in April 2012 that the government was planning to purchase these privately-owned islands, despite China's repeated strong objections. Japan's insistence to proceed with the plan fuelled already deep-rooted anti-Japanese nationalism.
Protests hit businesses
"Attacks on Japanese businesses present a heightened risk to the security of assets and personnel safety, although this is limited to major urban areas. Attacks on Japanese businesses by protesters have already led many Japanese companies to suspend their operations in China. Manufacturers such as Canon, Panasonic, Toyota, Honda, and Nissan – all with extensive manufacturing bases in China – have temporarily halted production," states British 'risk analyst' Maplecroft.
Moreover, it adds, retailers like 7-11 and Uniqlo closed their shops, or covered up their brand names in fear of vandalism. Factory and shop closures have negatively affected investor confidence for Japanese businesses with significant supply chain exposure in China. This is reflected in the 0.3% fall of the Nikkei China 50 Index (composed by companies with extensive business exposures in China) on September 17 from the previous trading day, following two days of anti-Japanese protests.
Maplecroft analysts warn that prolonged unrest may impact not only Japanese businesses, but also foreign investment in China as a whole, potentially damaging the overall business environment. In light of fresh violent protests on September 18, credit rating agency Fitch warned that the Japanese automobile and technology industry may come under pressure if escalation over the disputed islands continues. Companies which derive an important part of their global revenues from China, such as Nissan (26%), Sharp (20%), Honda (20%), and Toyota (10%) were highlighted by Fitch as high risks in terms of financial repercussions.
The risk analysts find it notable that attacks on Japanese businesses have also had a spill-over effect on other businesses and foreign establishments. For instance, cars belonging to the Italian consulate in the southern city of Guangzhou were damaged and several retailers that were not owned by Japanese entities were vandalised during the recent protests.
Political situation remains fluid
According to the Maplecroft briefing, careful containment of popular nationalism remains critical for Beijing in order to maintain social stability ahead of a delicate once-in-a-decade leadership transition scheduled for October 2012. "Pressing domestic socio-economic issues and the outbreak of a high profile political scandal involving Bo Xilai in early 2012 may have prompted the government to give tacit consent to the recent protests," says Maplecroft.
Prior to Japan's purchase, activists from both countries landed on the islands to declare sovereignty. With anti-Japanese sentiment rapidly on the rise in line with increased tension over the Senkaku/Diaoyu islands dispute, Beijing apparently had little choice but to allow the public venting out some nationalistic steam. Social stability is of paramount importance for the Chinese Communist Party, particularly ahead of the imminent leadership handover.
The briefing points out that for the sake of political legacy, the outgoing Chinese leadership does not want to appear to be too weak and soft towards Japan's provocative actions. Such criticism has already appeared on social networks.
On the other hand, allowing unbridled nationalism and accompanying violence is a double-edged sword and could have a detrimental effect on the new leadership, which is widely expected to be led by Xi Jinping as President. Xi does not want to be forced by popular nationalistic pressure to take drastic actions against Japan, at a time when he will need to consolidate power both on the domestic and international stage.
The risk analysts say that in Japan, weak domestic support for the Noda government and the rising influence of right-wing groups means that Tokyo is unlikely to back down on the Senkaku/Diaoyu dispute. The government has been in desperate need of domestic support after Prime Minister Yoshiko Noda survived a no-confidence vote in August 2012 over a proposed five-percent increase in the sales tax.
Taking a strong position against China may secure support from influential right-wing politicians and political activists. However, even with their support, it is unclear whether Noda will continue to rule beyond the next general election that is currently scheduled for November 2012.
On the other hand, frequent changes in the Japanese leadership make it difficult for Beijing to gauge Japan's China policy and establish a forward-looking strategy for bilateral relations. This is particularly the case as anti-China sentiment is frequently used by the unstable Japanese government to consolidate power, making Sino-Japanese relations even more volatile.
Armed conflict unlikely
Maplecroft expects tit-for-tat diplomatic actions to continue on both sides, potentially hindering business operations in the region. However, full-scale armed conflict is highly unlikely. In response to the announcement that Japan had purchased three of the Senkaku/Diaoyu islands, China quickly drew up the specific maritime baseline which Beijing claims to be under its jurisdiction.
The set of coordinates were filed to the UN on September 13, 2012, two days after Japan's completion of purchase. Increased regular patrols by Chinese fisheries administration and maritime surveillance vessels in disputed waters are taking place following Beijing's submission to the UN.
As of September 19, Japanese media reported that 14 Chinese civil enforcement ships are on patrol in waters near the Senkaku/Diaoyu islands, representing the largest ever presence of Chinese maritime enforcement vessels in the area. This is likely to account for a growing risk of maritime friction between the two countries, potentially affecting fisheries and oil and gas operations in the area, states the Maplecroft briefing.
It adds: "The intensity of this dispute has so far inhibited foreign companies from conducting joint oil and gas exploration in the area. That said, with the US re-iterating that the disputed islands are covered under its security alliance with Japan neither Beijing nor Tokyo are likely to abandon diplomatic efforts in order to prevent the prospect of armed conflict." [IDN-InDepthNews – September 19, 2012]
2012 IDN-InDepthNews | Analysis That Matters
Photo credit: Maplecroft
