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June 23, 2017

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Japan Inc. sees 'China risks' anew in island row: analysts

TOKYO -- Riots at Japanese factories, stricter customs inspections and other barriers thrown up over a territorial row have reawakened an alarmed Japan Inc. to the risks of doing business with China, analysts say.

Although abandoning well-developed manufacturing bases in China is not an option, Japanese firms are starting to look at other countries, such as Myanmar, as alternatives.

Sometimes violent demonstrations erupted in cities across China earlier this month while consumers have boycotted Japanese products in response to Tokyo's nationalization of an island chain it controls but which Beijing also claims.

Factories and stores were shuttered amid vandalism and arson, or feared assaults on staff.

Most quickly reopened, but Japanese companies in China then began reporting difficulties with getting their products through customs, and longer waiting times for visas for their staff.

There has been nothing big enough to dam two-way trade — worth US$342.9 billion last year, according to Chinese figures — but the strictures have been enough for Japanese firms to reconsider the cost of doing business with its neighbor.

"No one knows when such demos will happen again in China in the near future," said Takeshi Takayama, an economist at NLI Research Institute in Tokyo.

Takayama says China, which is no longer a mere production base, is likely to remain Japan's biggest trading partner for now, as the world's second largest economy is too big to ignore.

"But I think Japanese companies will shift part of their investment from China to other Asian countries for sure," Takayama said. "The demos reminded Japanese companies of China risks again."

Toyota and Nissan said Wednesday they would cut production in China because demand for Japanese cars has been hit.

And the airline ANA announced it had received 40,000 seat cancellations for the three months to November, as tourists from both countries get cold feet.

Two years ago, a diplomatic row — over the same islands — stymied shipments of rare earths to Japan, hampering the manufacture of high-tech products.

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