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July 29, 2017

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Japan carmakers cut China production amid row

BEIJING -- Japanese automakers including Toyota Motor Corp. and Nissan Motor Co. are cutting back production in China in the wake of anti-Japan protests that shuttered dealerships and darkened their sales outlook in the world's biggest car market.

Production slowdowns are a normal feature of the auto industry in mature markets like the United States and Japan, where they are used to keep inventories from ballooning and avoid pressure for automakers to offer deep discounts that erode profitability.

But the steps by the Japanese automakers to cut output in China are an anomaly in a market that has driven the industry's global growth over the past decade and where most automakers had been adding capacity until China's economic slowdown in recent months. That caused production to outpace sales, resulting in larger-than-normal inventory levels at many car dealers.

"For the time being I think you're going to see Japanese automakers' sales in China down by 20 to 30 percent," said Koji Endo, auto analyst at Advanced Research Japan.

"The last time we had protests like this in 2010, the effects only lasted about a month, but I think this time is going to be different. This is going to have a serious impact."

There were also signs the tensions were having an affect on other sectors, most notably airlines, with All Nippon Airways Co. Ltd. (ANA) announcing on Wednesday that 40,000 seat-reservations were cancelled for flights between Japan and China from September to November.

Nissan, Japan's top automaker in China, said it would halt production at a joint venture in China starting on Thursday, three days earlier than planned, and extending through next week's national holiday period.

Toyota plants in Tianjin and Guangzhou will also suspend production from Wednesday through the holiday, Tokyo-based spokeswoman Shino Yamada said, a few days earlier than planned. Production at factories in China may be further curtailed depending on market conditions, she said.

As a result, a senior Toyota executive in Beijing said the company probably won't be able to meet its goal of selling one million cars in China this year. In 2011, Toyota with its local Chinese partners sold about 900,000 cars in the country.

"It's very difficult to sell cars right now, but that's true with every Japanese brand. Not just us," said the executive, who spoke to Reuters on condition of anonymity because he is not authorized to speak to the media.

In addition to Toyota and Nissan, Mazda Motor Corp. has decided to halt production in China on Friday and Saturday, giving workers two extra days off as part of the national holiday production shutdown.

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