September 6, 2012 / 4:07 AM / in 5 years

Diplomatic row hurts Japanese car sales in China

CHENGDU, China (Reuters) - A diplomatic row between Japan and China is having “some impact” on Japanese car sales in China, a Nissan Motor Co Ltd (7201.T) executive said on Thursday, a sign the feud is affecting business between the world’s second- and third-largest economies.

The potential damage to ever-closer economic ties is one big reason that both Beijing and Tokyo want to keep the row over disputed islands in the East China Sea from spiraling out of control. Still, both face domestic pressure not to look weak, given deep mutual public mistrust.

Nissan’s Chief Operating Officer Toshiyuki Shiga said in the southwestern Chinese city of Chengdu that Japanese car manufacturers were having difficulty in holding big, outdoor sales promotion campaigns, which may have hurt August sales.

“Overall, not only for Nissan but also all Japanese makers, we have been hit by a drop in sales, especially August sales. That means there is some impact,” Shiga told reporters on the sidelines of an auto conference.

“It is very difficult to conduct big sales promotional campaigns, especially promotional events outdoors.”

Nissan has said it sold 95,200 vehicles in China in August against 98,100 in July. But the drop could also be due to an economic slowdown in China, the world’s biggest auto market.

Nissan and other Japanese manufacturers were advised by local government officials to tone down sales campaigns and slow other sales activities to avoid becoming targets, Shiga added.

Mazda Motor Corp’s (7261.T) China head, Noriaki Yamada, told reporters in Shanghai last week that there had been a slight impact on the number of visits by customers after the anti-Japanese protests. “I cannot say there won’t be any impact on business in the future,” Yamada said.

Many Japanese car makers are banking on China’s auto market as a driver of growth. Earlier on Thursday, a senior executive at Toyota Motor Corp (7203.T) said the firm aims to sell up to 1.8 million cars annually in China by 2015, up from about 900,000 cars it sold last year.

Sino-Japanese ties, plagued by a bitter wartime past and present rivalry over regional clout, have been strained recently by a flare-up of a feud over rival claims to the uninhabited islands, known as the Diaoyu in China and the Senkaku in Japan.

PRACTICAL CONSUMERS

In August, Japan’s coast guard detained and deported Chinese activists who sailed from Hong Kong and landed on the islets.

China is also angry over a plan by Prime Minister Yoshihiko Noda’s government to purchase the islands, which are near potentially huge maritime gas fields. Noda decided on the purchase after the governor of Tokyo, Shintaro Ishihara, a harsh critic of China, proposed his own plan to buy the islands.

Crowds of anti-Japanese protesters took to the streets in several Chinese cities after last month’s detention, including in Shenzhen where small groups overturned Japanese cars and shouted slogans denouncing Japan’s claim over the islands.

“To improve the China-Japan relationship, the key is that Japan take the initiative to stop activities harming Chinese sovereignty,” Chinese Foreign Ministry spokesman Hong Lei said.

Some analysts questioned how much of an impact the diplomatic row would have on Japanese car sales.

“Many Chinese consumers are practical, they might not like Japanese before the war, but they don’t mind driving a Toyota or Nissan if the quality and price are good,” said Sheng Ye, associate research director for Greater China at industry consultancy Ipsos.

Despite the bitter legacy of the past - Japan occupied large parts of China in the 1930s and 1940s - and current diplomatic jousting, deep economic ties mean both governments are eager to keep the feud from worsening. Two-way trade grew 14.3 percent in 2011 to a record $345 billion.

“Of course, a few members of the public in both countries are getting a bit excited after the landing by Hong Kong activists. But I believe the both governments have responded calmly,” Japanese Deputy Prime Minister Katsuya Okada told reporters.

“Our basic stance remains unchanged that we must deepen our mutually beneficial relationship based on strategic interests.”

Seeking to improve ties, a group of Japanese lawmakers plans to travel to China later this month, an aide to one of the lawmakers said, although the trip has not been finalised.

But whether Noda will meet Chinese President Hu Jintao on the sidelines of an Asia-Pacific leaders’ summit in Vladivostok this weekend is up in the air, a Japanese official said.

Both countries face leadership changes soon, so giving the matter their full attention is tough - one reason some Japanese business executives are concerned.

“Indeed, it is a source of anxiety,” Tadashi Yanai, chairman and president of Fast Retailing Co (9983.T), Asia’s largest apparel retailer, told Reuters this week, referring to Japan’s territorial row with China and a separate feud with South Korea.

“It seems hard to read the future,” Yanai said, adding, however, that he still planned to open more stores in China.

Additional reporting by Yoko Kubota and Tetsushi Kajimoto in Tokyo and Fang Yan and Terril Jones in Beijing; Writing by Kazunori Takada and Linda Sieg; Editing by Raju Gopalakrishnan

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