Those islands in the East China Sea at the center of the dispute between Japan and China are uninhabited, but we’re told they’re still worth fighting over because they might have valuable oil and gas nearby. Let’s hope so. That might at least provide some consolation to Japanese employees, executives, and shareholders of companies such as Panasonic (6752:JP), which have suffered badly as Chinese consumers shun Japanese goods in order to show their displeasure over the islands.
China problems are a major factor in what is shaping up to be a particularly lousy year for Panasonic. Japan’s second- biggest TV maker said on Wednesday that it expects to lose as much as ¥765 billion ($9.6 billion) in the year ending in March 2013. That loss, the second biggest in Panasonic’s history, is 30 times larger than analyst estimates had foreseen. Back in May, Panasonic was expecting profits for the year, projecting earnings of ¥50 billion.
That was before the latest dispute between China and Japan erupted, leading to an informal boycott of Japanese goods by many consumers in the world’s second-largest economy. Japan’s automakers, for instance, have experienced sharp declines in China sales. In September, Toyota (TM)’s China sales plummeted 49 percent, Honda’s (7267:JP) dropped 41 percent, and Nissan’s (7201:JP) fell 35 percent.
Now it’s Panasonic’s turn. With the Japanese economy stuck in a deflationary downturn, Panasonic can hardly afford a slowdown in China. The country accounted for 14 percent of Panasonic sales in the first quarter. That proportion is sure to shrink.
Even before the Wednesday announcement, it was clear the political tensions were hurting Panasonic. During anti-Japan protests last month, fire damaged a Panasonic factory in the northeastern Chinese city of Qingdao. Protests against Japan disrupted operations at two addditional Panasonic plants in China.
China and Japan aren’t close to resolving their dispute over the East China Sea Islands (called Diaoyu in China and Senkaku in Japan). Even if the situation doesn’t deteriorate further, Panasonic and other Japanese companies are likely to continue feeling the heat. Panasonic’s chief financial officer, Hideaki Kawai, estimates that the Japan backlash may lead to a ¥100 billion decline in sales and a ¥30 billion decline in operating profit for the current fiscal year.
Panasonic is the first of the big Japanese electronics companies to report some results of the Japan backlash in China. There is probably more bad news to come. Sony (SNE) and Sharp (6753:JP) are both scheduled to report earnings on Thursday. Those Japanese companies are unlikely to have fared any better than Panasonic with angry Chinese consumers.