Japan’s Retailers Reopen China Stores as Demonstrations Ease

Japanese retailers today reopened stores in China that were closed amid violent protests over a territorial dispute, as demonstrations eased and Moody’s Investors Service said the short-term fallout from the disruption would be minimal.

Fast Retailing Co. (9983), owner of Uniqlo clothing brand, reopened outlets closed as the protests peaked the first two days of this week, spokeswoman Yukie Sakaguchi said in a telephone interview. A 7-Eleven store along Beijing’s Second Ring Road that had closed Sept. 18 was operating normally today.

“We shouldn’t mix politics with business,” Candy Liu, 23, said as she left a Uniqlo store in Beijing. “Since Japanese companies are in China, we have to protect their Chinese employees.”

The diplomatic crisis, the worst since 2005 between the two countries, threatened trade ties between Asia’s two biggest economies. The bond risk for some Japanese companies surged as the dispute sparked rhetoric by Chinese commentators that the country should be prepared to go to war if necessary.

Japanese politicians may come under pressure to maintain a hard line on the dispute or respond to China’s move to send patrol vessels to the islands at the heart of the dispute, according to Thomas Berger, associate professor of international relations at Boston University.

Chinese Repeat

“If the Chinese repeat this and start doing this on a regular basis, the Japanese will de facto lose control over those islands,” Berger said in a phone interview. “There will be a debate inside Japan and there will be people who will want to move Japan massively in a conservative direction.”

The dispute was sparked last week when Japan’s government said it would buy the islands, known as the Diaoyu in China and the Senkaku in Japanese, from their private Japanese owner. China claims that it’s owned the islands for centuries, while Japan argues it took administrative control of them in 1895, lost its claim after World War II and had the islands returned to it in 1972.

Japan’s increased dependence on China for export sales gives officials in Beijing the upper hand in the territorial dispute, according to a Bloomberg Chart of the Day. Japan’s sales to China more than doubled between 2002 and 2011 as the nation became Japan’s No. 1 market.

“The severe situation in China-Japan relations is completely caused by Japan’s unilateral announcement of the purchase of the islands,” Foreign Ministry spokesman Hong Lei said at a briefing today. “The Japanese side should bear full responsibility for that.”

Island Fight

China should be prepared to fight for the islands if necessary, Wang Xiaoxuan, direct of the Naval Research Institute of the People’s Liberation Army, said in a commentary in the China Daily newspaper, today.

“China should make all possible preparations, including preparations for a possible military conflict and even war,” Wang wrote.

Shigeru Ishiba, a candidate running to lead the opposition Liberal Democratic Party, vowed not to back down and offered praise for former British Prime Minister Margaret Thatcher’s handling of the Falklands crisis in 1982, when Britain went to war with Argentina to keep the islands under its control.

“I have no plan to withdraw the nationalization,” Ishiba told a briefing yesterday “Losing even a small part of your territory means you will eventually lose the whole country.”

Yomiuri Poll

A Yomiuri newspaper poll published Sept. 18 said Ishiba had 34 percent support among respondents who said they backed the party.

In a statement today, Japan’s Foreign Ministry said China’s claims to the islands are “completely without merit.” It said the bilateral relationship is one of the most important for Japan, and China’s encouraging its citizens to boycott Japanese products and avoid visiting Japan were “complete overreactions.”

While the Chinese unrest will have a limited impact in the short term on Japanese companies, which will probably be able to recover lost production, the longer-term effect is “difficult to determine,” Moody’s said in a report today. It said the automobile industry is “better-positioned” to sustain short- term declines in sales in China amid strong global vehicle sales. Consumer electronics companies are less well positioned, it said.

‘Fundamental Interest’

“Both countries have the fundamental interest not to let this dispute get out of hand,” Frederic Neumann, the co-head of Asian economic research in Hong Kong at HSBC Holdings Plc., told Bloomberg Television. “If you listen to some Chinese government leaders, they tend to be a bit more cautious in their rhetoric than non-official representatives who really don’t have the official mandate to speak but perhaps are trying to fan the flames a little bit.”

Fast Retailing rose 0.1 percent in Tokyo trading today after falling the most in three months on Sept. 18. The company was founded by Tadashi Yanai, Japan’s richest man with an estimated net worth of $11.6 billion, according to the Bloomberg Billionaires Index.

Hong Kong-based activists who had planned to visit the islands decided to call off their trip, Chan Miu-tak, chairman of the Action Committee to Defend the Diaoyu Islands, said by telephone today. The activists decided to scrap their plans because vessels from China and Taiwan are already near the disputed islands, Chan said.

Toyota Motor Corp. (7203) President Akio Toyoda said today that Japanese carmakers are monitoring the situation and called the attacks on Japanese brands “regrettable.” Toyoda, chairman of the Japan Automobile Manufacturers Association, said he hoped the tensions can be resolved as soon as possible.

In Hong Kong, a 31-year-old man was arrested for punching a Japanese couple as they walked along a deserted street Sept. 17, the South China Morning Post reported today, citing police. The newspaper said police were also investigating a bomb hoax at the Japanese consulate in Hong Kong.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net; Penny Peng in Beijing at ppeng18@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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