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Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’

Chinese Protest Disputed Islands
A group of Chinese protesters wearing masks while dressed in Japanese costumes kneeling before a Buddha statue with a banner that reads "Diaoyu Islands belong to China" in Lushan, Henan province in central China on September 23, 2012. Source: AFP/Getty Images

A decision by the Chinese central bank chief and finance minister not to attend International Monetary Fund meetings in Tokyo this week is “regrettable,” Japan’s finance minister said, as tensions lingered over an island dispute.

“We will take a wide view on communication with China,” Finance Minister Koriki Jojima said today after he was informed that his Chinese counterpart Xie Xuren and People’s Bank of China Governor Zhou Xiaochuan wouldn’t attend. He called China-Japan economic relations “very important.”

The Chinese move follows Japan’s decision last month to buy the islands from their private owner, a purchase that sparked protests in China and clouded a $340 billion trade relationship. The protests occurred as China, which begins a leadership transition next month, has been more forceful in making its territorial claims across the region.

“It’s a signal that the dispute is very serious to China, and that it will impact relations with Japan in all areas,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “China is becoming more assertive with the historical territorial issues.”

Yi Gang, a deputy governor of the People’s Bank of China, and Vice Finance Minister Zhu Guangyao will lead the country’s delegation, the Xinhua News Agency reported last night. The Chinese central bank didn’t immediately respond to faxed questions today seeking comment, and calls to the Chinese finance ministry’s news department went unanswered.

China’s four biggest state-owned banks have said they won’t go to the Oct. 9-14 meetings, which will be attended by about 10,000 participants, according to Xinhua. Zhou’s name was earlier listed on schedules to speak at IMF and Institute of International Finance events in Tokyo.

Japanese Stocks

Japanese stocks fell today, with the Nikkei 225 Stock Average recording its biggest two-day loss since July 23, after carmakers’ sales in China dropped, adding to concern that the dispute is weighing on corporate earnings.

The Nikkei dropped 2 percent to 8,596.23 in Tokyo, with Toyota Motor Corp. falling 1.9 percent after reporting its biggest drop in China sales since at least 2008.

The Chinese decision is the latest sign that the tension from the territorial dispute between the two countries hasn’t been contained. Japan’s move to buy the islands sparked the worst crisis in bilateral relations since 2005.

An NHK poll published today showed 44 percent of Japanese respondents think the government should prioritize improving relations with China, while 41 percent think it should take a tougher stance. The telephone survey, conducted Oct. 6-9, obtained 1,056 responses and didn’t give a margin of error.

Taiwan Claim

Celebrating Taiwan’s National Day holiday today, President Ma Ying-jeou reiterated his government’s claim on the islands, saying in a speech that it will protect its fishing rights in the area. At least 50 Taiwanese fishing boats were in the area around the islands, called Senkaku in Japanese and Diaoyu in Chinese, in late September under escort from patrol boats before returning home because of a typhoon.

“From a historical, geographical or international law perspective, the Diaoyu Islands belong to Taiwan,” Ma said in the speech. “Taiwan’s fleets will continue to protect fishermen fishing in the area.”

Ma, whose approval rating fell to a low of 15 percent in July, vowed that month never to “concede a single inch” of territory to Japan after a Taiwanese coast guard vessel escorting activists with Chinese flags collided with a Japanese ship near the islands.

Japanese Compromise

Japan may acknowledge China’s claims the islands, while maintaining that they are Japanese territory, Kyodo News reported today, citing unidentified people close to the situation. The report said the plan would allow Japan to compromise a little with China.

Japanese Chief Cabinet Secretary Osamu Fujimura said today the Kyodo report didn’t represent an official position, adding that the government acknowledges a diplomatic problem with China over the islands.

Japan is “entirely responsible” for the “gravely difficult situation” between the two countries, Chinese Foreign Ministry spokesman Hong Lei told a briefing in Beijing today. “The pressing task is for japan to see reality, recognize the controversy, correct wrongdoing, and return to dialogue and negotiation and the track to resolving conflicts over the Diaoyu Islands.”

The crisis may cause the Japanese economy to contract this quarter and hasten a current account slide, according to JPMorgan Chase & Co.

Chinese Banks

The decision not to attend the talks by Chinese banks, which have become the world’s most profitable with the help of government bailouts, indicates that the fallout of the territorial dispute is spreading from industries such as tourism and automobiles to financials.

“The political significance of their action is greater than its economic significance,” said Chen Xingyu, an analyst at Phillip Securities Research in Shanghai. “It’s just a way of the government making clear its stance and it is ready to use other supplementary measures to assert itself against Japan. Any impact on the banks’ businesses is likely to be very small.”

The China crisis may inflict more economic damage on Japan’s automakers than last year’s tsunami, according to the China Passenger Car Association. Their share will fall to 22 percent this year from 23 percent in 2011, according to the group.

Along with Toyota, Nissan Motor Co. yesterday reported its biggest drops in China sales since at least 2008 while Honda Motor Co.’s sales were the lowest since May 2011, according to monthly data compiled by Bloomberg.

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