Clarifying the economic damage of the Senkakus row

October 17th, 2012 by Philip Brasor & Masako Tsubuku

Prepare for descent.

Japanese conservatives contend that people should not get “emotional” about the economic consequences of the current row with China over the Senkaku islands, implying that some things are more important than money. But what exactly are the economic consequences given that since 2009 China has been Japan’s biggest trading partner?

According to the Finance Ministry, one-fifth of total Japanese exports in 2010 went to China, while the same portion was 7.7 percent in 2001. A Reuters analysis shows that Japan would suffer mightily if trade stopped, citing an annual loss of ¥12 trillion if exports went down to zero for only one month. Under such conditions, automobile companies would be the main loser. They’d lose ¥144 billion. Bank of America estimates that 25 percent of all Nissan’s profits are derived in China, 21 percent for Toyota and 16 for Honda.

Moreover, Japanese companies directly invested ¥1 trillion in China in 2011, 60 percent more than what they spent in 2009. China’s Bureau of Statistics says that as of the end of 2010 there were 22,307 joint Japan-China ventures operating in China comprising 3 million workers and accounting for 16 percent of all the country’s foreign-related companies.

Still, the sector that tends to get the most media attention in Japan is tourism, since visitors from China spend more here than visitors from any other country. According to the Asahi Shimbun, China’s state tourism agency, which controls some 5,500 travel agencies all over the country, has stopped selling tours to Japan for the time being. Cancellations of reservations already made amount to about 500 million yuan, or ¥6.2 billion.

For the big vacation week of Oct. 1, there were at least 10,000 cancellations. China said it originally expected to sell some 45,000 individual tour packages to Japan for that week. On the other hand the agency said that the number of Chinese tourists who visited South Korea during the big vacation week was 125,000, a new record. They spent the equivalent of ¥190 billion, according to South Korea’s retailers association. Department stores and duty-free shops, in particular, did booming business.

Japanese companies lose less with cancellations of Japanese tourists going to China, but the cancellations do have an effect on Japanese airlines and tour packagers. Various media have reported that there were around 52,000 seat cancellations on flights between Japan and China as of September 24, with 37,000 on ANA and 15,000 on JAL. Many of these cancellations were Japanese business travelers, who tend to pay premium prices for tickets.

Japanese tour companies suffered, too. China and South Korea are always two of the top three destinations in terms of number of Japanese tourists, and Sankei Shimbun reports there has been a 30-45 percent decrease in the number of tours to these two countries in the second half of the year compared to the same period last year. This negative effect spreads to other sectors, since tourist companies are also not bothering to advertise. They say it would just be a waste of money.

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2 Responses

  1. There is a very simply truth that is also true for Japan-

    Every country has the politicians, the political parties and the governments it deserves.

  2. The japanese government itself need to think rationally and stay calm in all dealings with Korea or China. Look a bit further and determine whether more harm or good will be achieved by adopting a certain position with its neighbour. Now is not the time for jingoism. What policies that best benefit Japan economically is the policy that should be adopted.

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