Japan-China Trade Dispute: We're Just Getting Started

It's a war.'

That is what Zhu Ping, a young Chinese executive, told me after Beijing chose Japanese car imports for trade retaliation.

Zhu's face even betrayed a slight grin. Pleased about war? In Beijing's dusty air hangs a feeling of unsettled business with China's historical enemy to the east. China has not forgiven Japan for its invasion of the mainland in 1937.

China finds it difficult to forget historical wrongs in part because Japan keeps winning on the modern battleground - the trade arena. While China savors overall trade surpluses, the Middle Kingdom suffers a nagging trade deficit with Japan.

Whatever their feelings about Japan, Chinese consumers cannot resist Sony digital cameras, Panasonic mobile telephones and Honda Accords. China would gladly produce its own cars. But because homegrown automotive design technology remains weak, there is no chance of that in the next five years.

So when it comes to Japan, China remains a tinderbox of emotions ready for a small spark. Tokyo ignited a tiny flame in mid-June when it put special duties on Chinese mushrooms and straw for tatami mats. China struck back with a 100 percent tariff on imported Japanese vehicles.

Made in China

Restrictions on car imports will sting a little. Last year, Japanese automakers exported 40,000 cars and trucks to China. Nissan Motor Co. earns revenues of $600 million per year on exports to China. Japanese brands account for 85 percent of all vehicle imports into China.

But Japanese imports into China account for only a small percentage of all cars sold to Chinese customers. Most products on the market are produced at Sino-Japanese joint ventures in China. Toyota Motor Corp. formed a joint venture in the northern port city of Tianjin. Honda Motor Co. produces Accords at the southern port of Guangzhou. Nissan makes pickup trucks in Zhengzhou and is negotiating with Dongfeng Motor Corp. to make the Cefiro in a new joint venture.

Isuzu Motors Ltd. has produced light trucks at its joint venture in Chongqing for more than a decade. Suzuki Motor Corp. produces the Alto and Swift subcompacts in the same city. Mitsubishi Motors Corp. makes the Pajero and the Freeca in two smaller joint ventures in Southern China. And in April, DaimlerChrysler sent a team of Mitsubishi executives to revive operations at its failing Beijing Jeep joint venture.

SELECTIVE RETALIATION

China's punishment is selective. Japanese cars produced in China, and Japanese parts imported into China, are exempt from the trade retaliation. This selective retaliation against Japan demonstrates China's grudging respect for Japanese automakers, who have insinuated themselves into China's auto industry.

Japanese automakers are determined to capture market share in China. Thanks to 25 years of digging and scratching for access to Chinese customers, you can see Japanese cars sprinkled all over China, from the affluent coastal cities to the humble townships in the west. Today, more than 1 million Japanese cars and trucks are on Chinese roads. One out of three Chinese car buyers chooses a Japanese brand.

Appeals for nationalism

When you hear China's call for retribution against Japanese products, it is natural to imagine highly nationalistic consumers. In Japan and Korea, appeals to consumers' nationalism have proven effective.

China is different. Young, affluent Chinese consumers respect Japanese products. Most Chinese will choose a Honda Accord rather than a Chinese brand such as the Red Flag sedan. Buyers wait as long as six months to take delivery of an Accord.

In a purely market economy, Japanese cars would likely win this battle. But Beijing is extremely good at hitting where it counts. After the United States bombed the Chinese embassy in Belgrade, Yugoslavia, China's prime minister reportedly said: 'It won't take too many canceled Boeing orders' for the United States to understand how we feel.'

Michael J. Dunne is president of Automotive Resources Asia Ltd., a consulting firm based in Bangkok. E-mail him at mdunne@auto-resources-asia.com

0

Shares

ATTENTION COMMENTERS: Over the last few months, Automotive News has monitored a significant increase in the number of personal attacks and abusive comments on our site. We encourage our readers to voice their opinions and argue their points. We expect disagreement. We do not expect our readers to turn on each other. We will be aggressively deleting all comments that personally attack another poster, or an article author, even if the comment is otherwise a well-argued observation. If we see repeated behavior, we will ban the commenter. Please help us maintain a civil level of discourse.

Newsletters