Asian Economic Ties Likely to Weather Political Strains

It’s easy to see Japan’s rising economic presence in this fast-growing southern Chinese city.

Japanese automakers have built up such a beachhead that some call this area China’s new Detroit. Every morning, 30 blue-and-white buses rumble along winding streets, taking hundreds of Honda employees to the automaker’s factories here. Honda and Nissan vehicles may be as familiar here as in Los Angeles.

It’s not just autos. At night, the downtown skyline is gleaming with Japanese names such as Casio, Sharp and Kyocera. Hotels broadcast Japanese television.

All told, Japanese corporations plowed more than $5.4 billion into China last year, making them the fourth-largest direct foreign investment source. Last year, China for the first time overtook the United States as Japan’s largest trading partner, as exports and imports between the two countries climbed to a record $213 billion.

But political strains between Tokyo and Beijing -- marked by large-scale anti-Japanese rallies here and in other Chinese cities in the last week -- underscore the unusual risks for Japanese companies seeking to expand in China.

Chinese university students and groups, angry over Japan’s new history textbooks and its bid for a permanent seat on the United Nations Security Council, have called for further demonstrations and a boycott of Japanese goods. There seems no letup in the tensions. On Wednesday, China called Japan’s gas-drilling plans in disputed waters a “provocation.”

“Yes, they’re getting nervous,” said Chi Hung Kwan, a senior fellow at Nomura Institute of Capital Markets Research in Tokyo, referring to Japanese companies in China. Kwan said he wouldn’t be surprised if some of them slowed or delayed expansion plans.

The unrest may cause some temporary setbacks, but they are not expected to stymie the longer-term growth of economic relations between the two Asian neighbors.

Like every other industrial power, Japan wants to tap China both as a production base and for its growing consumer market. China, meanwhile, is hungry for Japanese investment and technical know-how. Ultimately, Kwan and other economists believe, greater economic ties should pave the way for political detente.

“For many years, relations between China and Japan haven’t been very pleasant,” said Xie Tianzhen, director of United Social Science Assn., a think tank in Guangzhou. “But I think most people also understand politics shouldn’t harm economic cooperation between the two sides.”

That’s certainly what Honda Motor Co., Nissan Motor Co. and Toyota Motor Corp. hope for. So far, these carmakers say, political tensions haven’t hurt sales, nor relations inside the joint venture companies here where Chinese and Japanese work side by side.

But they’re not taking any chances, either.

On Monday morning, the day after thousands of mostly young people marched in Guangzhou and nearby Shenzhen, tearing down signboards and throwing plastic water bottles at a Japanese supermarket, Honda managers began the workweek by talking about mutual trust and how to protect Japanese employees in China. Honda has told them to refrain from traveling and keep a low profile.

Nissan and Toyota also have advised their employees to be cautious.

“We have very good relations with Guangzhou government, and the local Chinese people are very good partners,” said Mamoru Yoshida, vice president and managing director of Dongfeng Nissan Passenger Vehicle Co., Nissan’s joint venture company here. But in the current climate, he said, “we have to be very careful.”

Analysts say it’s no accident that Japan’s big three carmakers have established their base in Guangdong Province. The region was among the earliest in China to open up to the outside world and, like Shanghai, is often said to be too busy making money to be debating politics.

For the Japanese, Guangdong offers the “least hostile business environment,” said Michael J. Dunne, president of Automotive Resources Asia Ltd., a research and market strategy firm in Shanghai.

Honda was the first to set up in the region, forming Guangzhou Honda Automobile in 1998 with the Chinese firm that had partnered with French company Peugeot. That venture failed, and when Honda moved in, the factory had the capability to make just 30,000 cars a year.

Last year, Guangzhou Honda produced and sold more than 200,000 vehicles, nearly double the number in 2003, and the joint venture is building an assembly plant on farmlands 20 miles away that will add an additional 120,000 units to its capacity.

“Honda saved a lot on labor, material, parts and logistics,” said Xie, the Guangzhou economist. Indeed, Guangzhou Honda pays its 4,300 workers on average about $240 a month. It has 110 suppliers in China, many of them in the Guangzhou area.

Honda’s success attracted Nissan to the northern outskirts of Guangzhou in 2002, and two years later Toyota set up in the southern end, where it plans to churn out as many as 100,000 Camry sedans a year. Honda, Nissan and Toyota are sharing suppliers, but by operating as a group in the same region they’re also sharing, to some degree, one another’s risks.

On at least two occasions, Toyota has faced criticisms for running certain ads in China, including one that depicted a traditional Chinese lion that, in the eyes of some consumers, was viewed as cowering. Toyota pulled the ad and issued an apology, but that also put its compatriot automakers in a bit of a defensive position as well. “We try to be neutral,” said Nissan’s Yoshida.

Thus far, collectively and individually, Japan’s big three have had reasons to cheer in China. Local government officials have welcomed them with open arms, offering favorable policies on land, water and energy usage.

Their sales too have been strong. Guangzhou Honda sold more than 105,000 Accords last year in China, up 31% from 2003, at the expense of perennial market leaders Volkswagen and General Motors Corp.

But being a Japanese company in China also has had its drawbacks. For weeks, Guangzhou Honda has been contending with intense media scrutiny after a Honda Accord carrying a family to a wedding in the resort town of Hangzhou was hit broadside by a speeding car. The Accord split in half, killing three passengers.

People in the industry say there have been other split-car accidents in China, but none that elicited such coverage or emotional outlet on the Internet. Because of anti-Japanese sentiments, “anything negative about Honda will be amplified 100 times,” said Pan Zhiyu, a salesman at a Guangzhou Honda dealership in Shanghai. Even so, Pan said Wednesday that sales in the last two weeks had been steady.

That may not be comfort enough for Jiang Ping, the Chinese vice president at Guangzhou Honda. The company gave an undisclosed amount to the victims’ families, he said, although independent studies had shown that there was no structural problem with the car that split in half. The Accords made in Guangzhou meet Honda’s global standards, he said.

People at Nissan, meanwhile, spent part of this week trying to put out a fire after the China Daily newspaper, the mouthpiece of the central government, mistakenly reported that the automaker was one of 10 companies supporting Tokyo’s newly approved junior high school textbook. Chinese and South Koreans sharply criticized the book for downplaying Japan’s wartime brutalities.

At Nissan’s offices in Guangzhou recently, Yoshida said the political situation was out of his control.

“If the political friction is really big, maybe some Chinese will not buy Japanese cars,” he said. “But the Chinese budget is limited. They want to buy the car with the best value.”

Dunne, the China car market expert, agreed. Surveys and research, he said, suggest that Chinese generally “compartmentalize their emotions” and buy what they think offers the best value.

“This is where Chinese and Americans are alike,” he said.

Cao Jun of The Times’ Shanghai Bureau contributed to this report.