China's Economic Brawn Unsettles Japanese 
Published: June 27, 2005
TOKYO, June 26 - As politicians in Washington watch the Chinese bid for a big 
American oil and gas company play out, the reaction in Japan to the swelling 
economic muscle of China provides an early warning sign of the mixed emotions 
that China evokes as it rises on the global stage. 
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Greg Baker/Associated Press
During protests in April, a worker in Beijing used plastic sheeting to cover the 
words "Japanese cuisine" on a sign outside a restaurant. In the last five years, 
the Chinese economic boom overshadowed the political risks for the Japanese. But 
in May, export growth to China stalled. New polls of Japanese investors show a 
growing reluctance to make further investments in China.
The immediate catalyst for the changed attitude was a wave of anti-Japanese 
protests in Chinese cities in April. But those protests, tolerated by China's 
leaders, sent out a broader message: China would not object if its people, or 
its business executives, demonstrated their nationalism on the streets or in 
corporate boardrooms. 
It was a stark reminder to investors and politicians around the world of China's 
willingness to play the nationalist card. And it amounted to a bucket of cold 
water for many Japanese investors who had assumed that they were secure in China 
because they were providing jobs and quality products.
The protests involving the two Asian powers had been fueled by deep disputes 
over World War II narratives in Japanese textbooks, territorial arguments and 
Prime Minister Junichiro Koizumi's visits to a shrine to Japanese war dead. 
Robert A. Feldman, managing director of Morgan Stanley Japan, echoing fears that 
executives of Japanese companies rarely express publicly, said: "People are 
scared; they don't know where the Chinese are going with this." . The Japanese, 
Mr. Feldman said, "don't see a way out of the political mess," adding, "They are 
looking for alternatives."
In two surveys, separated by six months, the percentage of Japanese companies 
planning to expand operations in China dropped sharply, to just under 55 percent 
in late May, from 86 percent last December, according to the Japan External 
Trade Organization, the country's trade and investment promotion agency. The 
agency polled 414 Japanese companies operating in China last month, and a 
similar number late last year.
Although only 10 percent of the companies said that business had suffered from 
the protests, largely in reduced sales and tarnished brands, 36 percent said 
they were worried about future effects, and 45 percent said the business risk of 
operating in China had increased.
"The psychological impact the anti-Japan movement had on Japanese firms was far 
from small," Osamu Watanabe, chairman of the agency, said at a China-Japan 
investment conference in Beijing recently. 
Reassuring Japanese investors will be crucial for China to invigorate the 
economy and create jobs in less prosperous areas that are inland from the 
booming coastline.
As China grows, Japan, the world's second-largest economy, will need powerful 
friends. In 2050, according to a new Goldman Sachs forecast, the Japanese 
economy will not be much larger than it is today, but China's is expected to be 
30 times as large as now, or 6 times the size of Japan's. The forecast said that 
the world ranking of economies in 2050 would start with China, followed by the 
United States, then India.
For some Japanese investors, the anti-Japanese protests catalyzed sentiment to 
diversify away from China to Southeast Asia.
"It was a trigger," said Hiroyuki Maeda, executive vice president of the Uniden 
Corporation, a leading maker of cordless phones.
After a strike with nationalist overtones halted production for three days in 
mid-April at its plant in Shenzhen, officials of Uniden decided to accelerate a 
plan to open a factory in the Philippines this summer. In coming years, the 
Shenzhen payroll is planned to drop to 10,000, from 17,000 today, and China's 
share of Uniden's production to fall to about a third from 100 percent today.
The shift is prompted by a variety of reasons. Labor costs on the Chinese coast 
are no longer lower than in the Philippines. Uniden, which exports more than 80 
percent of its phones to the United States, selling largely to Wal-Mart, Best 
Buy and Circuit City, is worried about calls in Congress to impose retaliatory 
tariffs on Chinese goods if Beijing does now allow an upward revaluation of its 
"Personally, I am much more worried about the U.S.-China relationship than the 
Japan-China relationship," Mr. Maeda said. "The case of a new tariff against 
Chinese imports is most scary for us."
In the United States, the unsolicited bid on Wednesday by the China National 
Offshore Oil Corporation, a state-controlled company, for Unocal raised new 
concerns about China's economic power as it continues its shift toward a market 
In Japan, though, some say that it is only the small fish who are nervous.