'Purchase' of Diaoyu Islands could cost Japan

BEIJING - The Japanese government may have paid more than two billion yen ($26.15 million) for the so-called "purchase" of the Diaoyu Islands, but the "deal" may cost the country much more in terms of damaged economic ties with China.

The move will inevitably have a negative impact on Sino-Japan economic and trade ties, Vice Minister of Commerce Jiang Zengwei said Thursday at a news briefing.

Some Japanese enterprises have started to feel the effects already, after the Japanese government carried on its "nationalization" of the Diaoyu Islands despite strong warnings and opposition voiced from China.

"Sales of Japanese digital products have sharply decreased since last month," said a retail store manager surnamed Lu who works in the Zhongguancun electronics market in Beijing, adding that fewer customers have shown interest in Japanese products as tensions between China and Japan have increased.

"Sales were not that sluggish even in September 2010, when Japanese patrol ships collided with Chinese fishing boats around the Diaoyu Islands," Lu said.

Lackluster sales have hit many Japanese auto brands in China, the world's largest auto market. Toshiyuki Shiga, Nissan's chief operating officer, said last week that the ongoing dispute has hurt sales of Japanese cars in China.

China is Japan's biggest trading partner. Statistics from Japanese customs authorities showed Japan's exports to China amounted to $73.54 billion in the first half of the year, down 6.2 percent year on year. Meanwhile, imports from China rose 7 percent to $91.29 billion.

Zhang Li, a researcher with the Chinese Academy of International Trade and Economic Cooperation (CAITEC) under the Ministry of Commerce, said Japan's choice to escalate the dispute will deteriorate Sino-Japan trade ties.

This will be reflected in trade volume fluctuations during the next three to five months, she said.

Chinese tourists and travel agencies are also canceling trips to Japan ahead of the upcoming National Day holidays.

China Comfort Travel, a Beijing-based travel agency, on Wednesday announced to suspend all trips to Japan in protest against the country's "purchase" of Diaoyu Islands.

According to Japan Tourism Agency, Chinese tourists were the most generous visitors to Japan, who spent 196.4 billion Japanese yen in Japan in 2011, accounting for one fourth of all spending of foreign visitors to the country in the year.

According to Zhang, the Japanese government is acting irresponsibly on the Diaoyu Islands issue, which is using the dispute to divert domestic attention away from the country's poor economic performance.

However, this would never solve the long-term problem in Japan's economic development, she said.

As China opens its market to global investors, Japanese enterprises are facing rising challenges from Korean, European and US competitors. The dispute may offer chances for products from other countries to replace Japan's products in China, one of the world's most important marketplaces.

"Take automobiles, for example, Germany is Japan's biggest competitor in the Chinese market. With Chinese consumers choosing to avoid Japanese brands, a chance has been created for German carmakers," said Zhao Ping, another CAITEC researcher.

September 29 marks the 40th anniversary of the normalization of China-Japan relations. Both countries have made considerable achievements in trade cooperation since then.

In 2011, trade between the two countries rose 15.1 percent year on year to a historical high of $2.89 billion. By the end of June this year, Japan had topped the list of the most generous overseas investors in China by investing $83.97 billion in the country.

Wang Yizhou, deputy director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said that if the dispute worsens, both Japanese enterprises and the Chinese economy will be the victims.

"Japanese enterprises in China have hired many local employees and contributed to local tax revenues," he said.

"It is sad to see this dispute ahead of the 40th anniversary of the normalization of China-Japan relations, which ought to be celebrated and used to create closer ties," said Wang.