Japanese Firms Hunker Down

HONG KONG—Reacting to anti-Japan protests that struck parts of China over the weekend, some of Japan's largest companies on Monday shut factories, advised their employees to stay home and closed shops, moves that have aggravated tensions between the world's second and third-largest economies.
Panasonic Corp. 6752.TO +1.24% shut a factory in Qingdao city, Shandong province, after demonstrators over the weekend shattered the factory's windows, destroyed some of its equipment and set the building on fire, according to Beijing-based spokesman.
At least two Japanese auto makers decided Monday to temporarily halt production at Chinese factories. Honda Motor Co. 7751.TO +1.72% said it would halt operations on Tuesday and Wednesday at five plants in the country, including three in Guangzhou and two in Wuhan, a company spokesman said. A Mazda Motor Corp. spokesman said the company will halt production at its factory in Nanjing for four days starting Tuesday.
Canon Inc. 7751.TO +1.72% also said it was suspending the operations at three of its four main factories in China for cameras, photocopiers and printers on Monday and Tuesday, due to safety concerns.

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Associated Press

Workers cover a Japanese restaurant in Beijing on Monday ahead of expected protests Tuesday.

Japanese Companies Wait Out China Protests

Anti-Japanese protests in China have led some of Japan's biggest companies to shut their Chinese operations temporarily. The WSJ's Juro Osawa tells us why Japanese companies are cautious and what it means for broader Japan-China economic ties.

Fast Retailing Co., 9983.TO -5.43% which operates about 145 stores for its Uniqlo casual clothing brand across China, temporarily closed 16 stores Monday. On Tuesday, it closed 42 stores, a spokeswoman said.
Shares of Japanese companies closely tied to China traded lower Tuesday morning, as the broader market largely shrugged off the renewed tensions.
The demonstrations over the weekend over disputed islands in the East China Sea are among the largest anti-Japan protests to break out in China and come at a time when many Japanese firms have been moving their focus to Southeast Asia as labor costs rise in China.
But China remains Japan's biggest trading partner, and the country is now a fast-growing consumer market for many Japanese businesses—not only a manufacturing hub.

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"Growing anti-Japan sentiment could become a catalyst for Japanese companies' further shift of focus toward Southeast Asia from China," said Kyohei Morita, chief Japan economist at Barclays. Even before the recent protests, Japanese companies were starting to find China less attractive because of the country's rising wages and the expected decline in the percentage of working-age population, he said.
For most Japanese manufacturers and retailers, China will remain indispensable to their revenue-growth strategies. "China is not only a major manufacturing site for Canon, but a gigantic market for our products," said a Canon spokesman.

So far, there has been no reported damage at any of Canon's offices and factories in the country, but the company is trying to ensure the safety of all employees in China, both Japanese and Chinese, the spokesman said.
The Chinese government and various pro-government organizations walked a tightrope Monday, urging calm—but also threatening broader economic fallout if the territorial spat continued.
At a daily news briefing, Foreign Ministry spokesman Hong Lei said, "China will protect foreign people and foreign companies," adding, "Chinese citizens express their views in an ordered, legal way."
But Mr. Hong added that the disturbances show the impact on the Chinese public of Japan's recent move to buy the islands. "The outcome of Japan's wrongdoing has emerged, and Japan has to take responsibilities itself," he said.
The People's Daily, the organ of China's Communist Party, acknowledged that economic weapons were a "two-edged sword," but said in a commentary, "If Japan continues to provoke China, China must fight back." It said that Japan's economy "would not be immune" to retaliatory actions by China, adding that Beijing could target Japan's manufacturing or financial sectors as well as other specific export products.
China and Japan are major trading partners, with $345 billion in goods moving between them last year. Any move against trade could threaten the economies of both nations as they try to rekindle growth. China's leaders already face pressure to bolster an economy growing at its slowest rate since the aftermath of the 2008 financial crisis.
Many Japanese companies are telling their employees to use extra caution. In addition to its store closings, Fast Retailing has told all the Japanese employees at its Uniqlo stores in China to stay at home Tuesday, its spokeswoman said. The company has more than 200 Japanese employees in China.

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Reuters

A protester throws a bottle in a Japanese-funded shopping centre in Qingdao on Saturday.

Lying Low

Some companies' measures in the face of Chinese protests:

Panasonic has shut its Qingdao factory and is asking workers not to speak Japanese loudly in the street or take taxis alone.
Fast Retailing closed dozens of Uniqlo stores and is telling Japanese employees to stay home or be accompanied by Chinese colleagues if they go outside.
Honda, Mazda and Canon are all suspending operations at some plants.

Panasonic has asked its employees in China not to take taxis alone and avoid speaking Japanese loudly in the streets, according to the Beijing-based spokesman. The company is also limiting its business trips from Japan to China to urgent and absolutely necessary ones. Fast Retailing, meanwhile, is telling its China-based Japanese employees to be accompanied by their Chinese colleagues when they go outside.
To avoid getting in the way of demonstrations, some Uniqlo stores in China have temporarily shut their doors whenever they hear that protesters are approaching, the Fast Retailing spokeswoman said. So far, there has been no reported damage at any of the stores, she said.
Fears about anti-Japan rallies are also making many Japanese hesitate to travel to China. A spokesman at H.I.S. Co., 9603.TO -2.04% a major Japanese travel agency, said many customers have canceled their trips to China over the past few days, while some customers have changed their destination. "We are also getting many calls from customers asking whether it is safe to travel to China," he said. "People are worried after watching the protests on TV."
Beijing and Shanghai are always among the top 10 overseas travel destinations at H.I.S., and the company organizes many package tours to those cities, the spokesman said.
Worries over anti-Japan protests have also weighed on the shares of Japan-related companies listed in Hong Kong.
Shares of Chinese car companies that have joint ventures with Japanese companies were sold, with Dongfeng Motor Group Co. 0489.HK -4.16% and Guangzhou Automobile Group Co. 2238.HK -1.47% down 7% and 4.6% respectively. Ajisen (China) Holdings Ltd., 0538.HK -0.20% a Japanese-style ramen noodle chain, sank 6.7% and Aeon Stores (Hong Kong) Co. 0984.HK +1.47% also lost 5.5%.
The Japanese market was closed on Monday due to a national holiday.
—Megumi Fujikawa in Tokyo contributed to this article.

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