Japan Protests in China Seen Costlier Than Tsunami
Two years ago, Sherry Wang bought a Toyota Camry because it offered a comfortable way to commute to her job as a researcher in the Chinese city of Xi’an. Lately, she’s been taking the bus.
“I’m afraid that my car or I will become a target” of anti-Japanese protestors, who have thronged China’s streets in recent days, Wang said. “I just hope life will get back to normal as quickly as possible.”
Wang illustrates why Japanese carmakers such as Toyota Motor Corp. (7203), Nissan Motor Co. (7201), and Honda Motor Co. are bracing for what may become a bigger crisis in China than last year’s tsunami in Japan. As violent protests over control of islands claimed by both nations flare up, China’s Passenger Car Association predicts Japanese brands will lose their lead over German nameplates in the country for the first time since 2005.
“The repercussions for Japanese carmakers are very serious and will last for a long time,” said Cui Dongshu, deputy secretary general of the Passenger Car Association. “There are plenty of choices. Why bother with Japanese brands if there are concerns of safety due to anti-Japan sentiment?”
Consumers shunning Japanese models may turn to market leaders General Motors Co. (GM), which this year has sold 1.84 million cars in China under brands including Buick, Chevrolet and Cadillac, and Volkswagen AG (VOW), whose two joint ventures have sold a total of 1.49 million vehicles this year. The Japanese leader, Nissan, has sold some 485,000 vehicles in China so far this year. Dealerships Attacked
Nissan led shares of Japanese automakers lower in Tokyo trading yesterday as protests turned violent in some Chinese cities. Japan’s three biggest carmakers -- Toyota, Nissan and Honda -- have reported attacks on their dealerships in the eastern port city of Qingdao and halted production at Chinese plants. Suzuki Motor Corp. (7269) suspended operations at its motorcycle factory.
Officials at Nissan, Toyota, Honda, Suzuki, Mitsubishi Motors Corp. (7211) and Mazda Motor Corp. (7261) said they’re assessing the situation in China.
While automakers have been among the hardest hit Japanese companies, the diplomatic crisis puts at risk bilateral trade in goods ranging from rice to tractors that has tripled in the past decade to more than $340 billion. The tensions also further complicate policymakers’ efforts to fortify growth in Asia’s biggest economies as the European debt crisis saps demand for exports.
The protests center around a decades-long dispute over a group of islands, known as Diaoyu in China and Senkaku in Japan. Tokyo Governor Shintaro Ishihara reignited the row in April when he said he may use public funds to buy the islands. Protests in China have since escalated, with some demonstrators torching auto showrooms and smashing Japanese-branded vehicles. Manchurian Incident
Thousands of protestors marched in Chinese cities yesterday on the 81st anniversary of the Manchurian Incident, an attack on a Japanese railway that historians say was used as an excuse for Japanese soldiers to invade China. Demonstrators in Shanghai gathered at the Japanese consulate chanting “Down with the Japan devils, give back Diaoyu.”
Many dealerships in China that sell Japanese cars have closed after some showrooms were attacked and vandalized, according to Luo Lei, deputy secretary general of the state- backed China Automobile Dealers Association. The sales declines will likely hurt the Japanese manufacturers more than last year’s earthquake and tsunami, which closed factories across Japan, Luo said.
“The impact caused by natural disasters can be fixed quickly, while it takes a longer time and more effort to make hostile sentiment against Japanese cars go away,” Luo said in a Sept. 17 interview. ‘So Hostile’
Unverified photos posted on online forums this week showed Toyotas with their badges covered by logos of Chinese brands such as BYD Co. (1211) And Japanese car dealerships have hung Chinese flags and banners proclaiming patriotism for China.
“Everyone’s attitude toward Japan is so hostile now,” said Zhang Jian, a salesman in Chengdu at a Mitsubishi dealership that sported a Chinese flag in its windows and signs vowing support for China’s claim to the islands. “Although we are selling a product from a Japan-China joint venture brand, it has nothing to do with how we feel about the Diaoyu islands. We are Chinese and support China’s claim.”
Walk-in customers dropped by half over the weekend at the dealership and sales will be hurt should the tensions persist, Zhang said.
At a nearby Nissan distributor, sales manager Julien Chen said police stepped up patrols after attackers damaged showrooms in Qingdao. The Nissan dealership and a Toyota showroom nearby shut operations Sept. 16 as a precaution, Chen said.
Japan brandname firms shut China plants after protest violence
Some major Japanese brandname firms announced factory shutdowns in China on Monday and urged expatriates to stay indoors ahead of what could be more angry protests over a territorial dispute between Asia's two biggest economies.
China's worst outbreak of anti-Japan sentiment in decades led to weekend demonstrations and violent attacks on well-known Japanese businesses such as car makers Toyota and Honda, forcing frightened Japanese into hiding and prompting Chinese state media to warn that trade relations could now be in jeopardy.
Another outbreak of anti-Japan sentiment is expected across China on Tuesday, the anniversary of Japan's 1931 occupation of parts of mainland China.
"I'm not going out today and I've asked my Chinese boyfriend to be with me all day tomorrow," said Sayo Morimoto, a 29-year-old Japanese graduate student at a university in Shenzhen.
Chinese Foreign Ministry spokesman Hong Lei said the government would protect Japanese firms and citizens and called for protesters to obey the law.
"The gravely destructive consequences of Japan's illegal purchase of the Diaoyu Islands are steadily emerging, and the responsibility for this should be borne by Japan," he told a daily news briefing. The islands, called the Senkaku by Japan and Diaoyu by China.
China and Japan, which generated two-way trade of $345 billion last year, are arguing over the uninhabited islets in the East China Sea, a long-standing dispute that erupted last week when the Japanese government decided to buy some of them from a private Japanese owner.
In response, China sent six surveillance ships to the area, which contains potentially large gas reserves. On Monday, a flotilla of around 1,000 Chinese fishing boats was sailing for the islands.
The weekend protests mainly targeted Japanese diplomatic missions but also shops, restaurants and car dealerships in at least five cities. Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T) said arsonists had badly damaged their stores in the eastern port city of Qingdao at the weekend.
Toyota said its factories and offices were operating as normal on Monday and that it had not ordered its Japanese employees home.
Honda said it would suspend production in China starting on Tuesday for two days. Fast Retailing Co (9983.T), Asia's largest apparel retailer, said it had closed some of its Uniqlo outlets in China and may close yet more.
Japan's top general retailer, Seven & I Holdings (3382.T), said it would close 13 Ito Yokado supermarkets and 198 "7-11" convenience stores in China on Tuesday, while Sony Corp (6758.T) is discouraging non-essential travel to China.
Mazda Motor Corp (7261.T) will halt production at its Nanjing factory, which it jointly operates with Chongqing Changan Automobile Co Ltd 000625.SZ and Ford Motor Co (F.N), for four days. Nissan Motor Co (7201.T) suspended China production for two days, starting Monday, sources said.
"I want to leave," said a Nissan executive, who declined to be named, in the southern Chinese city of Guangzhou. "Protests near my home were horrifying over the weekend."
Electronics group Panasonic (6752.T) said one of its plants had been sabotaged by Chinese workers and would remain closed through Tuesday.
Canon Inc (7751.T) will stop production at three of its four Chinese factories on Tuesday, Japanese media reports said, while All Nippon Airways Co (9202.T) reported a rise in cancellations on Japan-bound flights from China.
The dispute also hit the shares of Hong Kong-listed Japanese retailers on Monday, with department store operator Aeon Stores (Hong Kong) Co Ltd (0984.HK) falling to a seven-month low.
"All Japan-related shares are under selling pressure," said Andrew To, a research director from Emperor Capital.
Japan warned its citizens about large-scale protests in China on Tuesday. Many Japanese schools across China, including in Beijing and Shanghai, have cancelled classes this week.
U.S. SAYS NOT TAKING SIDES
Japanese Prime Minister Yoshihiko Noda, who met visiting U.S. Defense Secretary Leon Panetta on Monday, urged Beijing to ensure Japan's people and property were protected.
Panetta said the United States would stand by its security treaty obligations to Japan but not take sides in the row, and urged calm and restraint on both sides.
The overseas edition of the People's Daily, the main newspaper of the Chinese Communist Party, warned that Beijing could resort to economic retaliation if the dispute festers.
"How could it be that Japan wants another lost decade, and could even be prepared to go back by two decades?" asked a front-page editorial. China "has always been extremely cautious about playing the economic card", it said.
"But in struggles concerning territorial sovereignty, if Japan continues its provocations, then China will take up the battle."
China is Japan's biggest trade partner and Japan is China's third largest. Any harm to business and investment ties would be bad for both economies at a time when China faces a slowdown.
Qingdao police said they had arrested a number of people suspected of "disrupting social order" during the protests, apparently referring to the attacks on Japanese-operated factories and shops there.
In Shanghai, home to China's biggest Japanese expatriate population of 56,000, one expat said his family as well as other Japanese customers had been chased out of a Japanese restaurant on Sunday by protesters near the Japanese consulate.
Guangzhou police said on their official microblog that they had detained 11 people for smashing up a Japanese-brand car, shop windows and billboards on Sunday.
If politics is blood sport, then Republican presidential challenger Mitt Romney just became a gaping wound.
The release by Mother Jones of this video of Romney talking about his fundraising strategy at the Boca Raton, Fla., home of private equity manager Marc Leder is already leading some to predict that it has cost Romney the election.
I'll leave the political wrangling to the pundits, but what interests me is Romney's claim about the 47 percent of the people who, as Romney put it, "are dependent upon the government, who believe they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it."
He's referring to those in the country who don't pay federal income tax. Now, it may be a stretch to say that all of those who pay no tax are dependent on the government, but the real issue is why so many people pay no tax. Romney implies it's because they don't want to take responsibility for themselves, but half the American population can't be dismissed so easily as freeloaders.
The nonpartisan Tax Policy Center dug into this issue last year, and its findings provide some context. First of all, the number for 2011 is 46 percent (47 percent was for 2010). And of course, this pertains only to those who don't pay federal income tax. That doesn't mean they don't pay other federal payroll and excise taxes.
As the TPC found:
About half of people who don't owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.
And what about the other 23 percent? The TPC again:
Three-fourths of those households pay no income tax because of provisions that benefit senior citizens and low-income working families with children. Those provisions include the exclusion of some Social Security benefits from taxable income, the tax credit and extra standard deduction for the elderly, and the child, earned income, and childcare tax credits that primarily help low-income workers with children. Extending the example offered above, the couple could earn an additional $19,375 without paying income tax because their pre-credit tax liability of $2,056 would be wiped out by a $2,000 child tax credit and $57 of EITC.
Those provisions matter most for households with income under $50,000, who make up nearly 90 percent of those made nontaxable by tax expenditures. Higher-income households pay no tax because of other provisions. Itemized deductions and credits for children and education are a bigger factor for households with income between $50,000 and $100,000. The relatively few nontaxable households with income over $100,000 benefit most from above-the-line and itemized deductions and reduced tax rates on capital gains and dividends.
In other words, the problem is the long-standing practice, favored by both parties, of administering social programs through the tax code. Rather than increase federal spending to pay for all these benefits, Congress chose to create incentives in the tax code. What's more, many of these tax credits provide even bigger benefits to higher-income households, the TPC found, measured both by dollar value and share of income. That's part of the reason that so many of these tax benefits stay in place.
In fact, if you include corporations, the U.S. loses about as much each year in tax credits — $1.2 trillion — as it collects in tax revenue, according to the TPC. Most of those benefits, about 60 percent, go to the top income bracket. But the remaining 20 percent are enough to zero-out lower-income earners. All of which makes a strong case for a sweeping overhaul of the tax code.
Romney, of course, wasn't at a fundraiser to discuss tax policy. But rather than writing off 46 — or 47 percent — of the population as freeloaders, he'd be better off focusing the discussion on tax reforms that would bring many of them back into the tax-paying fold.
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