China and Japan have never really been the best of friends, yet they typically try to get along so they can mutually benefit. But over the weekend, relations took a turn for the worst over a substantial land dispute.
The Chinese have taken to huge, anti-Japan demonstrations to show their displeasure, and the focus has been partially placed on automakers, with some Chinese autoworkers even wishing the Japanese were all dead.
This isn't good.
Over the last 10 years, Japan and China have had a massive explosion in their imports and exports. Last year, Japan and China had a trade relationship worth $340 billion dollars.
But that is on the rocks right now. Massive protests erupted in China over the weekend due to a land disagreement with Japan. The purchase of a number of islands by Japan is not being recognized by China, and large nationalistic riots have broken out around the country condemning Japan.
They include attacks on Japanese businesses that are disrupting normal service. And these aren't peaceful protests. There are fires, building damage, and some truly hateful vitriol spewing out. There are also scenes from an Audi dealer showing employees standing under a banner which was translated for Jalopnik.
It says "Even if graves cover our land, all Japanese must be killed. Even if our soil is not fit for growing crops anymore, we must get back the Diaoyu (fishing) Islands" It's unclear if the photo was staged by the Chinese government, was photoshopped, or is the actual opinion of the Audi dealer.
It should be noted that a black Audi is a status symbol of the ruling elite in China, so if it's real it could just be interpreted as the dealer siding with his usual customers.
Because of the riots, Japanese companies have announced that they have had to shut down some factories in China due to the movement. Honda, Mazda, and Nissan have all been included in suspending output. Toyota and Honda have reported damage to their dealers in Qingdao. Right now, the announced shut downs are for two days, but they could also be extended.
China was Japan's number one export market in 2011, with $194.6 billion worth of goods sold in the nation. If the protests continue, the result could be catastrophic for the Japanese automakers. Just one percent off of Japan's exports would be a $1.95 billion loss, and cars are definitely more than that small piece of the pie. And with Japan in a slow economic recovery, they need all the help they can get. There is actually a realistic chance that the losses could be greater than last year's Sendai Earthquake and Tsunami, when Japanese automakers lost approximately $5.6 billion in sales worldwide through April 2012.
But now that China and Japan are more codependent than ever, this could mean even bigger losses for the industry in 2012. The Chinese Automobile Dealers Association has already said that the protests have the chance of hurting the sellers of cars affected by the protests more than the 2011 tsunami did.
One thing is for certain: The vitriol seen at the Audi dealer combined with losses for the Japanese automakers will have a massive effect on the Japanese automakers domestically, in China, and around the world.