Japanese firms braced for China slowdown amid lengthier customs checks

September 21, 2012


China is imposing burdensome customs checks more frequently on goods from Japan, potentially slowing activity by Japanese businesses such as carmakers operating there.

"We will raise the inspection rate for products of Japanese origin," said the customs service at Tianjin Port near Beijing, in a statement delivered to Japanese enterprises late on Sept. 19.

The measure could cause a delay in parts needed by Japanese assembly plants in China.

Observers view the move as a form of economic sanctions, imposed by the Chinese government in response to Japan's move to put some of the disputed Senkaku Islands under state ownership.

On Sept. 11, Tokyo purchased three of the five uninhabited islands from a private landowner; China and Taiwan both claim the islands, which China calls Diaoyu.

China took similar measures on a more extensive scale in 2010, when a Chinese fishing boat rammed two Japan Coast Guard patrol vessels near the Senkakus and Japan arrested its captain.

Depending on how Tokyo now reacts, Beijing may toughen inspections at other ports or impose embargoes on essential raw materials such as rare earth elements.

Sources quoted a Tianjin Customs official as saying the authorities were "discussing" which specific product items would be targeted and by how much to increase the inspection rate. The official gave no reason for the new policy.

Tianjin Port is the largest cargo shipping point in northern China. Japanese manufacturers such as Toyota Motor Corp. use it to import parts.

Since tensions escalated between China and Japan in early September, there have been reports that customs departments elsewhere in China have hiked inspection rates. In Shanghai, customs officers were said to be imposing some items to exhaustive checks.

The Japanese government has been investigating those reports, but this is the first time Japanese companies have received a formal notification in unambiguous words.

Many Japanese manufacturers operating in China import core components from Japan, such as car parts and electronic devices. Production is expected to be hit further if tougher customs procedures spread to Shanghai and Guangdong province, whose ports handle even more cargo than Tianjin.

"At normal times, they inspect about 10 percent of all goods (from Japan)," said one senior executive of an auto-related manufacturer. "Since the anti-Japan protests, they appear to have been taking more time, by raising that rate to about 50 percent."

China is Japan's largest trade partner. Bilateral trade, accounting for all imports and exports, totaled 27.5 trillion yen ($352 billion) in 2011, nearly triple the total of 10.7 trillion yen in 2001. During that decade China acquired its present status as the factory of the world.

Intermediate goods, such as those whose manufacture requires high-tech tooling, are made in Japan and then exported to China. Once there, they are assembled into finished products before being exported again for sale worldwide.

Japan's exports used to center on the export of automobiles and other finished goods to the United States. Now, however, such products are outstripped by the export of intermediate goods to China.

"A flow of goods has become established," said Junichi Makino, a chief economist at SMBC Nikko Securities Inc. "China uses Japanese factory tools and electronic parts made in Japan, and exports finished products to Japan and the West."

This means a traffic jam in trade between Japan and China could have far-reaching consequences for global markets, including China's economy itself: It could reduce China's exports to the West.

Last year, Toyota produced around 800,000 vehicles at its plants in China. Its plants in Tianjin accounted for about 500,000 of the total. The plants were set up jointly with China FAW Group Corp.

Toyota in China procures about 75 percent of its auto parts locally. It imports the rest from countries such as Japan.

If a single part is missing, a vehicle cannot be completed. That means hold-ups at customs, and subsequent delays in parts import procedures, will inevitably affect production.

For now, a normal flow of goods is still reported in some Chinese cities, according to an official at the Japan External Trade Organization. But the official said other cities are inspecting imported goods more deeply.

The chairman of the Japan Automobile Manufacturers Association, Toyota President Akio Toyoda, expressed concerns during a news conference Sept. 20 about a possible decline in the share of Japanese cars in the Chinese market.

He also described his anguish at seeing the vandalism of Japanese cars during the recent anti-Japan protests.

"I could hardly bear to see it," Toyoda said. "I felt pain, as if they were attacking my own body."

But he emphasized his focus on China remains unchanged.

"Many people in Japan and China need both countries," he said.

(Keiko Yoshioka in Beijing contributed to this article.)

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