The Diaoyu Islands are a group of uninhabited islands located roughly due east of mainland China, northeast of Taiwan, west of Okinawa Island, and north of the southwestern end of the Ryukyu Islands. They are currently controlled by Japan, which calls them Senkaku Islands. Both China and Taiwan claim sovereignty over the islands.
Angry protesters shun Japanese businesses in China over Diaoyus
The intensity of anger in China over the latest Sino-Japanese dispute has some businessmen wondering if things will ever be same again
"I'm going home," said Naohito Sato, a Japanese entrepreneur based in Shanghai for 10 years, who feels the anti-Japanese sentiment now sweeping China is more than just fiery rhetoric.
"I think it's totally different from the previous rows between the two countries," said Sato. "I have made up my mind to go home. China is no longer a good market for Japanese companies."
A nationwide boycott against Japanese brands since the territorial dispute between the two Asian giants escalated in September has caused numerous companies to either suspend or slash production on the mainland.
Sato, a 40-year-old who speaks fluent Putonghua, has an agency serving several major Japanese companies operating on the mainland. Back in September he was set to open a Japanese-food restaurant in Shanghai's bustling Hongqiao area when all hell broke loose.
Chinese protesters took to the streets of mainland cities in fury at Japan's purchase of three islets in the Diaoyu Islands, which are at the heart of a territorial dispute between the two countries.
In nationalistic fervour, Japanese cars were smashed and Japanese restaurants attacked. Anti-Japan slogans were chanted at mass demonstrations amid calls to stop buying Japanese goods.
Sato had just sunk 1 million yuan (HK$1.2 million) into his restaurant. He decided to put back the opening for a month, but since the doors opened in October, business has been bad.
"It's not just because my restaurant is new and not many people know about it yet," he said. "The other Japanese restaurants in the neighbourhood are also doing pretty badly."
The anger against Japan has been more widespread and more violent than in any previous protests, for example, when Japanese dignitaries visit Tokyo's controversial Yasukuni shrine - which includes memorials to war criminals sentenced to death for crimes committed during the second world war.
The territorial dispute over the tiny, uninhabited islands in the East China Sea, which are known as the Senkakus in Japan, inflamed popular anger across the mainland like never before.
Shen Yong, a senior executive at a Shanghai consultancy, speaks for many when he says: "The boycott should be upgraded to a government-led sanction on Japanese businesses. The government should send a message to consumers that it's a shame if they buy Japanese products."
Not that the man on the street needs any cues from the government. There is enough evidence Japanese businesses are already hurting as many Chinese consumers shun their products.
Japan is China's fourth-largest trading partner, trailing the United States, the European Union, and the Association of Southeast Asian Nations.
Bilateral trade between the two largest economies in Asia was valued at US$345 billion last year. Japanese companies, from Toyota to Nissan, have been among the biggest winners from China's breakneck economic growth and rising income levels in the past three decades.
According to a JPMorgan report, Japan's economy is expected to contract 0.8 per cent in the fourth quarter of this year, battered by dwindling demand from China. That is down from its previous estimate of zero growth in quarter to December 31.
Japan's big carmakers have reduced output in China by 40 per cent, according to reports, while sales are down by nearly half - with the latest figures showing things could be getting worse.
Its two major air carriers Japan Airlines and All Nippon Airways saw 60,000 tickets cancelled by mainland residents planning to visit in the September-October period. Spring Airlines, the mainland's largest budget carrier that had been offering 2,000 free flights to Japan in a promotional campaign, bowed to a chorus of protests and halted the offer in mid-October.
South Korea emerged the winner from all this - it received a record 125,000 mainland tourists during the recent National Day "golden week" holiday.
Domestic brands have also seen a windfall as mainlanders shy away from Japanese products and bought homegrown goods to show their patriotism.
"But the boycott of Japanese brands doesn't appear long-lasting, consumers will eventually go back to Japanese products because of their better quality and higher value," said Professor Liu Ming , director of international relations studies at Shanghai Academy of Social Sciences.
Though the extent of the damage to Japanese businesses is difficult to gauge, economists say these companies just can't afford to lose their slice of the vast Chinese market.
"The Japanese government and businesses will try to cut losses by actively seeking a solution in political terms," said Liu. "It's unlikely that Japanese businesses can fully regain the lost ground in China, but there could be a recovery in six months."
Zhang Zhiwei, an economist at Japan-based Nomura Securities, also predicts Sino-Japanese trade and investment will return to normal in the medium to long term.
"The two economies are highly complementary. Both know that the economic relationship with the other is very important," he said.
Still, an official at a Shanghai-based Japanese financial institution admitted that mainland regulators look set to slow down or suspend approval to Japanese firms applying for licences for new businesses and branches.
"The regulators might want to soothe public anger now," she said. "Eventually, we believe we will obtain the approvals, as long as we are patient."
At a Sharp Electronics factory in Shanghai's Jinqiao industrial zone, several Chinese workers were busy loading products into a container. Production halted temporarily in mid-September when demonstrations broke out across the nation, fuelled too by the anniversary of the Mukden incident - which started the Sino-Japanese war in 1937.
"Since production resumed, the factory has been speeding up work to fulfil orders," said a middle-aged worker. "We know only that more products are going to be exported to other countries, but we don't care. We just want to keep our jobs."
A recent Reuters survey showed that about a fifth of Japanese companies doing business in China would consider relocating their mainland production lines to other markets.
Economic analysts contend that plans to withdraw from China had not necessarily been triggered by the islands row. Instead, the mainland's higher costs in labour and raw materials had been a major concern for some Japanese businesses, they added.
But Sato thinks otherwise. His consulting firm has lost several contracts with Japanese clients since September's violence. Some clients even said they plan to leave the Chinese market altogether.
Sato recently got a rude jolt from a cold caller, who, after realising he was talking to a Japanese man, told him to go home.
"I think he's right. My million yuan investment in the restaurant has been a complete waste. I don't blame anyone because it's a political issue but it's pointless to stay here any longer. I'll go home next year."
Additional reporting by Jane Cai in Beijing