Much is being written about the beating that Japanese automakers are taking as a result of the territorial spat between China and Japan over a small island chain, but Chinese joint venture partners of Toyota (Tokyo: 7203), Honda (Tokyo: 7267) and Nissan (Tokyo: 7201) are also suffering lower-profile fallout due to the conflict. The current clash over the island chain claimed by both China and Japan casts a spotlight on the smoldering uneasiness between these 2 regional superpowers that is likely to haunt not only automakers but also all Japanese companies operating in China for at least the next few decades. And it also underscores that these companies need to take steps to lessen the impact, such as introducing brands for the China market that aren't so easily identifiable as Japanese and thus are less likely to be targeted by angry Chinese consumers each time a conflict occurs.
Toyota, Honda and Nissan have all talked at length in recent days about the pinch they are feeling due to the dispute  between China and Japan over an island chain that the former calls the Diaoyu and the latter calls the Senkaku. All 3 automakers have said they will shutter some or all of their China manufacturing operations for several days around the upcoming October 1 National Day holiday due to a sudden drop in demand  as Chinese consumers shun buying Japanese brand models.
While the sudden drop in sales will certainly hurt the Japanese brands, it will also throw a wrench into the business of their Chinese partners and part suppliers, most of which derive a big portion of their sales and profits from their Japanese joint ventures. At greatest risk are Guangzhou Auto (2238.HK ) and Dongfeng Motors (0489.HK ), both of which have multiple partnerships with the big Japanese names. Guangzhou Auto counts Honda and Toyota as its joint venture partners, while Dongfeng is Nissan's main China partner and also has a joint venture with Honda. Toyota also has a joint venture with unlisted FAW Group.
Guangzhou Auto and Dongfeng have both taken a beating in the last 2 weeks since the conflict flared up, with Hong Kong-listed shares of both companies down by about 12 per cent over that period. If the conflict continues, which looks likely for at least the next 2-3 weeks, look for effects of the sales downturn to continue through the end of the year, dealing a big blow not only to the Japanese automakers but also to Dongfeng and Guangzhou Auto when they report their annual results.
The current wave of anti-Japanese sentiment mirrors a tide of protests and other actions during a similar clash in 2005, and underscores the fact that the Japanese automakers need to take steps to minimize the risk from this kind of flare-up in tensions that happens periodically. One way to do this is to develop and introduce newer brands that have less or no Japanese associations.
Nissan is the most advanced on that front, as it now gets a fast-growing portion of its China sales from its less familiar Tiida brand of cars. Tiida sales more than doubled in the first 8 months of this year to more than 100,000 units, putting it on track to account for around 10 per cent of the company's China sales this year and possibly more if the current crisis drags on. Honda and Toyota would be well advised to follow with similar introductions of less familiar brands, which may require more marketing in the short term but in the long term will reduce the risk to not only themselves but their Chinese partners from future flare-ups in Sino-Japanese tensions.
Bottom line: Japan automakers and their Chinese partners need to take more steps to reduce their risk from flare ups in Sino-Japanese tensions, such as introducing new brands.
To read more commentaries from Doug Young, click on youngchinabiz.com .