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China could widen curbs on Japan’s imports, rare earths if tensions worsen: Morgan Stanley

But Beijing is likely to conclude that further action would be counterproductive, according to the investment bank

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Ties between China and Japan have deteriorated since November, when Japanese Prime Minister Sanae Takaichi made contentious remarks about Taiwan that drew a sharp response from Beijing. Photo: Reuters
Ralph Jennings
China could launch anti-dumping investigations into Japanese imports, impose more export bans and discourage consumption of the country’s goods if it escalates a dispute with Tokyo that began in November, according to Morgan Stanley.
Beijing might also expand a temporary ban on the sale of rare earth metals – crucial components in hi-tech hardware and automobiles – to target civilian manufacturing, the New York-based multinational investment bank said in a note by a team of researchers, led by chief Asia economist Chetan Ahya.

The bank said a lack of further escalation remained the “baseline scenario” for the two Asian countries, however, while warning that Beijing still had unused leverage.

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“In such a scenario, we could see downside risks to growth, with sectors such as autos, electronics, chemicals and consumer discretionary and staples in Japan the most affected,” the researchers wrote in the note, published on Thursday.

China has already issued a travel advisory to its citizens against visiting Japan, blocked imports of Japanese seafood and imposed export controls on dual-use goods with civilian and military applications.
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Those actions followed a speech by Japanese Prime Minister Sanae Takaichi on November 7, in which she said Tokyo could justify a military response if Beijing attacked Taiwan. Beijing sees Taiwan as part of China to be reunited by force if necessary. Most countries, including the United States, do not recognise Taiwan as an independent state, but Washington is opposed to any attempt to take the self-governed island by force and is committed to supplying it with weapons.

Beijing “retains broad discretion, using controls as leverage rather than full decoupling”, the note’s authors said, adding that anti-dumping investigations could target new imports while export bans “remain a risk”, though would likely be short-lived, “given intertwined supply chains”.

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