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Demonstrators hold banners as they protest outside the Japanese Embassy in Beijing. Japan shuttered stores in China, the world’s second-biggest economy, as a territorial dispute prompted protests.

Japan firms retreat from China

See little to gain as protests erupt, sales diminish

– After anti-Japan protesters in China smashed cars and torched dealerships, Koito Manufacturing Co. suspended a plan to triple output in the country.

With a new factory half-built, Koito – a Toyota Motor Corp. supplier – reasoned that it may no longer need it.

“Demand from automakers is unclear, so we don’t know how long we will have to freeze the project,” said Shinji Karasawa, spokesman for the Tokyo headlight maker.

Along with Koito, Japanese parts-makers including Sumitomo Electric Industries Ltd. and Toyo Tire & Rubber Co. are rethinking plans to expand in China, where Toyota’s sales plunged 41 percent in September as demonstrations over disputed East China Sea islands flared.

The manufacturers are focusing expansion plans on Thailand, Vietnam, Myanmar, Indonesia and Cambodia, a sign that this year’s drop in Japanese investment in China may deepen next year, crimping bilateral trade that has tripled to $340 billion in the last decade.

“Our board members had been vaguely wondering if we should move future production out of China; then the protests prodded us to decide to accelerate planning toward moving out,” said Masayoshi Matsumoto, president of Sumitomo Electric, the world’s second-biggest maker of wiring harnesses.

Foreign direct investment in China fell 6.8 percent in September, the 10th decline in 11 months, according to data compiled by Bloomberg.

By contrast, direct investment by Japanese in China last year surged 74 percent to $12.6 billion, from $7.3 billion in 2010 and $2.6 billion 10 years earlier, making Japan the biggest investor in China after Hong Kong and Taiwan, according to the Japan External Trade Organization.

Protests in China over Japan’s claims to a group of uninhabited islands in the East China sea have slashed sales at Toyota, Nissan and Honda in the world’s second-biggest economy, where some drivers are boycotting goods made by Japanese companies.

Nissan, the biggest Japanese automaker in China by sales, on Nov. 6 cut its sales forecast for China and said the reduction would wipe about 60 billion yen off annual operating income.

“We will be careful about investing in China in the future,” Nissan Chief Operating Officer Toshiyuki Shiga told reporters in Tokyo.

Honda, Japan’s No. 3 carmaker, cut its annual profit outlook 20 percent to $4.6 billion as Chinese consumers shunned Japanese brands amid the territorial dispute.

China-Japan disputes have periodically surfaced in the decades since World War II over territorial claims and the acknowledgment of responsibility for massacres during Japan’s invasion and partial occupation of the country.

At the same time, industrial alliances between the two countries have thrived as Japanese manufacturers sought the country’s lower costs and Chinese companies welcomed Japanese technology and know-how.

The latest cycle of increased tension is prompting some executives to talk about exiting China as a matter of national pride.