Japanese Firms Unsure of What China's Leadership Change Means for Policy

Japanese companies don't know what to expect from China's new leadership team as simmering tensions between Asia's two biggest economies curb sales, forcing firms to look further afield to pick up the slack, a Reuters poll showed.

Forty-seven percent of Japanese firms in the Reuters Corporate Survey said they were unsure how the leadership change would affect Beijing's stance towards Japan, with 29 percent expecting the current policy to continue and 17 percent anticipating stronger actions.

China unveiled its new leadership line-up on Thursday, with Xi Jinping taking over from outgoing President Hu Jintao as Communist party chief.

Relations between China and Japan are at a low after Tokyo's purchase of part of a disputed group of East China Sea islands sparked a diplomatic row, often violent Chinese protests and boycotts of Japanese goods.

"The blow-ups in China were scattered rather than nationwide, so looking ahead,(the anti-Japanese sentiment) is nothing to be anxious about, but it can't be ignored either," said Shunji Orita, president of components maker Yamaichi Electronics, after a results briefing this week.

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Since 1990, thousands of Japanese companies and their suppliers have poured almost $1 trillion into Chinese factories, creating more than 1.6 million jobs, Japanese government statistics show.

Sales Dented

Nearly half of the Japanese manufacturing companies polled anticipated their China-related sales would be lower than initially projected.

During the recent quarterly earnings season Japanese companies from camera-maker Canon o car maker Nissan Motor cut annual profit forecasts, blaming the impact on sales from the Chinese protests.

"The boycotting of Japanese products is now taking hold in Chinese society, where people who buy Japanese goods are criticized," Canon Chief Financial Officer Toshizo Tanaka told reporters late last month.

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Eyes On Asia

With anti-Japanese sentiment and rising wages making business in China tougher, manufacturers are increasingly turning to other Asian nations for revenue growth.

More than 40 percent of manufacturers said they were looking to India and Indonesia to drive new sales, with Vietnam picking up a third, and Myanmar a fifth of responses to the question that allowed for the selection of multiple answers.

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"For Japanese firms, Southeast Asia is a dynamic marketplace that's near, has a growing middle-class driving economic growth and numerous free trade agreements already in place," said Hiroyuki Fujiwara, senior researcher at Nippon Research Institute.

The poll was taken alongside the monthly Reuters Tankan survey, which showed on Thursday that sentiment among Japanese manufacturers fell for a fourth straight month, providing more evidence that the world's third-biggest economy is slipping into recession.

The Reuters Corporate Survey was conducted for Thomson Reuters by Nikkei Research between Oct. 29 and Nov. 12, with the 400 target companies split evenly between manufacturing and non-manufacturing.

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Not all companies responded to every question, and the firms responded on the condition of anonymity.