China’s access to Japan’s coveted industrial-use goods – especially a critical chipmaking ingredient – may face hurdles if Tokyo imposes export restrictions in the event of a prolonged political dispute, though trade is holding steady for now, analysts and a trade organisation said.
Beijing’s response to Japanese Prime Minister Sanae Takaichi’s November 7 remarks about Taiwan has prompted some analysts to ask what cards Tokyo might play should the relationship deteriorate further.
Beijing’s latest move came on Wednesday, when it announced an anti-dumping investigation into a crucial chipmaking material from Japan. It had already banned seafood imports and restricted exports of dual-use commercial and military goods to recipients with links to the Japanese military.
Analysts highlighted Japan’s dominance in certain chemicals – especially photoresist, a light-sensitive material used to engrave chips – as a potential source of leverage against Beijing.
“Japan can stop exporting important goods such as semiconductor manufacturing equipment,” said Minoru Nogimori, senior economist for Asia at the Japan Research Institute. “Semiconductor manufacturing equipment and chemicals should be important cards.”
Four Japanese companies – JSR, Tokyo Ohka Kogyo, Shin-Etsu Chemical and Fujifilm Electronic Materials – controlled 72.5 per cent of the global photoresist market in 2021, ResearchInChina found. Chinese domestic substitution, meanwhile, is estimated at below 5 per cent, according to market research firm TrendForce.
Some Asian media outlets reported last month that Japan was already poised to introduce restrictions on photoresist exports.
China’s market for the material is worth 12.3 billion yuan (US$1.75 billion), but domestic producers lack the capacity to replace Japanese suppliers. Any disruption would likely accelerate Beijing’s long-standing push for home-grown substitution across the tech supply chain, analysts said.
Facing tough export controls from the West, Beijing has made “technological self-reliance and self-strengthening” a crucial goal in the proposals for its next five-year plan.
“Given the AI race and China’s push to improve tech self-reliance, there will be efforts to build up domestic capacity, but this process takes time and effort,” said Lynn Song, chief economist for Greater China at Dutch financial services firm ING.
Despite these challenges, Japanese products that are “indispensable to China’s industrial development” continue to sell briskly, “with no apparent impact” from the political tensions so far, said Naoya Sawazu, deputy director of the business promotion department at the Japan-China Economic Association.
“Particularly high-performance items for which substitutes are hard to find” remain in strong demand, Sawazu added.
“While the impact on Japanese businesses varies by industry sector, it has not, so far, developed into a nationwide boycott like the anti-Japanese protests in 2012,” he added, referring to Beijing’s anger after Tokyo nationalised some of the disputed Diaoyu Islands in the waters between the two countries.
“We understand that, at this point, Japanese companies in China are generally continuing to operate as they have in the past.”
All Nippon Airways, one of Japan’s two largest airlines, told the Post this week that corporate travel to China had remained largely unchanged since November. Sawazu noted, however, that Chinese “influencers” had become reluctant to promote Japanese goods, so “the impact is not entirely nonexistent”.
China holds “more cards” in its economic arsenal compared with Japan and could impose stiffer curbs on Chinese travel to Japan or restrict car imports, the Economist Intelligence Unit market research firm said in a December 8 report.
“The economic impact remains unclear at this stage and will depend heavily on how bilateral interactions between the Chinese and Japanese governments evolve going forward,” said Nogimori of the Japan Research Institute.
“If both sides impose export restrictions, the economies of both China and Japan are expected to suffer significant damage.” -- SOUTH CHINA MORNING POST
