Japanese insurers stop covering firms against China riots

If the Chinese government refuses to protect foreign property or ensure that damage claims are fairly addressed, there can be no rationale for doing business in that country. The US and EU nations need to take note of this as well.

there can be no rationale for doing business in that country

....apart from the lucrative market of 1.3 upwardly mobile billion people

Virtuoso: why would the Chinese goverment protect Japanese interests since they encouraged those protests. It simply doesn't make sense for insurance companies to provide coverage in China, the risks are ridiculously high. The French already learnt it at their own expense in 2008. The US are thinking they're one WTO complaint from being next.

Ryu@because the Chinese government also actively encouraged Japanese companies to invest in China in the first place! I've seen estimates that upwards of 10 million Chinese owe their jobs to Japan's presence in the retailing, distribution and manufacturing sectors. Anyway as long as China persists in brainwashing its entire population to continue hating Japan over what has happened in the past --- while refusing to acknowledge anything good that Japan has done to right those wrongs --- there's no real point in economic relationships. And I can manage well enough without cheap duds from Uni-Qlo and tacky items from 100-yen shops.

China, sorry to say, is just plain stupid! A couple of rocks in the sea?? Is it worth scaring away all Japanese investors?????????

China was thinking in terms of how many companies were in Japan and how quickly they could begin to produce again. Unfortunately, the global market is far more complex than that. China did not take into consideration that government stability is considered to be a significant factor in determining the feasibility of foreign business, and a government that allows riots, regardless of whether they are staged, controlled, or otherwise, looses points regarding stability.

Virtuoso: indeed. At one point they definitely needed - and most likely still do - the technology transfers, the jobs that came with it. Their current assumption is that they can do without the Japanese but of course, those underhanded tactics are spooking everyone. Knowing that most EU nations as well as the US were among the colonial powers that got territorial concessions from them at the turn of the 19th century, any of them could be next.

Elbuda: besides the energy reserves, look at where those islands are located, keeping in mind they will be needing more and more oil and that oil is transported from the Middle East.

would this be under the " pre-existing " condition clause ?

China is very much a copycat and Japan should never part with their research and technology. It doesnt matter how large their market, in the long run Japan's long term interests must be protected. China is getting too big for its boots.

Japanese insurers stop covering firms against China riots...........................

there's always other insurance companies other than Japanese. Just saying

10 billion yen in claims, 14,000 Japanese companies in China. That's about US10,000 per company. A relatively modest insurance surcharge would cover everything this time. Of course not all companies were affected. Those more vulnerable to damage (auto showrooms, supermarkets etc.) may need to spend some money to harden their premises.

Surprised they were convered in the first place, knowing this is not the first time it happened.

Japan businesses suffered a lots from just one man Mr Ishihara logics. Time for a change Mr Ishihara. Time for change.

Japanese insurers stop covering firms against China riots

Good, Japan and the rest of the world need to get out of the PRC.

So why don't Japanese companies leave China as soon as possible? I am sure US, European, Korean and Taiwanese companies would be most happy to see them off.

there's always other insurance companies other than Japanese. Just saying

It isn't so much about the insurance. As Ayesha pointed out, most of the damage is pocket change for major companies. Indeed, It wouldn't surprise me to find out that the relatively little damage that was done was actually staged to be as minimal as possible while still resembling an actual riot. I suspect the Chinese government was thinking strictly in terms of economic damage to individual business.

Which is why it is going to be unpleasantly surprised when its entire economic environment suddenly changes. When you are dealing with the global market, there are many factors that come into play regarding your feasibility either as a market or a producer. One of the forces that business have to consider is reliability, or stability, of the area. I sincerely believe that it did not occur to China that these riots would result in long term damage to their reputation, as a nation, as a stable place to do business. The insurance refusing to offer coverage for this area should be looked at as a result of insurance companies no longer considering this area a reasonable risk. Insurance companies have the most invested, and therefore the most to loose, by making the wrong choices in this sort of thing, and even at that, they have multiple levels (high-risk insurance, in other words), in the event that it is very risky, but still potentially a profitable venture. Insurance companies, by refusing to insure this area, are basically stating that they consider the stability for business so bad that they do not believe that the money they make during the periods of peace will outweigh what they loose during the periods of unrest.

That's pretty big. It's major. I have printed out this article, and once I verify it, I am going to show it to some of my students. If China does not directly address this issue in some form or another, it may well be the beginning of the end for them.

So why don't Japanese companies leave China as soon as possible?

Because China has an incredible amount of market potential. However, there is a break-even point between potential profit and unacceptable risk, and we are rapidly drawing nearer to it.

I am sure US, European, Korean and Taiwanese companies would be most happy to see them off.

Really? You believe their products are so much in demand that their industries can absorb however many hundreds of thousands of employees would suddenly find themselves out of a job?

People are still thinking in terms of individual businesses. Some people have even touched on national economies. This is much bigger than all that. This is global marketing. This is something so new we are still learning about it. Old school thinking is not going to cut it here.

Guru29Oct. 05, 2012 - 05:12PM JST So why don't Japanese companies leave China as soon as possible? I am sure US, European, Korean and Taiwanese companies would be most happy to see them off.

You just do not get it, corporations do not need the PRC, the PRC needs the corporations. The PRC has become too expensive for many companies to do business there. Look it up, the latest trends show that companies are looking for a safe place to relocate their factories.

When the move comes and it will the PRC will be left with a whole lot of debt and then things will turn ugly.

The Cultural Revolution will look like a day in the park compared to what is coming.

"Really? You believe their products are so much in demand that their industries can absorb however many hundreds of thousands of employees would suddenly find themselves out of a job?"

The tradeoff between sovereignty issue & a few thousands of job loss for a brief period ? I think the Chinese Govt had thoroughly prepared for numerous scenarios including this point. In fact, the loss of J market by itself is a significant factor at stake. But, they seem extremely determined to launch counter attacks after a very long period of observation & calculations.

The J companies have been very late comers to invest in China, massive investments concretized only after China's WTO membership -- probably out of concerns over hostile treatment given Japan's precautions resulted from unresolved WWII sentiment against Japan. By contrast, VW set up huge plants in China in early 80's, hence still command a significant market share & most importantly set up a firm German standard for autos quality & driving habits in an Asian country one cannot fund elsewhere in Asia where mist are accustomed to J- standard of comfort & criteria of good quality ( mostly superficial & tangible equipments but not always underneath on the power train & suspension system )

This is what happens when they act like animals. Now because of their insanity Japanese businesses and others too are looking at other countries for better business turnouts.

Ayesha

there can be no rationale for doing business in that country

....apart from the lucrative market of 1.3 upwardly mobile billion people

Although China has the world's second largest economy, only a fraction of the population is upwardly mobile. The vast wealth of the few skews the figures. If you calculate GDP per capita, the figures look very different:

Number 1: Liechtenstein

5: Singapore 10: Hong Kong 11 USA 33: UK 36: Japan 121: China

(source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html)

10 billion yen in claims, 14,000 Japanese companies in China. That's about US10,000 per company. A relatively modest insurance surcharge would cover everything this time.

Uhuh, but that isn't the way insurers do business. They plan their policies on past and foreseeable events. In China at the moment the foreseeable is missing. A risk they cannot take.

The tradeoff between sovereignty issue & a few thousands of job loss for a brief period ?

That's how China is calculating right now. However, it may not be as brief a period as it thinks. Once lost, credibility is hard to regain. Once companies pull out of a country, it is far more likely that it will fall faster than it would take for companies to be convinced to re-invest in it.

I think the Chinese Govt had thoroughly prepared for numerous scenarios including this point.

I'm not so confident of that. In all actuality, I'm not seeing a whole of of forward thinking in their actions.

In fact, the loss of J market by itself is a significant factor at stake. But, they seem extremely determined to launch counter attacks after a very long period of observation & calculations.

Too long a period. Had they done this back in the 80's (assuming that they had the same economic power as they do today), their strong-arm tactics may have worked. With today's communication systems and economic connectivity, they are using tactics that are going to backfire on them.

The J companies have been very late comers to invest in China, massive investments concretized only after China's WTO membership -- probably out of concerns over hostile treatment given Japan's precautions resulted from unresolved WWII sentiment against Japan. By contrast, VW set up huge plants in China in early 80's, hence still command a significant market share & most importantly set up a firm German standard for autos quality & driving habits in an Asian country one cannot fund elsewhere in Asia where mist are accustomed to J- standard of comfort & criteria of good quality ( mostly superficial & tangible equipments but not always underneath on the power train & suspension system )

Not sure where you're going with this. Time in the country isn't going to mean much if companies decide that risk of continuing to do business exceeds the potential profit. Businesses look to the future, not the past.

Can someone knowlegeable explain why Japan is so indispensable to China that if Japan pulls out all or stop invesments in China, the latter's economy will collapse ? The sizable Chinese consumers ( and the number keeps growing ) have plenty of alternatives and I am sure the Korean, German, and the rest of the exporting counties will be too happy to take over Japan's market share. Does Japan still has enough influence to persuade other nations to stop investing in China ? And seriously do you think other nations will ?

Just saying...................

PT24881

The J companies have been very late comers to invest in China, massive investments concretized only after China's WTO membership

From this statement alone I believe you have no idea of the situation. Japan namely Panasonic was one of the first to enter the market constructing a TV manufacturing factory through strong request from Deng Xiaoping to Matsushita Konosuke himself in the '80s.

And to think one over-the-hill, egotistical, revisionist mayor caused all this. All you folks blaming China for this are simply ignoring reality. Ishihara deliberately stoked the flames and created and international issue simply to pursue a personal agenda. If he had acted responsibly China would never have even had to reign in its citizens.

i assume that china is my friend , and my friend ask me to come to his hometown to do business . lately we have a personal conflict then china encourage his relative to hurt my business (as same as china just did to japan in china) . thus im judging my self , and the solution is im facing to the china law , but im still not feeling good because im not sure that either im or china is wrong , there4 i would ask you all that , if u come to my hometown to work and i dont like you then i tell my people to hurt your ... , is this im small minded or CHINA IS SMALL MINDED

Political as well as military action which cause damages are not ordinarily covered by any insurance. It is like having a hazard insurance for war damages. Normal theft and natural disaster type damages are usually covered by insurance. Usually "intentional" damages are "denied" payouts, or denied coverage outright.

So if an area is determined as been beyond a calculable / statistically meaningful "risk", such as the case with China right now, insurance companies can remove or deny coverages. That assures others that are not "affected" by that particular type of risk will have the "reserves" needed by the insurance company to "payout" should it be necessary.

So the move may be the correct one.

Can someone knowlegeable explain why Japan is so indispensable to China that if Japan pulls out all or stop invesments in China, the latter's economy will collapse ? The sizable Chinese consumers ( and the number keeps growing ) have plenty of alternatives and I am sure the Korean, German, and the rest of the exporting counties will be too happy to take over Japan's market share. Does Japan still has enough influence to persuade other nations to stop investing in China ? And seriously do you think other nations will ?

Just saying...................

This was completely answered already after your first post.

By all means , it's time for Japan to remove all theis businesses and companies and China and put it back in Japan like before. A way to help unemployment in Japan. Yes, exactly, other countries like Germany and whoever can take over the Japanese investors that will leave China.

cabadaje

The tradeoff between sovereignty issue & a few thousands of job loss for a brief period ?

That's how China is calculating right now. However, it may not be as brief a period as it thinks. Once lost, credibility is >hard to regain. Once companies pull out of a country, it is far more likely that it will fall faster than it would take for >companies to be convinced to re-invest in it.

That's exactly the point. The job of an insurance company is to balance risk and reward. Japanese insurance companies have of course determined that risk is overwhelingly high at this point and not about to subside in the foreseeable future. But other foreign businesses will come to this conclusion sooner or later. Their thinking is: "I might be next and while the rule of law (international trade laws) cannot be enforced then my risk is just as overwhelmingly high".

Except from

http://www.japantimes.co.jp/text/eo20120927a1.html

But the West — and the U.S. in particular — is new to dignity games à la Chinois. If it gets carried away and >presumes to talk down to the 5,000-year-old culture of the sages, the West could become the next object of China's >nationalist resentment.

PT24881 VW set up huge plants in China in early 80's, hence still command a significant market share

And what is VW's reward for that? I can buy parts made in China for my Touareg that cost 1/4 of the price VW sells them for. Of course the chances that they fail shortly after I put them on is high but I can afford to try it three more times.

That is a - not so hidden - cost of doing business in China that many businesses are now finding unacceptable. These are risks whether direct or not that factor into everyone's calculations.

@samuraiBlue

"From this statement alone I believe you have no idea of the situation. Japan namely Panasonic was one of the first to enter the market constructing a TV manufacturing factory through strong request from Deng Xiaoping to Matsushita Konosuke himself in the '80s."

You are right on a few particular cases ( with political benediction as show cases ). Indeed, Out of the some 14000 operating out there today, the majority of them started investing relatively later than others.

Robert Abenz

LOL now that was quite the hateful tirade indeed :-)

Hate to burst your bubble but I am not Japanese - I am a national of one of the countries you said were not targeted and my host country is another one of those - and it might surprise you even more (not that I care) that a lot of the civilized world support Japan in this. And whether you noticed it or not, I only stated the issue in business terms; threat to intellectual property is considered a high risk and obviously it's not only Japanese IP that is at risk here. And no we don't depend on China for our tech; we only depend on them to manufacture it at a fraction of the cost so we can increase our margins :-) I guess that is the sacrifice we'll have to make to decrease our exposure huh?

Personal attacks on discussion forums are at most funny to watch, not to partake in :-)

You really believe your government will sided with Japan?

What I believe or not doesn't matter does it? I am just aware of my country's interests in the region. We of course will not take sides in the sovereignty dispute. Diplomacy is your friend ;-) But look what just came in :

http://nation.time.com/2012/09/30/big-u-s-fleet-nears-disputed-islands-but-what-for/

We do have to preserve our business interests, we're pragmatic too :-) I don't want to pay more than I have to for my iPad. But then, if I were working for the maker of iPads, I wouldn't be happy to see all of those cheap iPad copies on the shelves in my local store would I ? And well, while I try to keep abreast of events in South East Asia by reading the news, I do spend a few months per year in Tokyo both for business and pleasure. And no, my own company is not investing in China - we have an office in Tokyo and Kuala Lumpur instead - for the very reasons I mentioned.

Business insurance industry is in global market. The underwriting job was well done by Japanese Tokyo Marine Property & Casualty Insurance, and US and others will probably do the same or change the premiums to high risk.

I did not say enough on my previous post that the decision is morally correct as Insurance industry has to protect shareholder's interest.

To be fair, in 1972, Japan hold the Joint meetings with China, and Japan started to issue apology statements for China. There were no request or demand regarding compensation because International legally, PRC (China) didn't exist when Japan was defeated in 1945. However Japan started to pay lots of money to China as the form of ODA (Official development assistance). The amount paid to China is over US$6,000 billion for last 20 years. But you know, unfortunately, Chinese government haven't told this financing help from Japan to their citizens. And mainland Chinese can't access to Wikipedia and other western resources by their Internet censorship. That is why Chinese say Japan didn't apologized at all and didn't pay anything. Probably Chinese won't change their attitude to accuse Japan. Their hope is Japan get down on it's hands and knees in front of China. In their Sinocentrism, Japan has to be nothing for them.

sfjp330, agreed. Yes, my Chinese intellectuals never heard of Japanese ODA to China. The money has never been distributed to Chinese.

PT24881Oct. 05, 2012 - 06:14PM JST The J companies have been very late comers to invest in China, massive investments concretized only after >China's WTO membership -- probably out of concerns over hostile treatment given Japan's precautions resulted >from unresolved WWII sentiment against Japan. By contrast, VW set up huge plants in China in early 80's,

"Panasonic's engagement with China began in 1978, when then Chinese leader Deng Xiaoping visited Matsushita Electric's television division in Ibaraki, Osaka Prefecture. "They say you are a god of management," Deng told Konosuke Matsushita (1894-1989), the company founder. "Could you help with China's modernization?"

herefornowOct. 05, 2012 - 08:34PM JST Ishihara deliberately stoked the flames and created and international issue simply to pursue a personal agenda. If he had acted responsibly China would never have even had to reign in its citizens.

You seem to have overlooked one tiny-winy little fact, Ishihara did not start this whole ball rolling. Ishihara did what he did after PRC paid activist landed on the Senkaku Islands on August 17th.

The PRC had this well planned out ahead of time, but what they did not plan for was the uncivilized wantoned destruction of Japanese factories their planned caused. This was just not about the islands, this was about the leverage and blackmail. Every year the PRC likes to remind Japan that their factories and staff are in the PRC and anything can happen if Japan does not keep paying protection money.

The PRC planned for their annual anti-Japanese protest to follow the same course as every year. Paid PRC activist landing on the Island was just the signal to begin. The protest started out normally, anti-Japanese rhetoric, flag burning, a few things vandilized, then they were suppose to stop go home and get back to work in the slave wage jobs.

But something happened they did not unknown to the leadership the people were angry, very angry about everything. Unemployment, wages, abuses and lack of civil rights. So what happened, why did these people destroy Japanese property? Simple answer, the people knew it was anti-Japan month and they vented their frustrations like a 5 year old vents on his/her parents when angry.

Now the PRC is in a very sticky situation, they have to continue with their tough anti-Japanese stance. If they don't they will lose standing with their people. But if they continue on the road they are on they will lose the support of the worlds number 3 economy and that means lots of lost revenue for the top families.

Now Japan has signaled that they are investing more in Myanmar and Indonisia. Japan looks like they will start moving out of China and into those areas. So what will the PRC do, the ball is in their court, will they keep their arms folded or will they cry mia copa?

The best laid schemes of mice and men always seem to go array.