Taiwan is likely to face supply chain disruptions amid the heightened territorial dispute in the East China Sea between Japan and China, both of which are close strategic business partners of Taiwan, according to local media reports.

The territorial dispute over the Diaoyutai Islands, which are controlled by Japan but also claimed by Taiwan and China, has spurred anti-Japanese protests across China that have largely targeted Japanese establishments there.

Well-known Japanese companies, including Japanese electronics makers Canon Inc., Panasonic Corp. and Mitsubishi Electric Corp., suspended their operations at various plants in China following huge anti-Japanese protests across the country.

In addition, Japan's Honda Motor Co. and Nissan Motor Co. have also suspended production lines at plants in Guangzhou, Guangdong Province, as well as Mazda Motor Corp., which suspended operations at a plant in Nanjing, Jiangsu Province amid concern over heightened tension with the approach of the 81st anniversary of the Mukden Incident Tuesday.

The Mukden Incident refers to an attack Sept. 18, 1931 by Japanese forces on Chinese troops in Shenyang, northeastern China, which marked a step in Japan's conquest of Manchuria and onward to much of China in the 1930s and throughout World War II.

Taiwan's close partnerships with China and Japan in terms of auto and electronics parts makes it prone to exposure to supply chain disruptions in the event of trade wars between the sparring countries, according to local media report.

The following is an excerpt from a local media analysis of the territorial dispute over the island group.

Liberty Times:

Chen Ming-shy, deputy director-general of the Bureau of Foreign Trade, said the close three-way partnership between Taiwan, Japan and China makes the trade war a serious threat to the security of Taiwan's supply chain.

Chen said, for example, that critical auto parts are shipped from Japan to Taiwan, which Taiwanese workers provide with value-added services before shipping them onward to assembly plants in China.

The trade war currently being waged between the second- and third-biggest economies in the world could seriously disrupt the supply chain, he warned.

China is Japan's top exporting and importing country, while Japan is Taiwan's top importing country and fourth-largest exporting country, according to official data.

In addition, China is Taiwan's top exporting country and second- biggest importing country, according to 2011 data from Taiwan's Economics Ministry and China's Ministry of Commerce.

The data shows that Taiwan will not remain unharmed amid the Japan-China trade spat, according to local analysts.

Eberhard Sandschneider, director of the Research Institute of the German Society for Foreign Policy in Berlin, said in an interview with the German weekly magazine Der Spiegel that the territorial dispute over the Diaoyutai Islands has greater potential of triggering a trade war than an armed clash.

The political storm has also intensified, as China threatens Japan with economic sanctions and might even suspend exports of crucial raw materials, according to the German weekly.

China's gross domestic product totaled US$7.4 trillion last year, making it the second-biggest economy in the world, while Japan trailed behind at US$5.8 trillion, according to data compiled by the World Trade Organization. (Sept. 18, 2012).

(By Ann Chen)
ENDITEM/J