Japanese shops, factories close in China after violence

Major Japanese firms have shut factories in China and urged expatriate workers on Monday to stay indoors ahead of what could be more angry protests over a territorial dispute that threatens to hurt trade ties between Asia's two biggest economies.

China's worst outbreak of anti-Japan sentiment in decades led to weekend demonstrations and violent attacks on well-known Japanese businesses such as car-makers Toyota and Honda, forcing frightened Japanese into hiding and prompting Chinese state media to warn that trade relations could now be in jeopardy.

"I'm not going out today and I've asked my Chinese boyfriend to be with me all day tomorrow," said Sayo Morimoto, a 29-year-old Japanese graduate student at a university in Shenzhen.

Japanese housewife and mother Kayo Kubo, who lives in the eastern Chinese city of Suzhou, said her young family and other Japanese expats were also staying home after being terrified by the scale and mood of the weekend protests in dozens of cities.

"There were so many people and I've never seen anything like it. It was very scary," she said.

Chinese Foreign Ministry spokesman Hong Lei said the government would protect Japanese firms and citizens and called for protesters to obey the law.

"The gravely destructive consequences of Japan's illegal purchase of the Diaoyu Islands are steadily emerging, and the responsibility for this should be borne by Japan," he told a daily news briefing. The islands are called the Senkaku by Japan and Diaoyu by China.

"The course of developments will depend on whether or not Japan faces up to China's solemn stance and whether or not it faces up to the calls for justice from the Chinese people and adopts a correct attitude and approach."

China and Japan, which generated two-way trade of $345 billion last year, are arguing over a group of uninhabited islets in the East China Sea, a long-standing dispute that erupted last week when the Japanese government decided to buy some of them from a private Japanese owner.

The move, which infuriated Beijing, was intended by Japan's government to fend off what it feared would be seen as an even more provocative plan by the nationalist governor of Tokyo to buy and build facilities on the islands.

In response, China sent six surveillance ships to the area, which contains potentially large gas reserves. On Monday, a flotilla of around 1,000 Chinese fishing boats was sailing for the islands and was due to reach them later in the day, the state-owned People's Daily said on its microblog.

The weekend protests mainly targeted Japanese diplomatic missions but also shops, restaurants and car dealerships in at least five cities. Toyota and Honda said arsonists had badly damaged their stores in the eastern port city of Qingdao at the weekend.

However, Toyota said its factories and offices were operating as normal on Monday and that it had not ordered home its Japanese employees in China.

Fast Retailing Co, Asia's largest apparel retailer, said it had closed some of its Uniqlo outlets in China and may close yet more, while Aeon Co Ltd,, Japan's number two retailer, is prohibiting China business trips for its Japan-based staff.

Japanese electronics group Panasonic said one of its plants had been sabotaged by Chinese workers and would remain closed through Tuesday -- the anniversary of Japan's 1931 occupation of parts of mainland China, a date that Tokyo fears could trigger another outbreak of anti-Japan sentiment.

Japan warned its citizens about large-scale protests in China on Tuesday. Many Japanese schools across China, including in Beijing and Shanghai, have cancelled classes this week.

Japanese Prime Minister Yoshihiko Noda, who met visiting U.S. Defense Secretary Leon Panetta on Monday, urged Beijing to ensure Japan's people and property were protected.

Panetta said the United States would stand by its security treaty obligations to Japan but not take sides in the row, and urged calm and restraint on both sides.

"It is in everybody's interest ... for Japan and China to maintain good relations and to find a way to avoid further escalation," he told reporters In Tokyo.

The overseas edition of the People's Daily, the main newspaper of the Chinese Communist Party, warned that Beijing could resort to economic retaliation if the dispute festers.

"How could it be that Japan wants another lost decade, and could even be prepared to go back by two decades?" asked a front-page editorial. China "has always been extremely cautious about playing the economic card", it said.

"But in struggles concerning territorial sovereignty, if Japan continues its provocations, then China will take up the battle."

Japanese Foreign Minister Koichiro Gemba said on Monday, after talks with Panetta, that Tokyo and Washington agreed the disputed islets were covered by the Japan-U.S. security treaty.

"I did not bring up the topic today, but it is mutually understood between Japan and the United States that (the islands) are covered by the treaty," he said after meeting U.S. Defense Secretary Leon Panetta in Tokyo.

ECONOMIC BLOW

Japanese electronics firm Canon Inc will stop production at three of its four Chinese factories on Monday and Tuesday, citing concerns over employee safety, Japanese media reports said, while All Nippon Airways Co reported a rise in cancellations on Japan-bound flights from China.

The dispute also hit the shares of Hong Kong-listed Japanese retailers on Monday, with department store operator Aeon Stores (Hong Kong) Co Ltd falling to a seven-month low.

"All Japan-related shares are under selling pressure," said Andrew To, a research director from Emperor Capital.

China is Japan's biggest trade partner and Japan is China's third largest. Any harm to business and investment ties would be bad for both economies at a time when China faces a slowdown.

Qingdao police said they had arrested a number of people suspected of "disrupting social order" during the protests, apparently referring to the attacks on Japanese-operated factories and shops there.

In Shanghai, home to China's biggest Japanese expatriate population of 56,000, one expat said his family as well as other Japanese customers had been chased out of a Japanese restaurant on Sunday by protesters near the Japanese consulate.

Guangzhou police said on their official microblog that they had detained 11 people for smashing up a Japanese-brand car, shop windows and billboards on Sunday.