China’s Cloud Looms Over Toyota Motor Corporation (ADR) (TM)

It looks like there is no respite for Toyota Motor Corporation (ADR) (NYSE:TM) in China. Ever since territorial disputes sparked in second half of 2012 the Japanese auto makers have been fighting a relentless battle against falling sales. China was, in any case, a preferred destination for automakers around the world and with Japanese companies taking a backseat, global giants like General Motors Company (NYSE:GM)and Volkswagen AG (ADR) (PINK:VLKAY) are fast gaining ground with Ford Motor Company (NYSE:F) not too far behind. And just when it was thought that trends were reversing in January, February brought in news of sharp declines for all the three big Japanese automakers – Toyota, Honda, and Nissan. The largest decline, almost 46%, was posted by Toyota Motor Corporation (ADR) (NYSE:TM). Now the situation is likely to deteriorate further as China has announced that it will send a team of surveyors to the disputed islands. This spells more declines for the Japanese automakers over the coming months.

The territorial disputes

To give investors a bit of a background this is the dispute that has been going on between China and Japan for decades over a chain of five uninhabited islands in the East China Sea. The islands which are known as Diaoyu in Chinese and Senkaku in Japanese are merely 6 square kilometers in area. Both Japan and China claim sovereignty over them. The dispute received a fresh lease of life when in September 2012 the Japanese government bought three islands from their private owners to prevent their commercialization. Last week China has made its boldest move so far in this skirmish by announcing that it will send a team of surveyors to these islands thereby implying that it is now ready to set foot on the disputed lands. In the diplomatic circuits it is being said that this will cause more sparks to fly.