Japanese‐brand auto sales in China under the shadow of oppositional sentiments

• Date: 01 May 2020
• Published date: 01 May 2020
• DOI: http://doi.org/10.1111/1468-0106.12324
• Author: Julan Du,Hongli Yang,Zhao Chen

SPECIAL ISSUE ARTICLE

Japanese-brand auto sales in China under the

shadow of oppositional sentiments

Zhao Chen

1

| Julan Du

2

| Hongli Yang

3

1

China Centre for Economic Studies,

Fudan University, Shanghai, China

2

Department of Economics, The Chinese

University of Hong Kong, Shatin, N.T.,

Hong Kong

3

International Business School, Shanghai

University of International Business and

Economics, Shanghai, China

Correspondence

Julan Du, Department Of Economics,

Chinese University Of Hong Kong,

Shatin, N.T., Hong Kong.

Email: julandu@cuhk.edu.hk and julan.

du@foxmail.com;

Abstract

This study uses the interstate political conflict in 2010

to study the impacts of oppositional sentiment on prod-

uct sales of Japanese-brand automobiles in China. By

using the nationwide automobile registration data in

China, we conduct difference-in-differences analysis

and find direct evidence on Chinese consumers’boy-

cott of Japanese-brand autos. It is individual buyers

rather than business or government entity buyers that

boycotted Japanese cars significantly. War memory,

nationalist education, and protests contributed to the

intensity of boycott activities, and the boycott effect

was long-lasting. Older-generation buyers boycotted

Japanese cars more significantly, but younger-

generation buyers living in cities with historical war

experience or patriotic education bases boycotted Japa-

nese cars more actively than their counterparts in other

cities.

1|INTRODUCTION

Despite the tremendous progress in globalization, multinational enterprises are operating in an

increasingly challenging environment. One major challenge is the rising nationalism around

the world, which arouses interstate hostilities and ignites oppositional sentiment toward multi-

nationals. In the wake of political disputes and conflicts, the opposition to multinationals from

the country at fault can become particularly intense. As a primary means of nationalist expres-

sion, consumer boycotts of products of multinationals from the target country during political

disputes are likely to pose a serious threat to the development of multinationals.

The present study uses the case of anti-Japanese demonstrations in China in 2010 as a shock

to the Sino–Japanese relationship to examine the impacts of the interstate conflict upon

Received: 2 April 2020 Accepted: 9 April 2020

DOI: 10.1111/1468-0106.12324

272 © 2020 John Wiley & Sons Australia, Ltd wileyonlinelibrary.com/journal/paer Pac Econ Rev. 2020;25:272–305.

Japanese multinationals’product sales and global economic activities. As the current world’s

second and third largest economies, China and Japan have experienced a deterioration in diplo-

matic relations since the bilateral political dispute over Japan's history textbooks in 2005. The

lack of trust and the unfavourable attitude of the Chinese toward the Japanese have been

mainly triggered by historical animosity and the Chinese public’s perception of Japan’s lack of

sincere remorse for the Second Sino–Japanese War in 1931–1945. Some issues, such as the

whitewashing of war crimes in Japanese history textbooks, the territorial disputes over Diaoyu/

Senkaku Islands, and the political visits of top Japanese Government officials to the Yasukuni

Shrine allegedly housing the souls of war criminals, have aroused strong opposition from the

Chinese people. In Japan, the anti-Chinese sentiment is mainly triggered by the rise of China’s

economic and military strength, which pose a threat to Japan’s status as an economic super-

power, and China’s insistence of Japan’s responsibility for war crimes.

Although nationalism and interstate hostilities have been persistent in recent decades, they

surged during the nationwide large-scaleanti-Japanese demonstrations in China in 2005 and

2010, which marked the two waves of shocks to the Sino–Japanese relationship. Chinese con-

sumers might have simply boycotted Japanese-brand products or did not dare to purchase Japa-

nese products out of fear of violent attacks and property damage. Using a unique nationwide

deal-level dataset on automobile purchases in China, we apply the difference-in-differences

(DID) approach and find that Japanese-brand automobile sales experienced a significant decline

relative to those of automobiles of indigenous brands or other foreign countries’brands. This

drop persisted in the post-shock period of over 1 year. The boycott effect was concentrated in

lower-tier automobile classes. Individual buyers displayed a much stronger boycott than nonin-

dividual buyers. Older-generation buyers boycotted more intensely.

Furthermore, we investigate the mechanisms for oppositional sentiment to affect multina-

tionals. We take advantage of the regional variation in China to explore some potential chan-

nels. First, we find that the boycott activities were more intense in those cities that had more

major conventional battles or biological warfare during the Second Sino–Japanese War period,

and the effects of the biological warfare experience were particularly strong. These factors of

war memory and war sequelae were particularly acute for younger generation buyers. Second,

nationalist education and propaganda also intensified the boycott behaviour, and the effect was

particularly strong for the younger generation buyers. These two findings suggest that younger

generation buyers were perhaps more emotional, more easily subject to the prevailing patriotic

education and propaganda, and more likely to actively participate in boycott activities. Third,

both past protests in 2005, especially the violent ones, and contemporary protests in 2010

deterred consumers from buying Japanese-brand automobiles. This suggests that part of the

boycott activities might be driven by buyers’concern for property damage risks coinciding with

the anti-Japanese movements. Furthermore, the decline in the sales volume of Japanese-brand

automobiles in the cities with historical battles, patriotic education bases, and/or protests con-

tinued during the whole post-shock period of more than 1 year. This suggests that the adverse

shock to the Japanese automakers’sales in China was by no means ephemeral, particularly

when the current political disputes were combined with historical war-based animosity.

The current literature provides some indirect evidence on the impact of political conflicts on

economic exchanges through examination of bilateral trade (Acemoglu & Yared, 2010; Nunn,

Berger, Easterly, & Satyanath, 2013; Glick & Taylor, 2010; Fuchs & Klann, 2013;

Heilmann, 2016) or companies’market valuation (Fisman, Hamao, & Wang, 2014; Govella &

Newland, 2010). However, the findings are not entirely consistent. For instance, Davis and

Meunier (2011) used trade flow data to show that aggregate economic exchanges and high

CHEN ET AL. 273

salience sectors like wine and autos were not affected by the disputes between the United States

and France in 2003 and between China and Japan in 2005. There have also been attempts to

provide micro-level analysis of consumers’boycott of target countries’products. For example,

Ashenfelter, Ciccarella, and Shatz (2007) and Chavis and Leslie (2009) investigated the effects

of anti-Iraq war protests on French wine sales in the United States. Pandya and

Venkatesan (2016) analysed the product sales in US supermarkets after France’s anti-Iraq War

protests, and they found that the French-sounding product sales dropped, but French-brand

product sales did not. So far, these micro-level studies have been focused on the purchases of

daily necessities and have not reached consistent conclusions.

In contrast to the existing studies, we examine the sales of a high-salience product, that is,

automobiles, to explore the effects of international conflicts and consumer boycotts on multina-

tionals. More importantly, by introducing unique individual-level auto registration data to this

line of literature, our study provides some direct evidence on the economic impacts of the shift

in international relations and consumer boycotts on product sales of multinational firms. Fur-

thermore, we provide new findings on the relationship between consumer boycott propensity

and intensity and such factors as the demographic characteristics of buyers and the features of

automobiles.

The set of mechanisms mediating the effects of consumer animosity on boycott activities

that we explore is also richer than that in earlier studies. We explore in detail the potential

channels of war memory, war sequelae, patriotic or nationalist education, and protests, contrib-

uting significantly to the literature. The existing literature on the effect of historical war on cur-

rent economic exchanges finds that wars can have long-term impacts on people’s economic

behaviour. For instance, Felbermayr and Gröschl (2014) found that the cities lying along the

border between the North and the South in the Civil War in the United States had fewer eco-

nomic exchanges. Che, Julan, Lu, and Tao (2015) investigated the long-term impacts of the Jap-

anese invasion on current bilateral trade and Japanese direct investments in China. The present

study demonstrates that war memory and war sequelae are deeply rooted in people’s minds.

They can be ignited when there are political disputes and conflicts and can give rise to wide-

spread boycott actions.

The remainder of the paper is organized as follows. Section 2 provides some background

information. Section 3 discusses the data and the empirical strategy. Section 4 provides the

baseline regression results. An analysis of heterogeneous responses is presented in Section 5.

Section 6 discusses the mechanisms of consumer boycott activities. Some additional analysis is

included in Section 7. Section 8 concludes.

2|BACKGROUND

2.1 |China–Japan political conflict

In general, the Chinese expression of animosity toward Japan has been more open, public, and

intensive. Large-scale demonstrations have been the most striking anti-Japanese events. We

mainly look at one political event of Chinese protests against the Japanese; that is, the anti-

Japanese demonstrations of 2010. On September 7, 2010, a Chinese fishing craft collided with

two Japanese coastguard patrol boats in the disputed waters near Diaoyu/Senkaku Islands, and

the Japanese authorities detained the Chinese trawler captain. This gave rise to diplomatic con-

frontation and anti-Japanese demonstrations in quite a few cities in China, including Xi’an,

274 CHEN ET AL.