Anti-Japan protests reignited across China on Tuesday, forcing Japanese firms in the country to suspend operations, as a crisis over a territorial dispute escalated on the anniversary of Japan's pre-war invasion of its giant neighbour.
Relations between Asia's two biggest economies faltered badly on the anniversary, with emotions running high on the streets and also out at sea where two Japanese activists landed on an island at the centre of the dispute.
China reacted swiftly to the news of the landing, which risked inflaming a situation that already ranks as China's worst outbreak of anti-Japan sentiment in decades. Beijing described the landing as provocative, lodged a complaint with Tokyo and said it reserved the right to take further action.
The unlawful landing of the Japanese right-wingers on the Chinese territory of the Diaoyu islands was a gravely provocative action violating Chinese territorial sovereignty, Chinese Foreign Ministry spokesman Hong Lei said in a statement.
The dispute over the uninhabited group of islands in the East China Sea -- known as the Senkaku in Japan and Diaoyu in China -- led to a day of anti-Japan protests which Japanese expatriates fear could peak later on Tuesday.
Japanese businesses shut hundreds of stores and plants across China and Japan's embassy in Beijing again came under siege by protesters hurling water bottles, waving Chinese flags, and chanting anti-Japan slogans evoking war-time enmity.
Wipe out all Japanese dogs, read one banner held aloft by one of thousands of protesters marching on the embassy, which was ringed by riot police standing six rows deep. Japan's foreign ministry said some embassy windows had been smashed.
Rowdy protests, fuelled by Chinese nationalism, sprang up in other major cities including Shanghai, raising the risk they could get out of hand and backfire on Beijing, which has implied tacit approval to them through state media. One Hong Kong newspaper said some protesters in southern Shenzhen had been detained for calling for democracy and human rights.
JAPANESE FIRMS HUNKER DOWN
U.S. Defense Secretary Leon Panetta, visiting China to promote stronger Sino-U.S. military ties, again called for calm and restraint. Washington has said it will not take sides, dispute, although it is a strong ally of Japan.
Well-known Japanese firms have been targeted by protesters, with car makers Toyota Motor Corp and Honda Motor Co halting some operations after attacks on their outlets.
Other Japanese companies -- from Mazda and Mitsubishi Motors to Panasonic and Fast Retailing -- also shuttered plants and stores in China, sending Japanese share prices falling and prompting a warning from credit rating agency Fitch that the situation could hurt some auto and tech firms' creditworthiness.
Hitachi Construction Machinery recalled 25 Japanese workers back to Japan because of the unrest.
Mutsuko Takebayashi, a Japanese expatriate housewife living in Shanghai, said she planned to fly home with her family.
It's possible that Japanese companies will start evacuating families back home and if that happens it'll be too late to book tickets. That's why I'm going back today, she said.
Japanese restaurants, a common target of protesters, barred their doors while many Japanese expatriates stayed home, afraid that Tuesday's anniversary of Japan's 1931 occupation of parts of mainland China could lead to outbreaks of violence.
Tuesday's brief landing by two Japanese nationals on one of the disputed islands, reported by Japan's coast guard, has raised fears of a direct clash in an area being patrolled by ships from both nations.
The activists briefly landed on one of the islands, having paddled up to it in a rubber raft and swum ashore before returning to the boat, Japanese broadcaster NHK said.
A flotilla of around 1,000 Chinese fishing boats is also reported by Chinese and Japanese media to be heading to the area, which contains potentially large gas reserves. In 2010, a bilateral crisis over the islands erupted after a fishing boat collided with a Japanese Coast Guard vessel.
The Japanese government has set up an information-gathering operation to monitor the movements of the Chinese fishing boats.
INVESTORS TAKE FRIGHT
The long-standing territorial dispute erupted last week when the Japanese government decided to nationalise some of the islands, buying them from a private Japanese owner.
Political analysts say China also upped the stakes last week when it announced precise boundaries for waters it claims around the islands, a move sure to raise pressure on Beijing to act when it accuses Japanese vessels of violating those boundaries.
The dispute has sent China-exposed Japanese stocks down heavily on the Tokyo stock market, raising concerns about any wider impact on economic and trade ties between the two countries. Platinum prices also fell, partly on the disruption to Japanese car plants in China, traders said. The precious metal is used as an auto catalyst.
China, the world's second-largest economy, and Japan, the third-largest, have total two-way trade of around $345 billion.
There is no talk of Japanese firms withdrawing investment from China but some experts believe anti-Japan sentiment could prompt firms to rethink China investments in the longer term.
Withdrawal is impossible but the cost of doing business in China clearly has become much higher so that cost calculation should affect (decisions), said Yoshihide Soeya, director of the Institute of East Asian Studies at Keio University in Tokyo.
Mazda Motor Corp has temporarily halted production at its Nanjing factory, while Mitsubishi Motors Corp said it would also halt operations at one of its China factories on Tuesday. Both have joint ventures in China. Yamaha Motor Co also said it was suspending operations at four plants in China.
Toyota and Honda said arsonists had badly damaged their stores in the eastern port city of Qingdao at the weekend, prompting Toyota to halt operations at some factories in China.
Electronics group Panasonic Corp said it was closing three China factories after two were attacked by mobs and a third, in southeastern Zhuhai, was sabotaged. Japan's Omron Corp halted its automotive parts plant in Guangzhou, southern China, as a precaution.
Japanese supermarket operator Aeon closed all but five of its 35 stores in China on Tuesday, while clothing retailer Fast Retailing shut about a quarter of its 145 Uniqlo stores in mainland China for the day. Building machinery maker Komatsu halted three plants in Shandong province.