Aftershock

On March 11, an earthquake and the ensuing tsunami devastated communities along Japan’s east coast. Damage to transport networks and power plants created logistic hurdles and energy shortages that crippled producers in other parts of the country.

The disasters knocked links out of many global supply chains, with mixed effects on Chinese industries. Japan is one of China’s biggest trading partners, accounting for 8% of exports and 13% of its imports in 2010 – both of which are likely to slump as Japan grapples with the initial effects of the crisis.

Industries in China that source parts from Japan, like consumer electronics and automobile makers, may have only recently begun to feel the pinch. Most analysts estimate manufacturers had weeks or even months of inventory when Japanese suppliers ground to a halt.

Toyota, Nissan and Honda said in early April that their China assembly lines were operating normally. However, the companies have all shuttered plants in quake-affected areas that supply engines, transmissions and other parts to carmakers in China, including their joint ventures with major China automakers: Dongfeng Motor for Honda and Nissan, and FAW Xiali Automobile for Toyota.

Some of their production lines may lurch in coming months. However, Dongfeng Motor and FAW Xiali are big companies with vast supplier networks, so the crisis should have little impact on their earnings, said Ben Lake, an analyst at research firm Pacific Epoch.

Meanwhile, electronics makers like ZTE and Lenovo will probably begin paying higher prices to source parts from China, Taiwan and Korea – potentially shrinking their quarterly margins. Apple product manufacturer Foxconn may also slow production of the coveted iPad 2. The tablet contains parts that would be hard to get from other suppliers, according to a report from IHS iSuppli.

Chinese exporters to Japan, meanwhile, will be hit by a different trend: an initial drop in business as the crisis reduces consumption, followed by a surge in demand for lower value consumer goods and raw materials, including building materials, machinery and base metals like copper, as rebuilding begins. Reconstruction could also be a boon for railway suppliers and Chinese steelmakers, although much of Japan’s demand may be for higher quality Korean steel.

Overall, exports to Japan account for only 2% of China’s economy. But there is one aspect of the crisis that could threaten China’s economic health: Japan’s grab for energy and commodities will put upward pressure on commodity prices.