Japan Quake Hits China's Supply Lines

By TOM ORLIK

The effects of Japan's earthquake are already hitting China's manufacturing sector.
Japan's proximity to the mainland, and technological edge in production of key components, has made it a major beneficiary of China's rise. In 2010, Japan exported $176.7 billion of goods to China. That makes it China's largest source of imports and the only one of the world's major economies with which the mainland runs a trade deficit.
Top of China's import shopping list: electronics components and auto parts. China is the world's largest producer of computers and mobile phones, but production of the components that go into them remains beyond the ken of the mainland's manufacturers.
Japan is responsible for 35% of global supply of NAND flash chips, which go into iPhones and iPads, although the producers are distant from the epicenter. Even so, spot prices for flash chips are up sharply this week, according to DRAMeXchange, Asia's biggest spot market for chips. The main losers will likely be smaller producers that have less market clout.
In autos, some key components–including automatic transmissions—are still sourced from Japan. And there, auto firms have suspended production to assess quake damage. With China's manufacturers running just-in-time production processes, any delay will dent output. Lin Huaibin of IHS Automotive believes some manufacturers might face two months of production disruptions. That will compound production problems for firms already unable to supply enough cars to meet demand in China.
Longer term, a disruption to supply will reinforce incentives for mainland firms to raise their game technologically and produce essential components in China. The aftermath of the Japan quake will continue to ripple through China's key industries.