By John Richardson
THE Japanese economy is at great risk from the East China Sea dispute which, if unresolved, could result in a long and bitter trade war with China, said several chemicals industry sources.
Japanese electronics and auto companies could even be forced to leave China, they warned.
"If the Chinese kick Japanese companies out of China, which I think could well happen, the Japanese cannot take their land, their equipment, and, most importantly, their technology with them," said one source.
"China has been very clever. It has learnt technology and sales and marketing skills from Japan, and so if the Japanese companies were forced to leave, China could easily replicate their capabilities.
"The Japanese decision to nationalise the islands, which triggered the dispute, was therefore very unwise. China has the upper hand in this relationship.
"Japanese chemicals and polymer companies would suffer very badly in the event of a trade war as they are the preferred suppliers to many of the Japanese electronics and auto producers. "
The country's auto manufacturers are attempting to compensate for a decline in China sales through boosting volumes in India.
But India is very different market with a very different set of sales and distribution challenges. In addition, the size of the Indian market is dwarfed by that of China.
Meanwhile, concerns remain over the danger that the dispute could escalate into a military conflict.
If a war does break out, some industry sources forecast that oil prices would quickly jump to $120-150 a barrel and petrochemicals prices would go up in response, before retreating on further damage to already weak demand.
This may all sound a little sensationalist, but you can trust us that this is an accurate account of one of the many worries for 2013.