After anti-Japan protesters in China smashed cars and torched dealerships, Koito Manufacturing Co. suspended a plan to triple its production in the country.

With a new factory half-built, the Toyota supplier reasoned that it may no longer need it.

“Demand from automakers is unclear, so we don’t know how long we will have to freeze the project,” said Shinji Karasawa, spokesman for the Tokyo-based headlight maker.

Along with Koito, parts makers including Sumitomo Electric Industries Ltd. and Toyo Tire & Rubber Co. are rethinking plans to expand in China, where Toyota’s sales plunged 41 percent in September as protests over the disputed Senkaku Islands flared.

The manufacturers are focusing expansion plans on Thailand, Vietnam, Myanmar, Indonesia and Cambodia, a sign that this year’s drop in Japanese investment in China may deepen next year, crimping bilateral trade that has tripled to $340 billion in the last decade.

“Our board members had been vaguely wondering if we should move future production out of China; then the protests prodded us to decide to accelerate planning toward moving out,” said Masayoshi Matsumoto, president of Sumitomo Electric, the world’s second-biggest maker of wiring harnesses.

Foreign direct investment in China fell 6.8 percent in September, the 10th decline in 11 months, according to Bloomberg data.

By contrast, direct investment by Japanese in China last year surged 74 percent to $12.6 billion, from $7.3 billion in 2010 and $2.6 billion 10 years earlier, making Japan the biggest investor in China after Hong Kong and Taiwan, according to the Japan External Trade Organization.

Protests in China over Japan’s claims to the Senkakus have slashed sales at Toyota, Nissan Motor Co. and Honda Motor Co. Some drivers are boycotting goods made by Japanese companies and others are concerned about potential vandalism such a purchase may invite.

Nissan, the biggest Japanese automaker in China by sales, on Nov. 6 cut its sales forecast for China and said the reduction would wipe about ¥60 billion off annual operating income.

“We will be careful about investing in China in the future,” Nissan Chief Operating Officer Toshiyuki Shiga said.

Honda cut its annual profit outlook 20 percent to ¥375 billion as Chinese consumers shunned Japanese brands.

The parts makers supplying Nissan, Honda and Toyota in China, Japan’s largest trading partner, may be even more vulnerable than their customers to declines in auto sales because their businesses are smaller and less globalized.

Mamoru Shimada, president of Osaka-based precision auto parts maker Fuserashi Co., canceled a visit to China originally scheduled for this month because of the anti-Japan demonstrations. Instead, he visited Malaysia and Indonesia, seeking opportunities to expand production into those countries.

“We planned to increase capacity in our China business,” Shimada said. “But with the risks shown by the protests, I’m inclined to expand future production in Thailand, where we already have a factory.”

Shimada said he regularly meets with Japanese carmakers to discuss global and regional expansion plans. In October, plans for China didn’t come up during the meetings, he said.

“That made me feel pessimistic about the future for our business in China,” he said.

China-Japan disputes have periodically surfaced in the decades since the war over territorial claims and the acknowledgment of responsibility for massacres during Japan’s invasion and partial occupation of the country. At the same time, industrial alliances between the two countries have thrived as Japanese manufacturers sought the country’s lower costs and Chinese companies welcomed Japanese technology and knowhow.

The latest cycle of increased tension is prompting some executives to talk about exiting China as a matter of national pride as well as a business decision.

Shimada of Fuserashi likened China’s actions in the islet dispute to an invasion, citing it as a reason to pull out and focus on emerging markets elsewhere.

“There’s no need to do business at the price of your own territory being invaded,” he said. “It’s better if we can concentrate in other emerging markets, like Brazil, to make up for the Chinese market.”

China’s failure to prevent anti-Japanese violence came as a surprise and has made the country too risky, said Matsumoto of Sumitomo Electric.

“None of us had expected what happened in September,” he said. “All of our board members now agree on the idea that we should move production out of China to other countries after we saw such big risks.”

Leaving China altogether hasn’t been mentioned as an option by any of Japan’s largest automakers, a sign that it’s unlikely their suppliers would relocate all production to other countries. More likely, the suppliers will reconsider plans to make parts in China for export.

“China remains an important market from which we can’t retreat, but when it comes to increasing investment, we may be more inclined to do it in other countries, such as Malaysia,” Kenji Nakakura, 64, Toyo Tire president, said in September.

The Osaka-based company resumed production Sept. 19 at its factory in Qingdao after suspending it for a day amid the anti-Japanese protests.

“Japanese carmakers don’t have much of an option, because the Chinese market is too important,” said Lin Huaibin, an automotive analyst at Global Insight Inc. “Carmakers have never said they are going to leave China, and if they stay, the parts makers will have to stay, too.”

Chinese and Japanese officials last week ended two days of talks. China reiterated that it “won’t cede even half a step on its sovereignty” over the chain of islets, Foreign Ministry spokesman Hong Lei said Nov. 5.

“To be honest, there is a gap between us,” Foreign Minister Koichiro Genba said. “I feel this is going to take some time.”

The dispute potentially could grow into a military face-off, according to a confidential report submitted last week to U.S. Secretary of State Hillary Rodham Clinton by a delegation of former U.S. officials.

Both Japan’s parts makers and China’s economy would lose from such a clash, said Shoichi Ito, a Kwansei Gakuin University economics professor.

“If China causes these industries to move out, it will be the equivalent strangling their own necks in the long term, as China is undergoing the transition from labor-intensive to high value-added industries,” said Ito, author of “Labor Markets in Modern China.” “The impact would be traumatic.”

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