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SHANGHAI - Major Japanese firms have temporarily shut factories and offices in China after angry protests flared across the country, the result of a territorial dispute that has triggered one of China's worst outbreaks of anti-Japan sentiment in decades.
The row between Japan and China, over a group of uninhabited islets in the East China Sea, has led to violent attacks on well-known Japanese businesses such as car-makers Toyota and Honda, forcing frightened expatriates into hiding and sending relations between Asia's two biggest economies into crisis.
Ratcheting up tensions further on Monday, Chinese state media warned Japan it could suffer another "lost decade" if trade ties soured. Japan counted China as its top trade partner last year, with total two-way trade of more than $340 billion.
"I'm not going out today and I've asked my Chinese boyfriend to be with me all day tomorrow," said Sayo Morimoto, a 29-year-old Japanese graduate student at a university in Shenzhen.
Protests broke out across dozens of Chinese cities at the weekend, some violent, in response to the Japanese government's decision last week to buy some of the disputed islands from a private Japanese owner. The move incensed Beijing.
Not just diplomats: shops, restos targeted, too
The protests focused mainly on Japanese diplomatic missions but also targeted shops, restaurants and car dealerships in at least five cities. Toyota and Honda reported arson attacks had badly damaged their stores in Qingdao.
Japanese electronics group Panasonic said one of its plants had been sabotaged by Chinese workers and would remain closed through Tuesday - a memorial day in China when it marks the anniversary of Japan's 1931 occupation of parts of mainland China.
Tokyo has warned its citizens about large-scale protests in China on Tuesday. Many Japanese schools across China, including in Beijing and Shanghai, have cancelled classes this week.
U.S. says not taking sides
Japanese Prime Minister Yoshihiko Noda, who met visiting U.S. Defense Secretary Leon Panetta on Monday, urged Beijing to ensure Japan's people and property were protected.
Panetta said the United State would stand by its security treaty obligations to Japan, but not take sides in the row, and urged both sides to exercise calm and restraint.
"It is in everybody's interest ... for Japan and China to maintain good relations and to find a way to avoid further escalation," he told reporters In Tokyo.
The dispute over the islands -- called the Senkaku by Japan and the Diaoyu by China -- intensified last week when China sent six surveillance ships to the area, which contains potentially large gas reserves, in response to Japan's purchase.
Beijing warns of sanctions
The overseas edition of the People's Daily, the main newspaper of the Chinese Communist Party, warned that Beijing could resort to economic retaliation if the dispute festers.
"How could be it be that Japan wants another lost decade, and could even be prepared to go back by two decades," said a front-page editorial in the newspaper. China "has always been extremely cautious about playing the economic card", it said.
"But in struggles concerning territorial sovereignty, if Japan continues its provocations, then China will take up the battle," the paper said.
Japanese Foreign Minister Koichiro Gemba said on Monday, after talks with Panetta, that Tokyo and Washington agreed the disputed islets were covered by the Japan-U.S. security treaty.
"I did not bring up the topic today, but it is mutually understood between Japan and the United States that (the islands) are covered by the treaty," he said after meeting U.S. Defense Secretary Leon Panetta in Tokyo.
Bad for both economies
Japanese electronics firm Canon Inc will stop production at three of its four Chinese factories on Monday and Tuesday, citing concerns over employees' safety, Japanese media reports said, while All Nippon Airways Co reported a rise in cancellations on Japan-bound flights from China.
China is Japan's biggest trade partner and Japan is China's third largest. Any harm to business and investment ties would be bad for both economies at a time when China faces a slowdown.
Qingdao police announced on the Internet on Monday they had arrested a number of people suspected of "disrupting social order" during the protests, apparently referring to the attacks on Japanese-operated factories and shops there.
In Shanghai, home to China's biggest Japanese expatriate population of 56,000, one expat said his family as well as other Japanese customers had been chased out of a Japanese restaurant on Sunday by protesters near the Japanese consulate.
Guangzhou police said on Monday, on an official microblog, that they had detained 11 people for smashing up a Japanese-brand car, shop windows and billboards on Sunday.
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