What people talk about at the Tokyo show: Not Japan, but China: Michael Dunne

TOKYO -- At the Tokyo Motor Show, conversations on the sidelines of the formal news conferences once again gravitated toward China. Talking about the possibilities in China tends to excite executives from Europe and the United States. But it usually creates a strange alchemy of hope and anguish among Japanese executives.

Japan needs the China market to sustain its domination in the global auto industry. China, however, is indifferent to Japan.

Fascination with the China market started when the Middle Kingdom first challenged Japan for sales leadership. Two years ago, Chinese bought 5.3 million vehicles, just shy of the 5.7 million cars and trucks sold in Japan.

This year, only 24 months later, sales in China are on track to surpass 8 million units. The Japan market will slip to 5.2 million units.

China's sales volume supremacy is now accelerating. By 2010, demand for vehicles in China is forecast to reach 11.5 million units. Japan, in contrast, will be muddling along under the 6 million mark. Part of the sales lethargy in Japan is due to the fact that cars are no longer considered "cool" by Japanese youth.

Japanese automakers understand, therefore, that they must compete and win in China. The trouble is, China takes Japanese people out of their comfort zone. When a Japanese car executive enters China, it is like an Ohio State Buckeye setting foot in the Big House. He might ultimately prevail, but he will never feel welcome or at ease.

That is because Asia's two powerhouses are cultural misfits. Japan is a nation that honors meticulous attention to detail, fastidious quality and modesty. In China, size, abundance and -- increasingly -- unchecked ambition, are the values that count. There is also some bitter history.

Japanese automakers want to win over Chinese customer loyalty -- just as they have done with Americans. The residents of the Middle Kingdom, however, feel ambivalent about Japan. "You know, we Chinese really don't like Japanese things" is the way the 20-something barber in Beijing put it to me earlier this week.

Considering the palpable animosity, Japanese brands have done a remarkable job of building market share in China. Led by Toyota and Honda, Japanese brands in 2007 have so far captured 26 percent of passenger car sales in 2007. For the full year, that will be equal to some 1.3 million cars -- and a big step up from the 800,000 units sold in 2005.

Japanese makes perform well particularly in China's southern provinces where patriotic sentiment is least strong. Toyota, Honda, Nissan and Mazda produce most of their cars in Guangdong, near Hong Kong. By happy coincidence for the Japanese, the southern region is also home to the most China's most affluent consumers. But as you work your way up the coast and north of the Yangtze River, Chinese customers tend to prefer German, American and Korean products.

Japanese brands have also gained ground in China by offering good value-for-money products, as has been their formula for success elsewhere in the world. Many Chinese customers wil, on the one hand, express disdain for Japan while on the other declare that Japanese products still offer the best value for money.

But as differences in quality across all makes narrow over time, Japanese car executives will need to develop innovative ways to continue appealing to Chinese buyers. From this perspective, the Tokyo Motor Show can be seen as a staging area from which Japanese automakers are unveiling their products at home, while keeping an ever watchful eye of the much-prized -- but potentially fickle -- Chinese car buyer.

Japanese manufacturers hope that many of the new products that bow at this week's show will gain approval in China. The top Japanese managers have probably come to understand that they can never "win" the China market. It will be a commendable feat if they can just manage not to lose it.

Michael J. Dunne is managing director of China Operations for J.D. Power and Associates.