By Hideyuki Sano

TOKYO (Reuters) – Concern that China Evergrande may default https://www.reuters.com/world/china/china-evergrande-fears-consume-investors-awaiting-trading-2021-09-21 on its mountain of debt hit shares of toilet maker Toto and other Japanese firms that are seen vulnerable to a further slowdown in China’s property development.

Toto’s loss of 6.1% was extended to 14.8% on Tuesday due to Evergrande being perceived as a risk. Investors fear that Evergrande could not pay its debt payments later in the week.

“There are rising and widely reported concerns about fund flows at leading local developer China Evergrande Group, whose business scale suggests to us it is very likely one of TOTO’s major customers,” said Arisa Katsuyama, analyst at Morgan Stanley (NYSE:).

She said that the year-to-date number of debt defaults in China by real estate firms, including China Evergrande Group, has exceeded the total figure over the last 10 years. This is due to tighter regulation. Investors should also consider the possibility Toto might have to reserve loan losses.

China was responsible for 30% of Toto’s profits last year, but the spokesperson stated that it couldn’t comment on particular transactions or whether Evergrande is involved.

Daikin, an air conditioner manufacturer, was also affected by the chaos.

In the most recent financial year, almost a quarter of Daikin’s air conditioning sales were from China. This compares to between 13-16% and 16% in prior years.

Nippon Paint Holding, the paint maker, fell 7.5%. China is Nippon Paint Holding’s largest market.

Construction machine manufacturers have suffered from long-standing benefits of the Chinese construction boom. Hitachi (OTC;) Construction Machinery lost 5.4% while Komatsu (OTC,:) fell 5.5%.

Investors also dumped SoftBank Group, a big investor in Alibaba (NYSE:) and other Chinese tech firms, on fears Beijing will continue to tighten its grip on them.

SoftBank Group shares fell 5.0% on Monday as U.S. listed Alibaba shares reached a 2-year low.

Matsui Securities senior strategist Tomoichiro Kubota stated that more damage may be done to other companies, if China’s slowdown is more apparent.

It seems that Chinese authorities have begun to curb extravagant spending, which appears to be supported by the Chinese public. This is a resemblance with Japan’s post bubble era when high house prices were considered to be bad for the common man.

Although many Japanese businesses rely on Chinese buyers, Japanese institutional investors only have a limited amount of exposure to Chinese assets.

Japan’s largest investor, Government Pension Investment Fund, (GPIF) had 9.673 trillion yen exposure to Evergrande at March. This included 5.9 billion yen bonds, 3.7 billion yen stocks and 5.9 billion yen bonds. Its assets total 186.1 trillion yen ($1.70 Trillion).

($1 = 109.53 yen)