A Toyota dealership in Qingdao was burned by protestors in a dispute over an island chain claimed by both China and Japan.

General Motors and Ford Motor Co. have ended 2012 with all-time sales records in China — but the news is nowhere near as good for Japanese makers.

Stung by a dispute between China and Japan over a chain of uninhabited islands in the East China Sea, Toyota, Nissan and Honda have all suffered a sharp decline in sales in what has become the world’s largest automotive market.

While General Motors has yet to release its final figures for 2012, the maker already passed its previous peak by the end of November, the 2.59 million vehicles it sold for all of 2011. GM has set a goal of boosting sales in China to 5 million by mid-decade.

Ford, meanwhile, has confirmed its sales in China rose 21% last year, to 626,616, also an all-time high. The maker was a relative latecomer to the Chinese market but has been aggressively expanding both its product portfolio and production capacity over the last several years.

“Record 2012 sales highlight the positive response our customers have for our full portfolio of high-quality, safe, fuel-efficient and smart vehicles,” John Lawler, chairman and CEO of Ford Motor China, said in a statement.  “Their enthusiasm for Ford cars validates our aggressive plan to introduce 15 new vehicles, double production capacity and double our China dealership network — all by 2015.”

Chrysler has also been pushing into record territory, though its volumes have been much smaller than its cross-town rivals. That’s ironic because Chrysler was the first Western maker to build vehicles in China, or more precisely through its Jeep subsidiary. But its original operation was assumed by former partner Mercedes-Benz following the break-up of the ill-fated DaimlerChrysler AG.

Under new partner Fiat SpA, Chrysler is again making an aggressive push to expand in China.

Japanese makers were also slow to enter the Chinese market, in part to long-standing enmity between the two nations dating back to Japan’s brutal occupation of its neighbor during World War II.  That simmering disdain came back to a boil when the Japanese government decided to buy what it calls the Senkoku Island chain last September.

That set off rioting in China, the bigger nation also laying claim to what it calls the Daioyu Islands.  A number of Japanese-owned vehicles were destroyed and a Toyota dealership was even torched in what many observers believe were government-tolerated, if not sanctioned, riots.

Japanese industry executives had previously telegraphed the likelihood of declining sales in China which, they also cautioned, would hurt their earnings for the rest of the 2012 fiscal year – which closes on March 31, 2013.

Nissan took the biggest hit, sales declining 5.3% for calendar-year 2012, to 1.2 million vehicles. Nissan has been the most aggressive of the Japanese makers operating in China, among other things setting up the new Venucia brand with its partner there, Donfeng Motors.

Toyota suffered a 4.9% drop in volume last year, to 840,000.  Honda’s China sales slipped 3.1%, to 599,000.  Prior to the dispute over the Senkoku/Daioyu Islands, Toyota had expected to see a 10% jump in sales in China, reaching 1 million for the first time.

The market for Japanese products has begun to improve, Toyota China spokesman Niu Yu telling the Wall Street Journal, “Sales are getting better day by day, but it’s still hard to say when we can get back to the pre-protest level,” said.

But it’s unclear how quickly there will be a full recovery.  Nissan, for example, suffered a 41% drop in demand in October, shortly after the dispute began, but sales were still off 24%, year-over-year, in December.