Shared destiny bound to bring neighbors together

China's policy has been consistent, but Japan chooses a path of mistrust, decoupling and military expansion

The late Harvard University professor Ezra Vogel was well acquainted with those in top political and academic circles in both China and Japan, so he knew a thing or two about their interdependence.

In his final book, no doubt a product of his life's passion, China and Japan: Facing History, he argued that the two countries had a shared responsibility and interest in global economic development. The long-tenured academic, who also briefly served in the US government, issued a warning: "Without acknowledging and ultimately transcending the frictions of the past and present, tense relations between China and Japan jeopardize global stability."

In fact the world's second- and third-largest economies have been central to the formidable economic progress of postwar East Asia, and their closely intertwined collaboration, although sometimes marred by political disputes, has allowed the wider region to flourish.

Wang Qi, a researcher of East Asian Studies at the Chinese Academy of Social Sciences in Beijing, says: "'Hot economics, cold politics' has been a phrase frequently used to describe the Sino-Japanese ties, and the fact that their hot trade and economic relationship is being tested by politics is often a topic of discussions. But little explanation has been given as to why this is so, why there have been robust economic exchanges even while Beijing and Tokyo suffered from political mistrust, territorial disputes and Japan's misinterpretation of history.

"To make a long story short, economic resilience between China and Japan lies in the very basic fact that their engagement is complementary and mutually beneficial. More specifically, Japan helped China in its early stages of reform and opening-up, and in return China's gradual economic openness to the outside world provided countries including Japan with important opportunities to expand exports and share the dividends of China's development."

Present-day economic ties between China and Japan date back to the late 1970s, when Japan used its expertise gained from rapid economic growth and government loans to help China develop its infrastructure and pursue industrial projects.

One example of this collaboration is Panasonic Corp of Japan, which, like many other Japanese investments in China, promoted flows of talent, skills and technology while laying the foundation for Japan's huge presence in China's industrial and consumer markets.

When then-Chinese leader Deng Xiaoping visited a factory belonging to Panasonic in Osaka in 1978, he asked Konosuke Matsushita, the company's founder: "You are called the 'god of management'. Will you help us modernize our economy?"

Matsushita thought for a while and said yes, which proved his farsighted vision — even though he did not live to see the fruits of that bargain.

In 1987 Panasonic established Japan's first Chinese joint venture in Beijing, first training 250 assembly line workers in Japan for six months before beginning production. Today, with about 52,000 employees and about 80 subsidiaries in China, Panasonic's Chinese market accounts for $16 billion, or one-third of the company's business, including sales within China and exports to other countries.

Tetsuro Homma, who has seen the story play out since the beginning and is now chief executive of Panasonic's China and Northeast Asia Company, said the launch of this company in 2019 demonstrated that Panasonic is looking at being present in China for the coming 10 to 20 years.

"The Japanese manufacturing industry could not survive globally without being present in a market as big as China's," Homma said.

"Being able to compete in China is a ticket to competing in the global market."

Ups and downs

Over the years, the two neighbors have managed to maintain good economic interactions despite ups and downs in political relations. However, that began to change in 2018 when a trade conflict initiated by Donald Trump, then-president of the United States, had an effect on the Japanese government.

Japan chose to side with the US by heavily politicizing economic activities with China, including in effect banning the use of communications equipment made by the Chinese companies Huawei and ZTE.

The current US administration of President Joe Biden also focuses on using economic security as a political weapon and is urging its allies to side with it against China. Japan, which has been caught up in the rivalry, appears more enthusiastic than ever to align itself with the US on regional geopolitical and economic confrontation, even at the expense of its economic ties with China.

Wang said: "The government of Japan's Prime Minister Fumio Kishida has been aggressively promoting the so-called economic security concept, with the Japanese parliament passing an economic security bill in May aimed at protecting technology and reinforcing critical supply chains. Such actions have led many to believe that Japan is using economic security as an excuse to shut out China."

However, despite attempts by some Japanese policymakers to bring about what amounts to an economic decoupling with China, there is an apparent gap between the rhetoric and the way companies are going about their business in China. Despite the noise in some quarters, economic ties between the neighbors remain robust and indeed arguably stronger than ever.

To begin with, China is Japan's biggest trading partner, the value of trade having grown 113-fold since 1972 to $371.4 billion last year.

Just how resilient the economic interdependence between the two countries is has been demonstrated in the three years since the COVID-19 pandemic broke out, with China's share of overall Japanese trade reaching an all-time high in both total trade and imports in 2020. In that year, China surpassed the US as the No 1 importer of Japanese goods, and in the first half of this year, Japan's imports from China rose 2.4 percent, a record high for a six-month increase.

As part of the decoupling mentality, the government in Tokyo offered to pay Japanese businesses to shift production back home or into Southeast Asia. However, according to a survey conducted by the Japan External Trade Organization last year, covering 679 branches and companies in China being managed by Japanese conglomerates, only 3.8 percent said they planned to shrink their Chinese operations or withdraw from the country in the next one or two years, the lowest figure since 2010.

According to another survey, conducted by the newspaper Sankei Shimbun in July, of 118 Japanese companies questioned, more than half said business with China should remain as it is or continue to develop. Not one company said a significant distance between China and Japan was needed.

"Japan's alliance with the US is a linchpin of our diplomacy, but we should not isolate China," said Makiko Tanaka, who served as Japan's foreign minister from 2001 to 2002. "We are just banding together and being confrontational toward China."

Yasuo Fukuda, a former Japanese prime minister, was more straightforward, saying that the US and Japan should consider carefully "whether global trade works better by excluding China".

However, there are still some politicians in Tokyo who align themselves with a Cold War mentality rather than being attuned to widespread public sentiment and ideas that find favor in economic circles.

As a result, in its sweeping defense policy plan released this month, Japan labeled Beijing as being the "biggest strategic challenge", even though Kishida had told Chinese President Xi Jinping a month ago in Bangkok that "Japan and China pose no threat to each other ... Japan could hardly achieve development and prosperity without China".

Significant change

The three defense documents, namely the National Security Strategy, the National Defense Program Guidelines and the Mid-Term Defense Program, overturned Japan's pacifist postwar strategy and set out aims for Japan to have one of the world's largest military budgets.

According to the five-year plan, Japan will not only acquire counterstrike capabilities, a significant departure from its pacifist Constitution, but will also spend 43 trillion yen ($313 billion) over the next five years to strengthen its military, buying cruise missiles capable of striking its neighbors and developing hypersonic weapons among others. This will bring Japan's military spending to about 2 percent of its GDP, a big change from its practice of the past 60 years of military spending accounting for 1 percent of its GDP.

The move toward remilitarization and the signal that this move has sent out have drawn strong responses from its neighbors in Asia.

"Historically, Japan has stepped into the wrong path of militarism, conducted aggression and expansion, and committed crimes against humanity," a spokesperson for the Chinese embassy in Tokyo told China Daily.

"It had brought serious disasters to our region and to the world. This time Japan has significantly changed its security policy and strengthened its military capabilities. It (suggests) that Japan is walking away from a peaceful development track and will inevitably invite concern and opposition of all peace-loving people.

"We solemnly urge the Japanese side to learn lessons from the past, not to use the so-called China threat to cover its own military expansion, and return to political consensus between China and Japan that we are mutual partners and we do not pose threats to each other. Japan needs to avoid becoming a troublemaker and a disrupter of regional security and bilateral relationships."

Contrary to Japan, which has shown a clearly hostile escalation in its national strategies on China — from "worry" to "serious concern" and "grave concern" to "the biggest strategic challenge" — China's policy toward Japan has been consistent.

Politically, as Xi said when he met Kishida, China emphasizes the principles of the four political documents the two countries have signed and believes that the consensus reached by Beijing and Tokyo that the two countries should "be partners, not threats" must be turned into concrete policies.

"China does not interfere in other countries' internal affairs, nor does it accept any excuse by anyone to interfere in its internal affairs," Xi told Kishida.

Economically, Xi said, China and Japan should "step up dialogue and cooperation in keeping the industrial and supply chains stable and unclogged, so as to realize complementarity and mutual benefits at a higher level".

Wang in Beijing said Xi's report to the 20th National Congress of the Communist Party of China this year expounds best on what China will do to solve economic challenges, while at the same time contributing to the world economy.

"It is a solemn commitment to the international community, and it applies to not only economic cooperation with Japan but also to China's business activities with other countries."

In the report, Xi said China adheres to the correct course of economic globalization. It strives to promote trade and investment liberalization and facilitation; advance bilateral, regional and multilateral collaboration; and boost international macroeconomic policy coordination. It is also committed to working with other countries to foster an international environment conducive to development and create new drivers for global growth. China opposes protectionism, the erection of fences and barriers, decoupling, the disruption of industrial and supply chains, unilateral sanctions and maximum-pressure tactics.

Echoing the report, Yuki Izumikawa, head of the business department of the Japan Association for the Promotion of International Trade, said anti-globalization, populism and nation-first policies cannot solve the challenges humanity faces. Rather, the notions of "common prosperity" and "building a human community with a shared future" that Xi has proposed are the correct solutions, he said.

"China is the world's second-largest economy and the world's largest developing country. Globalization without China is fake globalization, and the real purpose of globalization is to realize a more just and equal world. Therefore, globalization cannot be separated from China's leading effort."

Izumikawa said he hopes China will play a greater role in promoting "real globalization" or the "new globalization".

Victim of protectionism

In fact, Japan itself is a victim of protectionism and unilateral sanctions and should know better what is good for all and what it means to "take from others by force and subterfuge".

US export restraints in the 1980s on motor vehicle and semiconductor exports from Japan dealt a heavy blow to its major car and electronics companies. The Plaza Accord in 1985 resulted in a very strong yen and further hurt Japanese exporters, which ended with Japan falling into the abyss of what is widely called the lost three decades.

Wang said that it was amid US sanctions that China stepped in to provide low-cost labor and materials to Japanese companies as they aimed to increase productivity by streamlining operations, closing inefficient domestic factories and curtailing relationships with suppliers that lacked key technologies.

"During the process, China gradually permitted Japanese companies to enter business areas in which entry had traditionally been banned, and gave them preferential treatment, which they had been unable to enjoy before, through deregulation, approval and licensing."

For foreign investment in the past, China was just a raw materials provider, Wang said, but now the rapidly growing country offers a more profitable market than mature economies, and more profit means more money for research and development to stay ahead of the competition.

Before the pandemic, Vogel wrote: "More goods are exchanged, and more people travel between the two countries (China and Japan) in a single day now than in an entire decade during the centuries of the Qing Dynasty (1644-1911) and the Tokugawa Period."

It is expected, then, that such unprecedented economic and cultural contact will allow the relationship between the two countries to evolve beyond political differences and bring the two closer together, so that they can live peacefully and respectfully and profit alongside one another.