July 17, 2001
Japan-China relations are at a turning point in the following three ways:
First, the surge of the Chinese economy throughout the 1990s and de facto integration of the Japanese and Chinese economies have changed the bilateral relationship, not just at the economic level but also at the political level, including each nation's public sentiment towards the other.
The surge in Chinese economic growth has fueled the argument in Japan that China is an economic threat. Progress of reform in China has rapidly enhanced the competitiveness of Chinese businesses as well as China's attractiveness as a market, making China the number one recipient of foreign direct investment (FDI) in Asia, which, in turn, is rapidly pushing China up the technological ladder. Anxiety has started to grow in Japan that it might fail to win the competition with China in every industrial sector and that its domestic economy would suffer from substantial "hollowing-out". More specifically, a surge of imports from China to Japan by Japanese businesses that had invested in China for low-cost production provoked uncompetitive domestic producers to successfully seek safeguards measures on a few agricultural products, which, in turn, invited retaliation by China.
In addition, China's enhanced economic power has enabled it to increase annual military expenditure, which, together with issues related to Taiwan and activities of Chinese research ships in Japanese waters, is arousing a growing sense of threat of China from the viewpoint of security as well.
At the same time, China is reported to have shifted its diplomatic policy during the summer of 1999 and, considering that improved relations with its neighbors would better serve its national interest, has started to soften its tone on its so-called "history issue" with Japan and to place more emphasis on cooperation. Still, problems of Japan's view on history, exemplified by textbook issues, as well as the Taiwan issue, are nurturing Chinese grass-roots suspicion of Japan. This situation has presented China with a policy dilemma toward Japan.
For all their mutual suspicions, Japan and China will be neighbors forever. It is important for the two countries and the other countries in the region that they build a stable interdependence, where one's prosperity is in the interest of the other. Especially given China's rapid economic growth and the deepening bilateral relations, it is all the more urgent to consider how to eliminate the sources of distrust and build a stable and cooperative bilateral relationship.
The second change is the growing momentum for regional cooperation in Asia after the financial crisis of 1997.
The countries in the region were reminded of their interdependence by the "contagion" of the crisis, which enhanced the case for regional cooperation in East Asia. In addition, the sense of urgency with regard to economic reform and the steady progress of regional integration in Europe and the Americas prompted Asian countries to consider free trade agreements as a real policy option.
Under these circumstances, Japan has shifted its approach in promoting world trade liberalization away from exclusive dependence on the WTO and has begun to pursue a multi-layered approach, where regional economic integration complements the WTO. In fact, Japan started negotiations for an Economic Partnership Agreement with Singapore in January this year and is considering FTAs with Korea and Mexico.
China has also come to take a more positive attitude toward regional cooperation in Asia. For its part, China proposed a free trade agreement with ASEAN at the ASEAN plus China leaders' meeting held in Singapore in November 2000 and has already held a joint study meeting. China has changed its position towards the Asian Monetary Fund it had previously opposed. China hosted the first meeting of "Boao Asia Forum" in Hainan Province, which aims at promoting interaction between governments and industries and strengthening regional cooperation in Asia; it also assumed a posture of active engagement by having President Jiang Zemin attend the inauguration ceremony.
China has signaled that it would like to participate in regional economic integration as it worries that free trade agreements are being actively pursued even among its neighbors precisely when it is pushing hard to join the WTO. Although China does not yet seem ready for concrete actions, it would be important to note that China has started to show willingness to deepen cooperative relations with countries in Asia and to take joint actions to deal with issues of common interest.
Now, what kind of regional cooperation should Japan pursue and how can it be realized? What kind of obstacles need to be overcome for Japan and China, the two major Asian powers, to work together on regional cooperation or regional integration? And what kind of specific actions can they take together? These are important questions to ponder.
Thirdly, there was a shift in U.S. policy toward Asia by the new Administration.
The new U.S. Administration, as the basic premise of its Asia policy, positions China as its "strategic competitor" and Japan as the most important ally in Asia. One reason the U.S. attaches importance to Japan could be because it envisions a U.S.-centered multilateral security framework in Asia to replace the network of bilateral security relations with the U.S. as its hub to better deal with more diverse threats in the post-Cold War Asia. In this scenario, the U.S.-Japan alliance would be the core of such a framework.
Some might worry that these underlying changes could place the US-Japan alliance in confrontation with China. Such a confrontation would substantially increase tension in East Asia. It is not in the interest of Japan or China to have tense bilateral relations when they are deepening economic interdependence.
Nor would tension between Japan and China be desirable for the U.S. For the U.S.-Japan alliance to effectively function as the core of a future multilateral security framework in Asia, Japan needs to be trusted by other Asian countries and have a high level of coordination capabilities. It would be in the U.S.'s interest to actively support Japan to play such a role in Asia. There is a dramatic opportunity to overcome "history problems" in Asia, with the U.S.'s assistance, just as, shortly after the World War II, European reconciliation and integration was realized with U.S. support. If the U.S. support becomes available, would Japan and China be ready? What would be the condition for wholehearted reconciliation between Japan and China?
While I don't want to sound overly idealistic, the challenge remains: improving relations between Japan and China. This cannot be realized by diplomatic efforts alone. It requires Japan to become an economically strong and politically mature country. Japan needs to go through a revolution for the third time in its modern history. What is required of Japan from the economic logic is also justified from security or geopolitical viewpoints. Of course, it is not only Japan that should change. China has to change, too, including its political system, and its view of Japan. Meanwhile the U.S. might have to adjust its view of Japan, China, and perhaps Asia as a whole. From time to time, it is healthy to think beyond what's realistically feasible in the near future.
The Institute held a roundtable on Japan-China relations on April 13, 2001 in search of new people, economic realities, and common interests that would enable the two countries to move in a new direction. It will keep this venture in its forum, the Asian Network of Economic Policy Research (ANEPR), and through other vehicles. You are all welcome to join us.
Author, Naoko Munakata
Senior Fellow
Research Institute of Economy, Trade and Industry, IAI
e-mail: munakata-naoko@rieti.go.jp
In September, Ms. Munakata will become Senior Fellow at the Brookings Institution, Center for Northeast Asian Policy Studies (CNAPS), in Washington, D.C.
Editor in Chief, Nobuo Tanaka
Vice President, Senior Fellow
Research Institute of Economy, Trade and Industry, IAI
e-mail: tanaka-nobuo@rieti.go.jp
tel: 03-3501-1362 fax: 03-3501-8391
The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).
