Japan is informally considering the establishment of a high-level comprehensive forum for discussing economic issues with China as early as next year to promote policy cooperation in a wide range of areas, government sources said Thursday.
The forum, if actually set up, would cover not only trade and investment but also macroeconomics, finance, industrial cooperation and other areas, the sources said.
China already plays an increasingly important role on the global trade stage, a role that will grow in stature by the end of this year or early next year when the country formally enters the World Trade Organization.
China is Japan's second largest trading partner, after the United States, with two-way trade reaching well over $80 billion last year. Japan is also one of China's major export markets, along with the U.S.
According to the government sources, the Sino-Japanese forum would be modeled on a comprehensive mechanism for economic talks that Japan has set up with recent U.S. administrations, including that of U.S. President George W. Bush.
Said a senior government official: "Once China is admitted to the WTO, Japan will be able to try to resolve any future bilateral trade disputes with China under the WTO's dispute-settlement procedures. But that will be the last resort.
"While promoting economic-policy cooperation in a wide range of areas, the Sino-Japanese dialogue forum would also serve to nip in the bud potential trade and other frictions before they are politicized too much. It would also help smooth bilateral economic relations."
The idea for establishing the forum is still on the drawing board of working-level officials from government ministries, including the Ministry of Economy, Trade and Industry, the Foreign Ministry and the Finance Ministry, the sources said. Japan has already sounded out China on the idea informally and received a positive response.
The Chinese economy has continued to grow at a robust pace over the past decade and is now the world's seventh largest in terms of gross domestic product, the total output of a nation's goods and services.
A WTO working group formally agreed on the terms of China's WTO membership earlier this week, paving the way for the country's entry into the body at the end of this year or early next year.
Once China joins the 142-member, Geneva-based body that sets global trade rules, it will open its markets to more foreign trade and investment in sectors raging from banking and automobiles to retailing and telecommunications.
Developed economies see huge potential in doing business with a WTO card-carrying China and its 1.3 billion consumers.
At the same time, however, both developed and developing economies see a major threat from an ascending China and its 1.3 billion low-paid laborers.
The threat has already materialized in low-technology sectors such as agriculture and textiles. Japan, for example, has slapped import curbs on three Chinese farm products, and towel, tie and other textile makers are screaming for the government to cap Chinese imports of their products as well.
As China's economy develops from the bottom up, the country is also expected to become highly competitive in high-technology fields.
What to do?
Japanese industries, used to government protection from foreign competition, have embarked on a new strategy by calling for a revaluation of the yuan -- China's currency -- to weaken China's international price competitiveness.
Their fear appears to be justified. Japanese economists and industry officials now agree that talk of "cheap, poor-quality" Chinese goods is a thing of the past. Chinese industry in the past few years has significantly improved its competitiveness on the global marketplace not only in price but also in quality.
Said one Japanese trade official: "It's just like relations between Japan and the U.S. of the 1970s and 1980s. While economic relations between the two countries continued to become closer and more dependent on each other, the U.S. perception of Japan as a threat to its economy also grew gradually."
The U.S. perception of the Japanese economy as a threat peaked in the late 1980s, when the U.S. was widely believed to have lost much of its global competitiveness and Japan's clout grew exponentially along with its asset-inflated bubble economy.
The bubble burst in 1991, and after a "lost decade" Japan continues to struggle to revive its economy.
Now it appears to be looking ahead to its future trade dealings with China.
"We need some early-warning mechanism -- similar to what we have had with the U.S. since the 1980s -- to manage economic relations with China in order to prevent any future individual trade disputes from becoming political ones," the official said, asking for anonymity.
"For Japanese companies to maintain their international competitiveness and survive the increasingly tough international competition amid globalization, it will become even more imperative for them to invest in China to take advantage of cheap labor there and strengthen industrial cooperation with their Chinese counterparts."
But it will likely take some more time for Japan to realize the comprehensive economic-dialogue forum with China, given the fact that bilateral relations are now at one of their lowest points since the two countries established diplomatic ties in 1972, due to nasty political and economic issues.
Beijing was infuriated by Prime Minister Junichiro Koizumi's visit to Tokyo's Yasukuni Shrine in August and the Japanese education authorities' approval in April of a controversial history textbook for junior high schools authored by a group of nationalist historians.
Yasukuni Shrine is dedicated to Japanese war dead plus former Prime Minister Hideki Tojo and other Class-A war criminals. Beijing and other Asian neighbors, including South Korea, have condemned the textbook in question for allegedly glossing over Japan's wartime atrocities.
On the economic front, there's the tit-for-tat trade war. China has responded to Tokyo's trade ceilings on agricultural products, imposed in April, by slapping 100 percent tariffs on some Japanese industrial goods, including automobiles, in June.
The sources said Japan will formally present a proposal regarding the forum to China once it succeeds in repairing and putting soured bilateral ties back on a normal footing.
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