The diplomatic row and anti-Japanese sentiments in China over the Senkaku Islands dispute may become a prolonged issue as long as perception gaps remain between the two countries, a scholar said at a recent seminar in Tokyo.

Aside from the sheer question of sovereignty over the island chain in the East China Sea, Japanese and Chinese leaders take opposite views on how the strained ties can be restored, said Zhu Yan, a professor of political science and economics at Takushoku University in Tokyo. The issue will not just go away — as might be expected in some quarters in Japan —with China’s leadership change last month, he said.

Zhu, an expert on Chinese and Asian economic issues, was speaking at a seminar organized by the Keizai Koho Center on Nov. 21.

In September, the Japanese government’s nationalization of the Senkaku Islands, which is also claimed by China, triggered a series of violent demonstrations that targeted Japanese business and diplomatic establishments in many Chinese cities. The diplomatic war of words between government leaders at the United Nations has since been replaced by a chill in top-level contacts, while repeated intrusion of Chinese vessels in the waters around the Senkakus have raised maritime tensions.

The strained ties have already done significant economic damage to Japanese businesses, but political leaders or the mass media in Japan do not seem to realize why China has reacted so strongly to the action taken by the Japanese government, Zhu said.

Beijing is angry because it thinks that the purchase of the islands by the government of Prime Minister Yoshihiko Noda — plus its refusal to acknowledge even the existence of a territorial row with China — undermines the basis of relations with Japan over the four decades since the 1972 normalization of diplomatic ties, he said.

Beijing also feels that its protests have been ignored by Tokyo and, therefore, will continue to use every means at its disposal to express its anger until the Japanese government admits that a row over the Senkakus does exist, the scholar said.

Japan, on the other hand, believes that the purchase was a better choice than letting the owners of the islands sell them to the Tokyo Metropolitan Government, which would have further complicated matters, he noted.

Japan thinks that it has given explanations to China in advance, Zhu said. The Chinese reactions were so strong that some officials, the media and scholars in Japan even theorize that the Chinese leaders were playing up to nationalistic sentiments at home as part of their inner power struggles, or that the demonstrators were more angry toward their own corrupt government, he said.

Based on such recognition, Tokyo believes that relations with China will naturally stabilize once leaders in Beijing calm down, and that it does not need to make any overtures to improve the ties but wait, Zhu said.

Such gaps in perception, he said, have left the dispute dragging on for months.

Meanwhile, Japanese firms in China have suffered substantial damage, including the losses from the destruction in the demonstrations, suspension of retail and manufacturing operations, or boycott of Japanese products. Exports to China in September declined 14 percent from a year ago and 11.6 percent in October, although China-bound exports had been falling even before the dispute due to slowdown in the Chinese economy, he noted.

The most serious impact, Zhu said, is the broad atmosphere among the Chinese that they do not want to deal with anything Japanese in the wake of the demonstrations.

Zhu said there is no evidence of any Chinese government-led move so far to use economic tools to put pressure on Japan over the Senkakus. Still, there are some government officials and scholars in China who advocate such an action, he said. They believe that, economically, Japan depends more on China than China depends on Japan, so Japan stands to lose more if bilateral economic ties are hurt, he added.

It is believed in China that a growing China can withstand any losses from disruptions to business relations with Japan, while the damage will be heavier on Japan, Zhu said. Even though the two countries depend on each other in the industrial supply chain, these officials and scholars think the parts and materials from Japan can be substituted with those from other sources, he said. And ultimately, they believe that Japanese firms will never withdraw from the Chinese market no matter how strained relations become, he added.

Here again, lawmakers, scholars and the mass media in Japan tend to think otherwise — that Japanese firms are in a superior position in the supply chain and that China would ultimately suffer more from damaged economic relations, Zhu noted.

Statistics show that while Japan’s share in Chinese total exports has been declining, China-bound sales account for a growing portion of Japanese exports. China overtook the United States as the No. 1 destination of Japanese exports amid the 2008-2009 global financial crisis, and, combined with Hong Kong today accounts for 25 percent of Japan’s exports, Zhu said.

Japan has been a major source of foreign direct investments in China, but not a predominant player, he said, noting that its China-bound investments have been of a similar scale to those from South Korea, Singapore, Taiwan and the United States.

Following the anti-Japanese demonstrations, Japanese firms began to review their business strategies in China. In the face of the growing perception of the risk of doing business in China, as well as the recent sharp slowdown in the country’s economic growth, some companies are reportedly having second thoughts about new investments and moving to scale back their current operations.

Zhu said a complete pullout from China would not be a wise decision, given that China will continue to be an important market for Japanese businesses even if its growth decelerates further. Still, Zhu said that even without the Senkakus dispute and the anti-Japanese movements, it would be inevitable for Japanese firms operating in China to adjust their strategy to the changing economic environment in the country.

In the 1970s and 1980s, Japanese firms aggressively invested in Taiwan, Singapore and other Southeast Asian economies and shifted their manufacturing operations there. Their local units still exist today, but most of them have shifted to other business segments, including research and development, sales support and post-sales service, while the manufacturing operations have been moved to other countries, Zhu said, adding that Japanese investments in China will ultimately have to make such adjustments.

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