As the economic interdependence between Japan and China deepens, Japan needs to realize a “mutually beneficial strategic relationship” — the goal that the two countries have agreed to jointly pursue. The agreement to pursue such relations was first struck when Prime Minister Shinzo Abe had a summit in Beijing with Chinese President Hu Jintao last fall. It was reaffirmed when Chinese Premier Wen Jiabao visited Tokyo and met with Mr. Abe in April. Leaders of both countries need to try to solve political issues by fully considering the fact that the two countries’ economies are intertwined with each other so much that one cannot progress without the other.

For the first time, China, excluding Hong Kong, became Japan’s biggest trade partner in fiscal 2006, displacing the United States. If Hong Kong is included, China has been Japan’s largest trade partner since fiscal 2004. Trade volume between Japan and China, excluding Hong Kong, stood at 25.42 trillion yen in fiscal 2006, nearly 300 billion yen more than the trade volume between Japan and the U.S. Japan’s exports to China jumped by 21.2 percent to a record 11.31 trillion yen, while Japan’s imports from China increased by 13 percent to a record 14.11 trillion yen, leading to a Japanese trade deficit of about 3 trillion yen.

Japan and China appear to have a mutually beneficial international division of labor, with Japan exporting knowledge- and technology-intensive products and China exporting labor-intensive products. It also must be remembered that although Japan’s trade deficit continues, imports include products produced in China by Japanese firms.

Bilateral ties are not problem-free. There remains, for example, a dispute over gas development in the East China Sea. Although progress toward a solution will be difficult, the two countries must persevere in their efforts to find a compromise so that they can jointly develop the natural resources in the area. As Mr. Abe and Mr. Wen agreed, cooperation in energy development and environmental protection would be an important way to co-prosperity.

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