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Time for Abe to put some eggs in the China basket

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As Shinzo Abe’s government bets it all on Donald Trump’s America, there’s new evidence that Xi Jinping’s China holds far more promise.

The idea that Asia’s biggest economy is a boon for Abe’s deflation-plagued population is hardly revolutionary. But historical animus and vast wage-level disparities have long kept the region’s two commercial powers apart. But a new survey from the Japan External Trade Organization, covering about 3,000 firms, finds that nearly 9 percent of those that either moved jobs to China, or planned to, are coming back to Japan.

The first reversal since 2006 reflects rising mainland wages that could accelerate this “reshoring” phenomenon, the flip side of offshoring. Over the past five years, monthly factory pay in major Chinese cities has risen between 20 and 30 percent. That’s partly why the pace of reverse imports from China between January and March was down 18 percent from 18 months earlier. The proportion of goods made in China for Japanese companies also is down to 42 percent from 50 percent five years ago.

The magnitude of these shifts is less impressive than the rate of change. Japan’s per capita income is still nearly five times China’s. On top of narrowing Japan-China wage gaps, though, a roughly 15 percent drop in the yen versus the yuan since 2013 increased incentives to produce in Japan again. It’s early days and sharp exchange rate changes could always throw the momentum back to offshoring. But two conclusions are worth drawing here.

First, Abe is putting too many eggs in the Trump basket. From Abe’s sprint to Trump Tower in November to Tokyo’s talk of creating new markets in the U.S. to SoftBank’s Masayoshi Son plowing $50 billion into Trumplandia, Japan has a Trump obsession, one that results in a China blind spot. Trump’s “America First” crouch means Japan and other economies are last in his world view. How many reciprocal investments is Trump prodding corporate America to make in Japan? Not one.

Trump International’s business practices over the decades demonstrate a zero-sum philosophy. No one is supposed to leave a negotiation completely happy. With his Twitter attacks on the yen and Toyota and suggestions that Tokyo pay more for U.S. protection while on the campaign trail, Trump showed how far he’ll go to have his way with Abe’s team. There’s zero chance Tokyo will get a good trade deal with the Trump White House.

Second, it’s high time Abe joined forces with President Xi Jinping. It’s a delicate balancing act, of course. Turning its back on Washington isn’t an option for Japan — not given North Korea’s threats, China’s military ambitions and Beijing’s bullying way in the Asian seas. But Abe’s reluctance to compartmentalize issues and tap Chinese opportunities is a long-term negative for Japanese living standards.

In recent years, the wage mismatch between the two economies made Tokyo reluctant to reach out. It’s still a concern, of course, and it’s naive to think China plays any fairer than Trump. China joining the World Trade Organization in 2001 didn’t disarm Beijing’s practices — Beijing bent the global system to its will.

Japan Inc. isn’t just competing with Chinese companies, but the Communist Party and its vast subsidies. It’s high time, though, that Tokyo sent a senior-level reconnaissance team to Beijing to broaden trade ties.

As this column has argued before, Abe should resurrect the Trans-Pacific Partnership that Trump scrapped and invite China to replace the United States. The TPP has its flaws. It’s more of a corporate land grab than boon for the common man and woman.

Embedded within it, though, are provisions against the activities of state-owned enterprises, intellectual-property protections and measures against environmental abuse, exploitative labor practices and graft that could morph China into more of a global stakeholder than just a shareholder. What better way for Xi to call Trump’s bluff than replacing him in the biggest business deal in history?

Abe should plan a summit with Xi immediately — perhaps invite South Korean President Moon Jae-in, too. They could neutralize the home-turf issue by meeting in, say, Singapore. There, leaders should agree to put World War II animus aside and strengthen trade links, be they lower tariffs, currency swaps or the first stock-connect scheme outside the greater China region. Beijing’s investment channels between Shanghai, Shenzhen and Hong Kong could be extended to Japanese investors.

Deeper tourism links should also be on the table, given the lift Japan’s gross domestic product is getting from traveling mainlanders. About 6.4 million Chinese visited Japan in 2016. Also last year, Chinese outbound tourist spending hit $261 billion, a fifth of the global share. Japan wants to pull more of those billions its way, both now and going forward. As Japan races to join Asia’s casino boom, it’s really courting mainlander to gamble, but also to pump cash into hotels, shopping centers, eateries and transportation businesses.

Trump’s presidency is going off the rails with each passing day. Xi’s isn’t. For all his challenges with debt bubbles and slowing growth, Xi’s administration will be around long after Trump is back doing reality television. Abe may want to look at the reshoring momentum that promises to lift Japanese growth and give China’s Xi a call.

Tokyo-based journalist William Pesek is the author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”