Economic relations with China

Editorial

There are signs that economic cooperation between China and Japan, stagnant for the past several years amid frigid bilateral relations, is being revived.

One of the signs was a recent visit by the secretaries general of Japan’s ruling coalition parties — Toshihiro Nikai of the Liberal Democratic Party and Yoshihisa Inoue of Komeito — to Xiamen, Fujian province, in late December. There they met with Chinese Communist Party officials and issued a joint proposal that Japan and China seek out ways to cooperate on concrete projects under China’s “One Belt, One Road” initiative for cross-continental infrastructure investment. The two countries should make serious efforts in both economic and political fields to remove obstacles that hamper the strengthening of mutual cooperation.

In November, Prime Minister Shinzo Abe and Chinese President Xi Jinping agreed in their talks in Danang, Vietnam, to expedite efforts toward improving the bilateral ties. In his speech in Beijing last month, Chinese Foreign Minister Wang Yi, who used to take a severe public stance on Japan, expressed hope that relations will soon return to normal so that friendship between the two countries will get back on track.

Following these developments, the Japanese government told private sector companies Dec. 15 that it will actively push cooperation between the business sectors of Japan and China in third countries, including other Asian nations. Specifically, it mentioned Japanese-Chinese cooperation in building infrastructure such as environmental protection projects, construction of industrial parks and physical distribution networks, including railways. Financial authorities in Tokyo and Beijing have also agreed on a framework for Japanese companies to issue yuan-denominated bonds in China.

These moves, especially the government’s promise to support private sector business cooperation, should facilitate Japanese firms promoting business activities jointly with Chinese partners. That will be a boon for Japanese firms, which had come to worry there may not be any room for them to take part in infrastructure construction in various countries as Chinese enterprises, since around 2016, have been pushing aggressively on building ports and other infrastructure not only in Southeast Asia but in Central Asia, the Middle East and Africa, on the strength of their financial muscle.

The economic relationship between Japan and China plummeted following Tokyo’s nationalization in 2012 of the Senkaku Islands in the East China Sea, which touched off strong anti-Japan demonstrations in China. The amount of Japanese investments in China, which hit a peak that year, subsequently dropped sharply.

As bilateral ties continued to come under strain, Japan balked at taking part in the China-led Asian Infrastructure Investment Bank and in the One Belt, One Road initiative, which Xi is eagerly pushing. In recent months, the government gradually changed its attitude to the point that Abe indicated Japan is ready to cooperate with the One Belt, One Road project. Abe also made it clear that Japan may consider joining the AIIB under certain conditions.

Another factor that Japan must not ignore is the growing weight of China in the world of business. China has two gigantic IT firms that as of September each enjoyed aggregate market value larger than that of Toyota Motor Corp. It also has one of the world’s largest solar panel firms. Clearly the momentum of Chinese businesses on the world stage is getting ahead of Japan’s. Given this situation, it would be irrational for Japanese companies to shun Chinese businesses as they compete to win orders for infrastructure projects in the Asian market. They should instead cooperate with Chinese firms in ways that play to their own strengths.

Japanese businesses can also benefit from the fact that some Asian countries have become cautious about China-led infrastructure projects. Japanese companies participating in such projects can give these countries a sense of security.

Political relations between Japan and China remain strained — with the Senkaku standoff unresolved — even as they enter the 40th anniversary year of the Peace and Friendship Treaty of 1978. Economic cooperation should be pursued from a strategic viewpoint of helping to put bilateral ties back on track.