Welcome to installment XVI (April 2020) of Sino-Japanese Review, a monthly column on major developments in relations between China and Japan that provides a running commentary on the evolution of this important relationship and helps to put current events in perspective. Previous installments may be found here.
The coronavirus crisis is adding fuel to the geopolitical conflict between the United States and China with growing calls in the U.S. for the economic “decoupling” of the world’s two largest economies. Under current tensions, the announcement that the Japanese government’s coronavirus stimulus included 250 billion yen for companies seeking to move manufacturing out of China garnered widespread media attention. But this shouldn’t be seen as a sign that Japan will follow America’s lead and cut itself off from its neighbor economically.
The drive to diversify Japanese investments out of China and toward Southeast Asia in particular is hardly a new phenomenon. The crisis following Japan’s nationalization of the disputed Senkaku/Diaoyu islands in September 2012 accelerated a movement that had already kicked off in reaction to rising labor costs in the manufacturing powerhouse. More recently, the U.S-China trade war has also pushed Japanese companies to move some of their manufacturing activities southwards.
In Tokyo the effect of Chinese factory closures on medical supplies and other essential goods has reinforced concerns on the over-dependence on a single manufacturing source. While Japan aims to bring home the manufacturing of high value added products, Southeast Asian countries are also set to gain further from the diversification of low cost production. Indeed, Japan is eyeing the expansion of the Transpacific Partnership, which it dominates economically, to include states like Thailand, Indonesia and the Philippines.
Southeast Asian countries are set to gain from the diversification of low cost production
However, this is only half the story of Sino-Japanese economic relations. The other, now the more important half is the growing success of Japan in tapping into the massive Chinese consumer market. Many Japanese firms have seen rapid growth in sales in the country, only helped along by the warming diplomatic relations these last few years. Prior to the outbreak of coronavirus, Japan had become the most visited destination for Chinese tourists. A 2018 Japan External Trade Organization survey of Chinese consumers confirmed the popularity of Japanese goods, which were cited as first or second choice in many categories, ranging from beauty and health products to clothes or cameras. It also highlighted Japan’s improving image as a country and its extraordinary popularity as a tourist destination.
It’s not surprising that Japanese businesses have expressed high expectations for continued growth on their activities in China and that the Japanese government is relying on Chinese tourists to reach its ambitious targets for growth in the tourism sector. Needless to say, the coronavirus crisis has temporarily darkened the horizon on both fronts, but this is likely to be only a temporary blip, and there are no signs that the Chinese market will become any less important for Japan in the years to come. In fact, with the Chinese economy starting to reopen and while Western countries still face an uncertain future ahead, Japan’s most important economic partner is likely to become even more so at least in the short term.
There are no signs that the Chinese market will become any less important for Japan
Even if China loses popularity as a manufacturing base for Japanese businesses – except when it comes to supplying the Chinese market itself – and as a supplier of some crucial goods, there is very little to suggest Japan will turn its back on China economically. Pressure in that sense from Washington would face considerable push back in Tokyo in which case any talk of a spread of “decoupling” fever from America to its ally remains far fetched.