Welcome to instalment XXV (January 2021) 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.
Japan, like other major economies, is struggling to rebuild its coronavirus-hit economy as a third wave grips the country. It faces an economic emergency after annualized second quarter GDP plummeted almost 30 percent – the largest contraction in its post war history. China, on the other hand, has bucked the global trend, showing a strong post pandemic rebound. China’s economy grew 2.3 percent becoming the only major country to log growth in 2020. This economic disparity will undoubtedly cast Sino-Japanese relations in a new light in the year to come.
The bilateral trade relationship between China and Japan has blossomed over the past 45 years to a tune of some $317 billion in total. China is Japan’s largest trade partner and Japan occupies second place for China, behind only the United States. This interdependence is the ballast that keeps overall relations afloat during periods of intense political conflict. As China’s economy has grown in size and sophistication the Japanese trade deficit with it has also diminished, reflecting the growing importance of the Chinese market as an export destination. The health of the Chinese economy has in fact come to exert a significant impact on Japan’s overall trade profile.
With Japan mired in recession and China quickly recovering, the latter’s economic influence will only grow. Prior to the coronavirus pandemic, Japan was already suffering from sluggish economic growth and the economy is not expected to bounce back to pre-pandemic levels until early 2022. The immediate outlook moreover remains bleak due to the latest restrictions on citizens’ movements and the country’s lagging vaccination drive.
On the other hand, the Chinese Communist Party’s efforts to control the coronavirus pandemic has featured brutal lockdowns and rigorous testing. While these countermeasure have imposed a heavy burden on residents they have proved successful in allowing China’s economy to recover quickly, logging a remarkable 6.5 percent growth rate in the final quarter of the year. A recent outbreak centered on the province of Hebei is likely to be only a temporary and limited setback.
Japan’s strong economic links to China will thus be crucial to its economic recovery. But what does the increasing importance of the Chinese market mean for the overall China-Japan relationship? In the past Chinese President Xi Jinping has explicitly stated that fostering closer economic ties with the rest of Asia has a political purpose, namely to “create a closer network of common interests and bring the converging interests to higher levels”. This is what renowned Chinese scholar Shi Yinhong calls “strategic economy” – the use of economic means to boost China’s influence in the region. By sharing the fruits of China’s economic growth with its neighbors, Beijing hopes to offer them a stake in stable bilateral ties and ultimately to dissuade them from behaving “provocatively” in territorial disputes, for instance.
Beijing hopes to offer neighbors a stake in stable bilateral ties and to ultimately dissuade them from behaving “provocatively”
Japan has experienced first hand the consequences of such “provocations”. It was the target of informal restrictions on vital rare earth exports during the 2010 fishing boat collision incident and its own exports to China diminished noticeably after its nationalization of the Senkaku/Diaoyu islands two years later. Separating economic ties from security and political friction is now a major objective of Japan’s diplomatic engagement strategy despite growing concerns over the trajectory of the Senkaku/Diaoyu islands dispute.
China may thus hope that the appeal of its market, particularly amid unprecedented economic times, will temper any impulse Tokyo may have to more forcefully counter its expanding activities in the disputed waters of the East China Sea, or to enter an explicitly “anti-China” coalition with the United States. Japanese authorities, meanwhile, have sought to diversify their options by strengthening trade ties with allies through agreements with the European Union, the United States and the United Kingdom, as well as with members of the Trans-Pacific Partnership. Access to the Chinese market will nevertheless remain vital for Japanese businesses.
This is a key motivator behind Japan’s participation in the Regional Comprehensive Economic Partnership (RCEP), which may further increase the centrality of China to East Asia’s economic fortunes but has the benefit of binding it into a set of shared regional rules. It is, as Oba Mie puts it, “better than the alternative.” If Japan’s reliance on the Chinese market is bound to grow, it will at least try to actively manage the process of economic integration.