The China-Japan Equation: Economic partners, Strategic rivals by Claude Meyer*

The warming-up of political relations between China and Japan is noticeable since the new Prime Minister Shinzo Abe’s visit to Beijing on 8th October 2006. This slight improvement should not however obscure the seriously deteriorating relations between the two countries since several years, despite intensification of economic exchanges. Indeed the structural reasons for this antagonism persist: although it is partly explained by the collision of conflicting memories and resurgence of nationalisms, its underlying cause lies elsewhere, namely in the clash of two ambitions. If the relationship of these bound economic partners remains fraught with such mistrust, it is because they are actually rivals for conquering the leadership in Asia.

Flourishing economic relations in a backdrop of political divorce

Japan is henceforth the leading supplier of China, with China itself being its leading trading partner. The trade flows between the two countries doubled between 2002 and 2005 and this trend should continue, as the two economies are so complementary, at least in the short term This complementary nature of the Sino-Japanese exchanges is the outcome of the gap in the development of the two economies at the technological level and hinges on the interplay of their comparative advantages – technological leadership for Japan, manpower costs for China - that structures a mutually beneficial division of labour. The two economies are not only complementary but also interdependent through direct Japanese investments in China that have doubled since 1999 to reach in total 53 billion USD at the end of 2005; the dependence however stands out more for China in this regard, as the ability of its industries to develop rapidly relies heavvilyon technological contribution of foreign companies.

The contrast between these flourishing economic relations and political divorce is only more striking, especially since 2001. Two main reasons, apart from territorial disputes and competition for accessing energy resources, could explain this deterioration. The divergent interpretation of a conflictual past first of all: the clash of these conflicting memories concerns Japan’s militaristic period and exactions committed in Asia, for which Tokyo considers having offered a clear-cut apology, while China reproaches it for having done it half-heartedly. According to Beijing, it is not an authentic remorse which is at work in Japan but revisionist drifts, such as the approval of some revisionist school books and the Prime Minister Koizumi’s visits to Yasukuni sanctuary, where soldiers who gave their lives away for their country are honored, but also some war criminals. The second reason for the political divorce is the antagonistic assertion of national identities triggered by the new geopolitical context in Asia and the respective international positioning of the two countries, 'pacific rise' for China and aspiration to 'normalization' for Japan. Beyond the rhetoric, the Chinese Communist Party knows that its legitimacy, and therefore its survival, depends on two essential factors, namely pursuing strong economic growth and maintaining social cohesion despite widening income disparities. In order to strengthen this cohesion, the authorities exploit national sentiment and people’s endemic nippophobia. Japan, for its part, wants to strengthen its international stature and aspires to become a 'normal' country, equipped with a defence capacity in line with its power and the threats to its security. Such change triggers a shift to the right of the political world and public opinion concerning defence issues and foreign relations, especially with China. Thus an animosity and mistrust of China in Japan corresponds to the anti-Japanese sentiments among the Chinese; the Chinese 'patriotism', nourished by the country’s successes and nippophobia, henceforth collides with an assertive Japanese 'patriotism' that would like to regain all the means of power to counter the increasing influence of China in Asia.

Sino-Japanese rivalry for leadership in Asia

Beyond a conflictual relationship to memories of the war and antagonistic assertion of national identities, it is the clash of ambitions which really brings the rivalry between the two countries, as both of them aspire to the leadership in Asia. Each one of the two dominant powers has strong assets to lay claim for such a leadership, but neither of them meets all the requirements for an unquestionable hegemony on the economic, diplomatic and military fronts. If China could maintain at the current pace its economic expansion, its diplomatic dynamism and the modernization of its armed forces, presumably, its domination in Asia would be unavoidable by the next quarter century. Japan cannot bring itself to such a dialectic reversal of the turbulent history linking it to the Empire of the Middle. It really hopes to curb these Chinese ambitions thanks to its economic leadership and the stepping up of its regional influence, especially in security matters.

Its economic influence in Asia is indeed overwhelming and it is probable that its lead over China will endure for the next two or three decades. Its industrial strength has come out stronger from a long period of crisis which has imposed thorough restructuring of the industrial companies and revitalization of the economic system. The ongoing technological innovation is at the centre of the Japanese industry’s outstanding international competitivity, even against competition from the new industrialized countries of Asia. Moreover, its financial strength is still intact, in spite of the crisis of the 1990s: it is by far the first creditor in the world, its financial system has stabilized and its banking groups are among the world global leaders. This domination has however its limitations as the long term growth prospects are poor, in the light of the Japanese economy’s maturity level, very high public sector debt and rapid ageing of the population. China on the contrary could register an average growth of 7% for the next two decades and thus catch up with Japan. It has sound assets to achieve this: large savings by economic agents, massive inflow of foreign investments stimulating technological progress, considerable sources of low cost manpower and consequently an excellent export competitivity-price ratio. It is not however certain that such an expansion rate could be maintained for such a long period, as heavy constraints weigh on the Chinese growth: rise in inequalities, financial frailties and above all, dependence on foreign countries for natural resources, technologies and export markets.

If the economic hegemony of the Land of the Rising Sun in the region is unquestionable, China on the other hand has strong assets at the diplomatic and strategic levels. Being a permanent member of the UN Security Council and a nuclear power, it is also an influential player for regional cooperation and security. One of the main goals of the Chinese foreign policy, as it is the case for the economic policy, is to back up the legitimacy of the Party by stepping up the international influence of the People’s Republic of China. This leads to three objectives: to reduce American influence in Asia, to oppose any move of Taiwan to independance and to prevent Japan from standing out as the dominant power in Asia. Japan, for its part, wants to establish itself as a 'global power' and is not satisfied any longer of being relegated to a status of 'political dwarf' by the pacifism of its Constitution. Its candidacy for being a permanent member of the UN Security Council seems to be justified, from its point of view, both by its economic influence and diplomatic action: great democracy of East Asia, Japan considers to actively work for peace-maintenance, within the confines of its Constitution, and exert more and more influence in finding solutions for major international problems. Its pacifist position is itself subjected to a double tension, desire for a 'normalization' and anxiety for its security. Thus national ambition and external threats drive it to redefine its strategic options, to contemplate a constitutional reform to clarify the role of the Self-Defense Forces and to shift the emphasis of its defence policy along more 'interventionist' lines. Economic leader of Asia, Japan has many strategic assets to counter China’s ambitions. However, its diplomatic action in Asia sometimes lacks clarity: it desires to play a leading regional role but fluctuates between regionalism and multilateralism in trying to get around its neighbors’ mistrust.

Japan and China, inevitable economic partners and strategic rivals, remain divided by the weight of the past and more so by their ambitions. Neither of the two dominant powers can currently claim for a real economic and political leadership in Asia; this leadership can only be shared. Emergence of such a Beijing-Tokyo axis is however improbable, even in a conciliatory political climate: indeed closer economic ties will not put an end to their strategic rivalry, as the rulers of the Middle Empire and the Land of the Rising Sun would undoubtedly prefer a Chinese classic precept on strategy: « Consider your neighbors both as friends and enemies ».


Claude MEYER is Associate Professor at Sciences Po, and Research Associate, GEM - Sciences Po (Groupe d’économie mondiale / World Economics Group)

This text is the summary of an article published in the December issue of the monthly journal Etudes