Japan’s complex relationship with China

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The tension between Japan and China has been increasing in tandem with China’s economic rise. China is increasingly asserting itself on the global stage, rapidly modernizing its military and being more belligerent in its behavior towards its neighbours. The most public examples of this are the various disputes over islands in the South China Sea, where China disputes the sovereignty of various Japanese, Vietnamese and Indonesian islands, among others.

The strained relations are being exploited in both China and Japan for domestic political purposes, and are spilling over into companies’ ability to carry out cross-border trade and business.

Historical background

Much of the antagonism between Japan and China (and indeed between Japan and several other South-East Asian nations) stems from unresolved historical issues, mainly relating to the Second World War. In the case of China, the most widely known incident (and the one which has become emblematic for China’s attitude towards Japan), was probably the so-called ‘Nanking Massacre’.

Historians estimate that Japanese troops killed between 250.000 and 300.000 people in the city of Nanking during a six week period after its capture in 1937 during the Second Sino-Japanese War. Records of beheading ‘contests’ using Samurai swords, mass rape and other even more shocking and reprehensible behavior on an enormous scale makes this an extremely thorny issue in Sino-Japanese relations, even today close to a century later. The Chinese state, never missing an opportunity to bash Japan, makes sure that memories of this are kept fresh in the Chinese national psyche through the education system, where these historical events are re-visited in what is called ‘Patriotic Education’.

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There is also the issue of so-called ‘comfort women’ in several South-East Asian countries during late stages of the Second World War, where Japanese soldiers sexually exploited local women from occupied countries in a very organized manner, and one which makes it difficult not to conclude that the Japanese at the time viewed the inhabitants of these occupied countries as lesser human beings.

The sense that this attitude still prevails in Japan today, continues to linger in much of the rest of South-East Asia.

Modern day Gunboat Diplomacy

The term ‘Gunboat Diplomacy’ stems from the mainly colonial 19th century practise of forcing countries to open up trade using sea-going military vessels. In Japan’s case this was exemplified by the arrival of Commodore Matthew C. Perry’s four-ship squadron in Tokyo Bay in July 1853, subsequent bombardment and thus demonstration of superior military technological capabilities, and ultimate forcing of a trade agreement with Japan in 1854.

More recently, something similar has been occurring in the sea between Japan and China, although no shots have been fired in anger. Specifically, the Senkaku islands as they are called in Japanese, or alternative the Diaoyu islands as they are called in Chinese. The island cluster is 76 miles from Taiwan, 92 miles from the closest Japanese island, also a part of Okinawa prefecture, and 100 miles from the coast of China.

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The islands have never been inhabited, and the Japanese government cites a survey from 1885 mentioning “no trace of having been under the control of China.” The government of Japan in January 1895 decided to incorporate the islands and to place a marker on one of them declaring them to be part of Japan. When the islands (governed by the Okinawa prefecture) were put under US administrative control after the San Fransisco Peace Treaty in 1951, neither the mainland Chinese government, nor the “nationalist” Chinese government in what is now Taiwan, objected.

The islands went back to Japanese control when the Okinawa prefecture reverted to Japan in 1972. They have been officially owned by various business entities, but have been leased by the Japanese government, who have in turn ‘lent’ one of the islands to the US military for live fire bombing exercises. The islands have not been used in this capacity for several decades now.

In September 2012 they were nationalized by the Japanese government, ostensibly to prevent them from being acquired by the nationalistic governor of Tokyo who had been considering using municipal funds to purchase them in a deliberate, populist and no doubt vote-winning snub of China. Rather predictably this action still angered China and resulted in increased Chinese naval activity in the surrounding area, which in turn caused Japan’s airforce to scramble F15’s, which then prompted the United States to urge both parties to remain calm.

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Whilst the dispute over the islands is obviously a stage for the two nations to conducts nationalistic posturing, mainly designed for domestic political purposes, there is also a deeper economic aspect to the issue. There is likely to be significant oil and/or gas reserves in the seabed in the disputed territory, and so both countries have a very real economic incentive to keep the pressure up and not simply roll over.

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Both countries now claim the islands as their sovereign territory, and there are regular incidents of war ships maneuvering precariously close to each other in the waters surrounding the islands. NipponMarketBlog has found reports that Chinese Coast Guard ships entered Japanese waters around the islands on the 2nd of August, thus violating what the Japanese perceive to be their sovereign territory for the second time in just two weeks.

Clearly, a permanent peaceful resolution seems unlikely at this point, and very recently an unidentified Chinese official told the state-run China Daily that any Japanese speculation about high-level  talks to resolve the dispute were “not true and is fabricated, based on the needs of Japan’s domestic politics.”

However, this also does not mean that a military confrontation is likely. In fact, NipponMarketBlog considers it highly unlikely that this dispute will lead to a military confrontation, for reasons we will go into in more detail below. But the issue is likely to fester and continue to poison the relationship between the two countries, until such time as a permanent resolution is found, either as a consequence of a discovery that the area does in fact not contain oil and gas in commercially viable quantities, or through some sort of Sino-Japanese quasi-governmental joint venture company to extract the oil and gas.

This would at least be to the benefit of both countries, rather than continuing with a situation where none of the two countries can benefit from what natural resources the area might contain.

Populism and insular attitudes

It is peculiar how (mainly conservative) politicians in Japan regularly find themselves embroiled in controversy surrounding the relationship with China, paying regular public visits to shrines for the war dead, including those of alleged perpetrators of war crimes throughout Asia. One of the most famous shrines is the Yasukuni Shrine in Tokyo, where virtually all Japanese Prime Ministers go to pay their respect sooner or later. 14 Class A war criminals are buried there, and the shrine is a constant source of contention.

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On the face of it, these actions appear merely clumsy and insensitive, and one would have thought that the advisors of these politicians would ensure that they steer clear of this controversy. But of course, things are more complex than that.

It would appear that there is still significant political capital to be gained in Japan from being seen to be patriotic in the sense of paying respect to soldiers who died in the Second World War, even if those same soldiers are widely accepted as being war criminals. This in itself in an interesting observation about the Japanese electorate, although it probably relates mainly to the older generations.

At any rate, for these politicians (including current Prime Minister Shinzo Abe) there is a very clear trade-off between pandering to nationalistic sentiment at home, versus risking public derision and even condemnation abroad, and it would appear that in that trade-off, the emphasis is very often on wooing of the domestic electorate.

This is very much in keeping with the extremely insular mentality of most Japanese, including also many Japanese companies. One often gets the sense that they behave as if the rest of the world is ‘optional’, and if they just ignore it then it will not affect them. This is of course a serious miscalculation, but it can be found in many places, including in corporate Japan.

NipponMarketBlog has experienced this rather disconcerting mentality in the context of meetings with several companies in Japan. For example, we were meeting with a company involved in the Basic Materials industry, which it seemed to us was perfectly placed for exploiting the fast growing Chinese electronics manufacturing industry. The investor relations team however, made it quite clear that the company was very reluctant to bet too heavily on China, since they were concerned about “not being paid”.

This concern may well have been valid, but to simply refrain from entering a market for this reason was quite shocking to us. This is a remarkable example of how some companies behave as if they have a choice between engaging in the biggest growth market in the world, or simply staying away, and how they very much think of the rest of the world as ‘optional’. This despite Japan’s overwhelming dependence on trade with other countries. Even in this extremely integrated modern world of free-flowing digital information and open international trade, this mentality seems to prevail. Something that is very obviously not in the country’s own best interest.

A group of lawmakers are led by a Shinto priest as they visit the Yasukuni Shrine in Tokyo

Interestingly, Prime Minister Abe decided not to attend in person on this year’s anniversary of the end of World War Two on August 15th 2013, instead asking an aide to make an offering at the Shrine on his behalf. However, a delegation from the government, including two cabinet ministers, did visit the shrine. Perhaps more upsetting for Japan’s neighbours, Abe omitted the usual reference to “profound remorse” or “sincere mourning” that has been included in the Prime Minster’s speech for around two decades now, at the annual memorial ceremony for Japan’s war dead. This is another indication of Abe’s tougher stance on foreign relations than that of many of his predecessors. Needless to say China and South Korea were less than impressed.

Parallels with post World War Two Germany

For decades after the Second World War, Germany was incessantly reminded of its transgressions against other European nations, and like Japan it adopted a pacifist attitude to foreign policy, maintaining only a self-defense force within the NATO frame-work and it was throughout the Cold War effectively governed by US military forces stationed at several bases in what was then West Germany.

Now, more than half a century later, Germany is no longer vilified for its past history, except by elements on the political fringes in countries currently suffering severe economic problems of their own making. Germany is seen as an equal player along-side countries such as the UK and France, even to the point of sending troops to Afghanistan to help fight the Taliban. In global politics as well as economic and financial affairs, Germany is at least on par with its European neighbours, and indeed often seen as a leading example of efficiency, discipline and economic flexibility (especially in its labour market), allowing for continued growth when much of the rest of the world is struggling. This allows Germany to play by far the biggest role in the continued evolution of the European Union, with all the consequences that this has for other countries.

The same can not be said for Japan, which is still viewed with significant mistrust, especially in China. Any talk of changing Article 9 immediately sparks vehement reactions from China and several other countries, reminding Japan of its history in Asia.

Clearly, Germany has managed to move beyond the Second World War, whereas Japan has not, and the reason is simply that whereas Germany is perceived to have genuinely repented (and having also paid significant war reparations), Japan is not perceived to have genuinely repented. In fact, it is probably fair to say that the perception in Asia seems to be that the only thing Japan regrets, is losing the war. Whether this is fair or not, perception is often reality, and the reality Japan has to deal with is that it is still dragging its feet on a final acceptance of guilt as far as the Second World War is concerned.

This issue will thus remain unresolved until Japan is perceived to have repented sufficiently, but of course this becomes less and less likely as time goes on, just as it becomes less and less clear precisely how this repentance could happen.

A recent poll conducted by the Pew Institute, found that 48% of Japanese believed that they have already apologized enough for the war and that another 15% believed that no apology was necessary in the first place. Unsurprisingly, these views were particularly strong among Japanese between 18 and 29 years old, among whom 73% said that the country has already asked for enough forgiveness or did not need to apologize.

Interestingly, the poll also found that 56% said they were opposed to revising the pacifist Article 9 in the Japanese constitution, however this number is down from 67% in 2006. So on the one hand, Shinzo Abe is actually working against the main-stream popular opinion on the matter of revising Article 9, but on the other hand it seems that the tension with China and the threat of China becoming a steam-rolling economic and military super power in South-East Asia is beginning to cause many Japanese to think twice about the continued viability of Japan maintaining its pacifist stance towards the rest of the world.

In a different poll, carried out jointly by the Japanese think-tank Genron NPO and the newspaper the China Daily covering around 1400 respondents in each country, a staggering 53% of Chinese respondents and 49% of their Japanese counterparts said that there will be a military conflict at some point in the future. On the face of it a very worrying indicator, but perhaps not surprising, given the amount of rhetoric coming out of both governments.

Constitutional reform and Article 9.

On the 19th of July Shinzo Abe’s ruling Liberal Democratic Party won a decisive victory in the Upper House Elections, thus giving the current government a stronger mandate to push ahead with economic reform. However, it also opens the door for more aggressive efforts to amend the Japanese constitution which famously has been pacifist since the Second World War (something that was imposed by the United States after Imperial Japan’s unconditional surrender).

It is well known that this continues to be a major policy goal for Shinzo Abe, and there are even those that suggest that the Three Arrows economic stimulus package and the broader and very public focus on economic growth was initially bolted onto the current Prime Minister’s broader political agenda, simply in order to ensure victory in the Lower House elections, and that economic reform was never actually the main thrust of his push to become Prime Minister.

Either way, the government now has what it probably perceives as a ‘carte blanche’ to press ahead with constitutional reform, which is certain to rile all of Japan’s neighbours.

In fact, even before the recent Upper House election was completed, China was showing its unhappiness about Abe’s impending triumph. A commentator for the official Xinhua News Agency wrote:

“To consolidate power, the prime minister and other Japanese politicians wrongfully chose to indulge a rightist tilt and constantly provoke Japan’s neighbors on sensitive territorial and historical issues.”

The commentator continued:

“If policymakers in Tokyo believe a potential election win could serve as a warrant for further rash behaviors to strain the ties with Japan’s neighbors, challenge the post-WWII world order, or abandon its pacifist commitment, they risk steering the country further down a wrong path.”

The chosen language here is unmistakable antagonistic and even menacing.

Spill-over into business and trade

China is by far Japan’s biggest trading partner. 40% of Japan’s exports go to China, and 24% of its imports come from China. For comparison purposes, only 15% of Japan’s exports go to the United States and just 9% of its imports come from the United States. (Please click on the pie-chart below for a larger version):

Japan Trade copy

This drives home the inter-dependence between the two countries, and the degree to which they simply can not afford the rhetoric moving beyond just rhetoric. Notice also the interesting point that Saudi-Arabia (Oil) and Australia (Metals) are very important trading partners for Japan, since Japan has virtually no natural resources itself.

However, the increasing antagonism between Japan and China is now naturally spilling over into trade and cross-border corporate activities in a very real way, and it is having a generally negative effect across a wide range of different Japanese businesses that operate in China, either because they have production facilities there or because they are attempting to carve out a market for themselves, supplying either the manufacturing industry or the burgeoning Chinese consumer sector.

Chinese consumers are increasingly boycotting Japanese products, and one even gets the sense that it has become fashionable to be strongly anti-Japanese. Sales of Japanese autos in China has dropped recently in tandem with the ratcheting up of the dispute over the Senkaku/Diaoyu islands. Sales of Japanese cars in China fell in Q1 even as overall car sales in China rose by 17%. Whereas Japanese car manufacturers had a 23% market share in China in 2011, that share has now plummeted to just 15%.

Sino-Japanese trade has been declining for many months now, as illustrated in this chart from the Asahi Shimbun newspaper:

Japan China Trade

Whereas Japanese companies supplying Chinese manufacturing companies directly with machinery, construction machinery, machine tools or electronic components may not be as adversely affected since the Chinese companies do not necessarily have to publicize these trading relationships, but Japanese companies attempting to sell Japanese branded goods such as cars directly to the Chinese consumers may well continue to experience a significant negative effect of the dispute.

This ongoing contraction in trade between the two countries is no doubt largely due to a wider global economic slow-down, but there is no doubt that the increasingly strained relations between Japan and China have played a role as well.

In a more tangible and also more chilling display of anti-Japanese sentiment in China, the following picture of the entrance to a diner in Wuhan in China, shows a sign which explicitly warns Japanese people that they are not welcome.

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Yasuhide Mizuno, the head of Honda’s venture in Wuhan, was quoted as saying that he has “never worked in a more hostile place”. It is apparently not unusual for Japanese to be turned away from local Chinese grocery stores. While it is easy to dismiss this sort of thing as childish behavior with no real consequences, in addition to making life difficult for the thousands of Japanese living and working in China, it also demonstrates the depth of feeling amongst the Chinese people towards Japan in general.

Unfortunately, the Chinese government has proven only too willing to tap into this under-current on anti-Japanese sentiment, often being accused of stoking the fire, or even going as far as arranging anti-Japanese demonstrations outside the local HQ of Japan companies.

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Clearly, this is not designed to drive Japanese businesses out, but instead reflects a domestic Chinese politic agenda which we will discuss later.

In the interest of providing a fair and balanced view, NipponMarketBlog should probably also point out that the Japanese are not themselves known for being the most welcoming when it comes to foreigners, especially those not from either the US or Europe. This is evident in Japan’s problematic relationship with importing foreign labour to what is actually a rapidly shrinking labour force in dire need of replenishment. It is also evident on a more annecdotal level in blatant displays of anti-foreigner sentiment, such as this sign on the door of a Tokyo health spa.

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NipponMarketBlog is not suggesting that all Japanese people are necessarily racist, but the examples provided above do hint at a tendency to a more blatant attitude to race and nationality, and a focus on racial differences within South-East Asia, than is perhaps widely appreciated in much of the rest of the world.

Final thoughts on Sino-Japanese relations

In a recent report by the Japanese Defense Ministry, the tone towards China is clear:

“In cases where China’s interests conflict with those of neighboring countries, including Japan, it has taken measures that have been called high-handed, including trying to change the status quo by force”, referring to China’s military build-up and increasingly aggressive stance to territorial disputes.

China in turn responded that:

“Japan has been spreading the so-called ’China threat,’ creating regional tension”, adding that: “Given that some political forces in Japan want more military buildup and frequent military exercises, the international community cannot but feel worried about where Japan is heading.  We hope that Japan can correct its attitude and do more to promote peace in the region.”

This is classic political brinkmanship, and it will undoubtedly continue.

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Looking at this from a Japanese perspective, and examining the way in which Shinzo Abe seems to have been successful in shifting public focus onto other countries (and by implication the threats that they are perceived to represent), one has to wonder why the Japanese government is prepared to risk its relationship with China (and other South-East Asian countries) over what might seem like history now well in the past.

Similarly, it is worth considering whether China’s position against what it sees as the beginnings of a resurgence of militarist political ideology in Japan is well founded, or mainly designed to distract the Chinese population from domestic troubles such as slowing economic growth and rampant corruption in both local and central government.

It seems to NipponMarketBlog that there is very little basis for believing that there genuinely is a newly militarily activist ideology forming in Japan. Pacifism is now deeply ingrained in modern Japan, and one has to believe that the electorate (especially the younger generations) would ultimately put a stop to any government perceived as going too far towards a re-militarization of Japan’s foreign policy.

Instead, the rhetoric and the obvious resurgence of nationalistic fervour among the current political establishment, rests on the conviction that if the Japanese are to rally around their democracy in the face of an increasingly aggressive China, they must have feelings of national pride rather than shame for those who lost their lives in past wars.

While this latter point seems entirely reasonable, especially for the younger generations of Japanese who had no parts in the events of the early 20th century, Japanese politicians have to realize that they are walking a proverbial tight-rope, and that any mis-steps could potentially turn out to become very costly.

In addition, it should be realized that as time passes, the potential gains in terms of domestic political capital from nationalistic grand-standing on the international stage will invariably wane as the portion of the electorate that it predominantly appeals to, exits the electorate due to natural reasons.

Equally, as time passes, the potential loss from strained relations with neighbours in the region becomes ever greater by virtue of the fact that virtually every other trading partner is growing their economy faster than Japan is growing its own economy, and is thus becoming bigger and bigger relative to Japan.

Ultimately, the two countries need each other in order to grow their respective economies.

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Economic growth is now of the utmost importance in Japan, since it is the only thing that can avert a collapse of government finances as we have demonstrated here. Continued economic growth is also paramount to the Chinese government, since this is the only way in which the government can avert civil unrest and maintain its hold on power, in a country where the government is unelected yet the population is increasingly expected to function in a modern pseudo-democratic capitalist economy. This is a potentially fragile state of affairs for the Chinese government, especially if economic growth slows significantly and/or the Chinese fixed investment bubble bursts.

In many ways, the Chinese government is replacing the effectively now defunct ideology of communism as the glue that holds the country together, with the ideology of nationalism. The latter is obviously an inherently much more volatile ‘glue’, but in the absence of outright surrender to a fully fledged capitalist market economy, the Chinese government has clearly elected to use nationalism to hold things together. As such, the Chinese and the Japanese approaches are quite similar in their focus on nationalism in the face of both external and internal pressures.

However, it is clear that both countries have significantly more to lose from an escalation of hostilities, than they have to gain from any derived political capital or national unity in the face of an external (perceived) threat. One can only hope that both governments resist the temptation of escalating the dispute beyond rhetoric in a short-sighted attempt to woo their own populace.

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NipponMarketBlog firmly believes that both countries will prove themselves sufficiently pragmatic to maintain a minimum level of cordial relations, so that trade disruptions are kept to a minimum over the long term.

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2 responses to “Japan’s complex relationship with China”

  1. Edward Snowden says :

    Nice read!

    Many top strategic thinkers may be envisaging to see China going on the ways of being fully liberalized capitalistic nation akin to the much coveted United States of America. Only by achieving that China can be fully admitted and seamlessly integrated into the current Exclusive League of the World’s Elites. The current CCP model is not a good example for the rest of the world as it may aspire the wrong ideas of any viable alternative developmental and political model.

    Further, being in fully liberalized stage will make it much easier to exploit the full economical resources of that ancient civilization. Whereas needed and if possible, full utilization may even be going on smoother to implement if China may be broken up into several smaller states, possibly in magnitude of ten independent countries or so around the size of 100 million population each. These smaller size states will make coordination, controls and reins much more effective with less hassles.

    Just a thought.

    Btw, are you intentionally putting the fists in different sizes? It looks like that China has a slightly bigger fist here 😉

    • NipponMarketBlog says :

      Thanks for your comments. Interesting points, although a break-up of China will probably never happen by peaceful means.
      And no, I didn’t actually notice that the Chinese fist seems bigger than the Japanese….

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