Resetting China-Japan Ties

Describing by Japanese Prime Minister Shinzo Abe as a  “historic turning point”, his recent trip to Beijing starts a new era in  Sino- Japanese relations. Embarking on a new ‘China strategy’, this visit also marks the 40-year anniversary of the China-Japan Treaty of Peace and Friendship and this visit was the first by a Japanese leader to Beijing in seven years.  Setting aside any previous rivalry, China and Japan have agreed to boost their economic ties, forget their political differences and boost free trade.

Adopting a practical and more realistic approach, Sino-Japanese ties are much more stable now as their converging interests bring them closer and increase their co-dependence. Recognizing this fact, even President Xi said that, “As the international situation changes, China and Japan are becoming increasingly dependent on one another. The rapid changes in the world are providing China and Japan with opportunities for more in-depth cooperation.” If their bilateral terms continue on a positive trajectory without getting upset by the ongoing great game, this equation would result in the following scenario.

 Firstly, this would consolidate Asia’s two biggest economies which are also the world’s second and third economy and make the ongoing trade war lose its velocity. Quite obviously, both Tokyo and Beijing are looking out to prepare for any international trends that could harm their interests. Even though the major target of tariffs has been Chinese exports up till now, a broader fallout of such moves hits Japan as well and it does seem quite likely that the U.S. will extend the tariffs to Japanese auto exports in the coming days. These days, Japan has been supplying a lot of essential components required in Chinese finished goods and some of the U.S. sanctions against China already hit this extremely profitable arrangement which utilizes China’s capabilities in manufacturing and Japan’s expertise in science and technology.

Secondly, China has become a top economic priority for Japan but it remains to be seen whether it is as indispensable for China. Ever since the bilateral economic dialogue was revived between Japan and China, things started improving for Japanese trade which underwent sharp fluctuations in the past. Since 2017, China became Japan’s biggest trade partner and bilateral trade now stands at around $300 billion. Considering that exports from Japan have had a 14 percent increase in exports to China from January to August this year, maintaining good relations with its past rival is now a compulsion for Japan. Even though it has foreign exchange reserves worth around $2.9 trillion, Japan had been faced with economic stagnation since two decades and trade with China in the first half of this year has raised its economic growth by 1 percent already.

Thirdly, it is significant that both countries have now started joint business investment and  50 deals in joint infrastructure projects were announced. Investment co-operation on such a massive scale could be on BRI projects as well but the details are not known yet. As both nations have similar development ventures enshrined in their long-term foreign policy strategy, working together on the BRI is to be expected and this is a major development.

In all, the Japanese business delegation has  finalized 52 deals worth around $18 billion in third-party markets and one joint major smart- city project in Chonburi, Thailand. Not only that, a bilateral currency swap arrangement was decided which was activated with immediate effect lasting until nearly the end of the year 2021. Under this mechanism, the exchange of local currencies is allowed between the two central banks with a ceiling of $30 billion and a yuan clearing bank would also be set up in Japan.

Boosting co-operation in securities markets including the listing of exchange traded funds, both sides agreed to facilitate smoother Customs clearance.  Alongside, various other broad-spectrum agreements ranging from finance and trade to security listings were inked to help and enhance bilateral co-operation between the two nations. Upgrading strategic ties, both sides have also agreed to hold a meeting between defense officials at the end of this year. Since a while, both states have also been mulling over setting up a hotline to prevent unintended collisions in the area also known as the “Maritime and Aerial Mechanism.”

Notwithstanding their historical differences, Japan and China have undoubtedly covered a lot of area and remarkably sorted out their divergences in a very short time. Basically, the trade war is becoming a menace for many of the export economies that fear that they might be affected in the long run and it is understandable that Japan wishes to protect its interests. Recently, major multi-lateral agreements such as the Paris climate accord and the JCPOA nuclear deal with Iran have been done away with and the IMF has warned about financial turmoil in the future. As the current global environment is erratic and unstable, it is prompting countries to regroup and protect their interests.

 Interestingly, Prime Minister Shinzo Abe has met the Indian PM immediately after his return to Tokyo and Japan’s participation in the Belt and Road Initiative must have been part of the discussion. It is a known fact that India disapproves of the BRI, and Japan’s recent overtures towards China are bound to have some effect on India’s stance towards the mega-project. Perceived also as a die-hard U.S. ally, it might become hard for Japan to keep up with China as well in the future even though maintaining ties has become vital for its business interests. Though it is largely unclear how Japan intends to balance all three of these countries in the days ahead, it must have worked out new ways.

Summing it up, if China and Japan can maintain this bonhomie and avoid friction in the months ahead it will be no small achievement and promises to have lasting impact on the Asia-Pacific region as well as global affairs.