Title

The Urgency of Partnership

What China and Japan Can Do to Start Anew

While the media keeps its eye on the ongoing Diaoyu/Senkaku islands dispute, heating up yet again this week after Chinese naval ships and aircraft were spotted circling the area, a parallel, possibly game-changing development in China-Japan relations has gone largely unreported: the recent increase in collaboration between the world’s second and third largest economies in a host of science, technology, and business fields, Nationalist rhetoric aside, at the level of pragmatic action, the logic for partnership has never been stronger.

Conversation

09.13.13

What Can China and Japan Do to Start Anew?

Paula S. Harrell & Chen Weihua
Paula S. Harrell:While the media keeps its eye on the ongoing Diaoyu/Senkaku islands dispute, heating up yet again this week after Chinese naval ships and aircraft were spotted circling the area, a parallel, possibly game-changing development in...

This is not to downplay the seriousness of simmering tensions, as Japan “nationalizes” the islands by purchasing them from a private owner. Although it’s true that anti-Japanese protests in China are nothing new and that carefully managed nationalism has been a staple of China’s Japan policy for decades, 2013 presents a more dangerous picture. The stakes are higher. As a newly strong China projects its power outward into the East China and South China seas, the rocks at the end of the Okinawa archipelago—called Diaoyu in Chinese and Senkaku in Japanese—have assumed outsized importance due to their strategic location and proximity to potential reserves of undersea oil and gas. Disputing Japan’s sovereignty over the islands as China has done recently raises to a new order of magnitude longstanding friction between the two sides over issues of history and war responsibility. With air and sea provocations now increasingly part of the equation, observers quite rightly warn that a local incident could spiral out of control even as cooler heads examine the justice of conflicting territorial claims through the lens of international law. Taking the long view, Cui Tiankai, China’s new ambassador to the U.S., says that “the fundamental problem is whether Japan can accept China’s expanding new strength.” The U.S. answer to the same question lies in the “yes, with reservations” tone of its “Pivot to Asia” policy. Meeting in Hawaii in late March, U.S. and Japanese officials outlined a joint defense plan aimed to push back against China’s new assertiveness in the East China Sea.

Analysis of the economic impact of the ongoing territorial crisis has drawn a lot of attention and produced a mixed balance sheet. When Diaoyu/Senkaku-related anti-Japanese protests broke out in China in August and September of 2012, commentators were quick to tag Japanese business the clear loser. True, Japanese car sales in China plummeted some forty percent by year-end with significant declines also in sales of Sony, Panasonic, Toshiba, and Sanyo home appliance products. Although recovery has started in these sectors—auto sales show modest gains and air purifiers, not surprisingly, are selling exceptionally well—other areas appear stagnant. Japan’s tourism industry has yet to reverse the downward trend in Chinese visitors to Japan triggered by the dispute.

But there have been negative consequences for China as well. Anti-Japanese protests and boycotts have convinced many Japanese companies to accelerate plans to shift production operations from China to Southeast Asia, a shift already under way in response to increasing wage demands from Chinese workers. Potential loss of jobs is significant. Toyota alone employs around 30,000 Chinese workers in its factories in China. Analysts appeared generally unconcerned about the impact on China of the dip in Japanese Foreign Direct Investment (FDI) that occurred in 2012. Indeed, July 2013 reporting shows a rebound in FDI figures, including from Japan. Still, it’s worth bearing in mind that any pullback of Japanese investment over the long term, whether for political or economic reasons, could work to China’s detriment[, denying Chinese businesses the technological and managerial expertise of Japanese companies with global reach and experience—and this just at a critical time in China’s own push to develop innovative technologies that are globally scalable.

There is no doubt that an outright military clash over the Diaoyu/Senkakus would be even more dangerous and damaging. Unfortunately, however, the near-exclusive coverage of the conflict side of the story has all but obscured the cooperative efforts, ongoing and potential, that are an equally significant part of the current China-Japan relationship.

China and Japan have maintained decades-long contacts to talk about energy sector concerns, including what seems unthinkable in 2013: cooperative efforts to develop new resources in the East China Sea. An agreement reached as recently as 2008 called for joint exploration of the Chunxiao/Shirakaba offshore oil field (north of the Diaoyu/Senkakus), a promising start that quickly foundered on the details of implementation. Today, achieving energy security remains at the top of the economic agenda for both countries—for Japan as it rethinks its nuclear policy in the aftermath of the 2011 disaster, for China as it seeks to maintain the fast-paced growth Chinese have come to expect as the norm. Already the world’s largest energy consumer, China will continue to dominate the world’s energy consumption picture over the next two decades. China’s dependence on foreign oil to meet domestic demand is projected to reach around eighty percent by 2030, with natural gas import dependency rising to forty percent.

China is now on a restless search for energy globally. Regionally, the seaward thrust to secure supplies—the Diaoyu/Senkakus is but one target area—is matched by new and planned pipelines stretching overland from the West and North into China from Myanmar, Turkmenistan, Kazakhstan, and Russia. Japan’s recent success in its twelve-year project to extract deep sea methane hydrate has met with skepticism from some experts on cost grounds. But it could prove to be a boon when it comes to exploiting oil and gas deposits in the Arctic Circle, currently the site of fevered interest on the part of China and Japan and a host of other powers.

China and Japan have common interests not only in developing new energy sources, but in enhancing energy efficiency, conserving energy, and protecting the environment. And in the latter areas, Japan has the edge over China—and most of the rest of the world—in experience and new technologies. Collaboration makes sense for Japan to expand business opportunities in China, and for China to learn from Japan in order to boost its own energy and environmentally-related businesses and help Chinese cities manage the downsides of rapid urbanization. It was this kind of thinking that led to creation of the first Japan-China Energy Conservation Forum in 2006. At its most recent meeting, held in Tokyo on August 6, 2012 just a week before Chinese youth launched anti-Japanese protests in Shanghai, ministerial-level officials on both sides signed off on forty-seven joint projects in a range of technical fields, including photovoltaic power generation, energy distribution, installing smart grids, wastewater treatment, and home appliance recycling. Hitachi, a leader in energy-saving and environmental technologies, is among a number of Japanese companies now involved in jointly-managed and -designed model projects under way in such cities as Kunming, Ningbo, Dalian, and Chongqing.

Collaboration among Chinese and Japanese research institutes and universities is also an important part of the bilateral relationship little-remarked on in the media. The Japan Science and Technology Agency working with China’s Ministry of Science and Technology and National Natural Science Foundation have funded joint university projects since 2004. “Comprehensive conversion of biomass and waste to biofuels by novel catalytic processes,” an ongoing project headed by professors at Toyama University and the Chinese Academy of Sciences (CAS), won’t grab headlines the way “Japanese Jets Scramble over the Senkakus” will, but this is solid stuff—both the topic and the establishment of research links.

In February, even amid talk of armed conflict over the Diaoyu/Senkakus, officials from Japan’s environmental and health agencies visited their Chinese counterparts in Beijing to discuss the other urgent threat: pollution. Many of the university-based projects address China’s worsening problems of air and water pollution, much in the news this spring. Killer smog in Beijing does make the headlines, as does the image of toxic clouds blowing across the sea to Japan. Air pollution is beginning to affect cities in Southwestern Japan. In China, the immediate health hazard posed by high concentrations of deadly PM2.5 particles is compounded by political risk, should the leadership be unable to show an angry public that something is being done about it. Environmental concerns have a momentum of their own. In May, , again with little publicity, a similar meeting was held in Japan, adding climate change to the agenda. Strengthening linkages to deal with environmental problems of regional concern, which is the purpose of these meetings, clearly makes sense. China would reap tremendous advantage from access to Japan’s green technology, among the most advanced in the world, and, not least, from Japan’s decades-long experience in instituting pollution-control regulations. Japan would benefit from expanded business in China, its major trading partner.

University and research institute exchange projects are not confined to environmental fields. Tokyo University’s Institute of Medical Science and CAS have teamed up on cancer research as have the two countries’ health ministries, which also have collaborative research in preventive epidemiology on the agenda. In January, CAS’s Institute of Chemistry signed an agreement with Japan’s Institute of Physical and Chemical Research to expand the joint research program in chemistry begun in 2007. Some of the China-Japan projects are important but unlikely to attract much notice from the general public: also in January, for instance, a six-year project to develop 1.3GHz superconducting radio frequency technology was the subject of a meeting of Chinese and Japanese physicists in Beijing. These are just scattered examples indicative of hundreds of projects involving Chinese and Japanese researchers, some of them international in scope, many of them sponsored by CAS.

The phrase “hot economics, cold politics,” is often used to characterize the bumpy path of China-Japan relations for most of the postwar period. Judging from the number of major new joint ventures being announced at this time of frayed political ties, the phrase seems to hold true now. Nippon Steel is set to build a $302 million auto steel facility in China, Mitsubishi Electric Corp has established a joint venture with Hefei Kinghome Electrical to expand the market for refrigerators in China, audio device manufacturer Guoguang Electronic has joined ONKYO Acoustic to produce car radios for the China market, and so on. One of the most promising areas for joint venture activity is robotics. Japan is a global leader in production of industrial robots. Chinese demand for robots to replace humans is growing exponentially, first, because rising labor costs are eroding the competitive advantage in manufacturing China has enjoyed until now, and second, because a more environmentally aware public has become less tolerant of using human labor in highly polluting or dangerous industries. Within a year, according to the International Federation of Robotics, China will become the largest market for industrial robots in the world. Recent joint ventures like Shanghai-Fanuc and Yasakawa Shougang Robot are poised to reap the benefit.

Collaborative projects are embedded in the current China-Japan relationship. They are endorsed at the highest levels of government; they involve businesses, research institutes, universities, and think tanks; and they are on the increase. In other words, the deep distrust that exists between the two sides is balanced by equally important pragmatic considerations related to business, trade, and technology transfer. China is an economic powerhouse, second only to the U.S. in the global GDP rankings, and expected to continue to grow at a robust seven percent annually. Yet China remains far poorer than Japan; it is in the anomalous position of being both a major world power and a developing country, facing huge challenges in its push for massive urbanization.

Japan, plagued by decades of slow growth andovertaken by China as number two in overall (not per capita) GDP terms, is labeled these days as inward looking. But Japan is a mature, technologically advanced society boasting a high standard of living, low income inequality (lower than either the United States or China, where the gap is widening), universal health care, and consistent enforcement of the rule of law, both in business and for citizen protection. While Japan at twenty-fourth is well behind the U.S. at fourth in the World Bank’s often-cited “ease of doing business” rankings for 2013, China is ninety-first. Transparency International’s most recent (2012) Corruption Perceptions Index, in which number one is perceived as the least corrupt country (Denmark/Finland/NewZealand), shows Japan at seventeen, the U.S. at nineteen, and China at eighty of the 176 countries surveyed. When it comes to politics, much is made of the rapid turnover of Japanese Prime Ministers as seeming evidence of systemic weakness, but Japan has nearly seventy years of free and fair elections, transparent and vigorous policy debates in parliament (the Diet), and a free press. Japan, after all, is a democracy, the oldest in East Asia.

Whether it’s the comfortable lifestyle, low tuition, job prospects, or simply being closer to home, Japan over the last decade has been a draw for Chinese youth seeking overseas study opportunities. The most recent (2012) survey shows 86,000 Chinese students enrolled at Japanese institutions of higher education with another 15,000 in language study programs. The current rise in anti-Japanese sentiment among Chinese may cause these figures to drop, as they did in the aftermath of the 2011 earthquake and tsunami, though in that case only by 1.4%. But the key determinant of future numbers will be a practical consideration: employment. Japanese firms in recent years have made an all-out push to recruit Chinese graduates of Japanese schools, the better to do business in Asia. Chinese are attracted by the high-quality training programs offered by Japanese companies. Typically about a third of Chinese graduating seniors have found jobs with Japanese firms either in Japan or China. As long as there is no shift in hiring preferences among Japanese employers—reportedly, Brazilian applicants were favored over Chinese at a recent jobs fair—the flow of Chinese students to Japan should remain stable.

Partnership between China and Japan is as much part of today’s reality as political friction. But it operates quietly in different forms, scattered through different sectors, and has attracted little notice in the mainstream media. Yet in big picture and long term development terms, it’s fair to say that China has a stake in Japan’s success—and Japan in China’s. Top leaders on both sides should openly affirm their common interests and the mutual gains to be had from building on existing cooperative ventures—and the dangers of not doing so. To reinforce the notion in the public mind that cooperation over conflict is a matter of choice, people in the media in Japan, China, and the U.S. must be encouraged to do the hard work of tracking collaborative activities across the board, not simply the easy reporting of fighting words and possible conflict.

China and Japan have chosen engagement over confrontation before in their modern history. At the turn of the last century, thousands of Chinese students flocked to Japan to learn the lessons of modernity while hundreds of Japanese advisers in education, law, and technical fields went to work in China on contracts financed by the Chinese. Japan’s soft power initiative was well received by the Chinese for over a decade and with positive, lasting results. Culture and geography reinforced the notion of a special relationship, but recognition of common regional interests was the real driver of closer ties. The concept of a Pacific community is again being talked about in Asian forums, and for some of the same reasons. What Japanese politician Konoe Atsumaro had to say about regionalism in 1898—“Asians alone should have the right to solve Asia’s problems”—sounds remarkably like China’s chief diplomat Yang Jiechi speaking in 2013, “Asia-Pacific issues should be discussed and dealt with by the countries of the region themselves…”

Selling the Chinese public these days on the idea of increased cooperation with Japan will require time and patience. Popular anger over Japanese wartime atrocities is deeply engrained in the Chinese psyche. But the case for partnership is a strong one. The Chinese and Japanese economies are highly interdependent. And, for all their present prosperity, China and Japan face serious challenges over the next decades, including a looming regional crisis over energy shortfalls and environmental degradation. For the sake of continued economic growth and stability, it is urgent that both sides replace bellicose talk with a commitment to clear-eyed pragmatism and sustained cooperation.

—WIth the author’s participation, this esssay was adapted from an earlier version published by The Foreign Policy Journal.