Growing economic interdependence means Japan and China have stronger reasons than ever to get along, writes MICHIYO NAKAMOTO
EVERY SUMMER, a village west of Tokyo called Kawakami-mura becomes the temporary home of 700 or so 20- and 30-somethings who help local farmers plant and harvest the lettuces for which the area is known.
Such Japanese farmers have come to depend on these seasonal workers, even though they do not speak the language well – because most of them are from China.
In Tokyo’s glitzy Ginza shopping district, large groups of Chinese tourists are a daily sight in boutiques and discount electronics retailers alike, many flashing a Ginren – the Chinese credit card that has become vital to the income of many shops in the capital.
Japan is turning to its western neighbour not just as a manufacturing base but for customers for its goods and services and as a source of labour in sectors ranging from agriculture to clothes manufacturing.
Just five years ago, Beijing was one of the biggest recipients of overseas development aid from Tokyo, which helped finance the construction of its airports and roads. Today, China has ousted Japan from being the second-largest economy after the US – a position it held for 40 years.
As growth unexpectedly slowed in Japan in the three months to June, China’s gross domestic product of $1,337 billion (€1,050 billion) exceeded Japan’s $1,288 billion, the Japanese cabinet office reports.
As if to highlight its growing economic might, China bought Japanese government bonds worth a record net 1,733 billion yen (€16 billion) in the six months to May.
It is not just the headline macroeconomic figures that underscore the reversal in the two Asian powerhouses’ relative economic strengths. Japan is slipping behind its larger neighbour in areas ranging from activity at its ports to foreign direct investment.
Even in certain industries, Japan can no longer claim to be far ahead in its technological prowess. Its companies used to dominate the market for solar batteries, says Akira Kojima of the independent Japan Center for Economic Research. A recent ranking by the Nikkei business daily identified China’s Suntech Power as the second-largest solar power company, after First Solar of the US and ahead of Japan’s Sharp.
Yet, Japan’s political, business and academic leadership appears untroubled by this, and happy for the country to reap the benefits of its neighbour’s growth. “In the 1990s, there was a fear that China would overtake Japan in all respects,” says Kojima. Now there is a consensus that, with a greying society suggesting poor prospects for growth, China, with its population and rising incomes, offers the best hope for Japan’s wellbeing.
As if to underscore that point, Meti forecasts that Chinese consumption will increase to $5,570 billion by 2020, eclipsing forecast Japanese domestic consumption of $3,610 billion. In a sign it recognises the importance of the economic and business relationship with China, for the first time since the normalisation of relations in 1972, Japan this year appointed a businessman – Uichiro Niwa, former chairman of the trading company Itochu – as ambassador to Beijing.
While there is some unease, there are few signs the country is as troubled by its neighbour’s economic might as the US was in the face of Japan’s rise in the 1970s and 1980s.
This is not only because so many Japanese companies are enjoying the benefits, but also because of the complementary nature of the two countries’ industries. “At the moment, China is not a threat to Japan’s core industries,” says Richard Herd, head of the China division at the Paris-based Organisation for Economic Co-operation and Development.
The backbone of Chinese exports is still textiles, toys and plastic goods – products Japan no longer exports in volume. Even in electronics, “China has been exporting high-tech goods that draw in imports of components from Japan”, he points out. There is confidence Japan will be able to maintain its technological lead for the foreseeable future, in part because of the low level of Chinese companies’ investment in RD. Whether or not that optimism is justified, corporate Japan is more interested in plans to tap into Chinese demand than in keeping the country at bay.
Sharp aims to increase the number of Chinese retailers selling its popular Aquos flatscreen TVs from about 600 to 10,000 in the next few years. “China is 26 times the size of Japan and there are more than 100 cities with a million people,” says Nobuyuki Sugano, who heads the company’s China operations. Fast Retailing, the maker of Uniqlo casual clothes, has set itself a target of opening 1,000 stores in China in the next decade.
This pursuit is evident back home as well. In July, Tokyo eased visa restrictions in the hope that Chinese visitors would increase from 1 million last year to 1.8 million this year. They are expected to spend about 500 billion yen this year, says Daiwa’s Kumagai.
Chinese money is also becoming a force in supporting and revitalising struggling Japanese companies. Chinese groups have invested in 611 such businesses, more than double the number of five years ago, according to Teikoku Databank.
China and Japan have a long history of fluctuating relations, of peaceful interaction interspersed with fearsome clashes. As their economic interdependence grows, for the time being Asia’s staunchest rivals look set to be entering an era of collaboration.
Niwa, as Japan’s ambassador to China, captures the mood when he suggests that, rather than quarrel, the two countries need to deepen their mutual understanding “with the thought of maintaining ties for the next 1,000 to 2,000 years”.
