20 January 2019
Trade flows between China and Japan remain subdued as political tensions fester over disputed islands in the East China Sea. Photo: Bloomberg
Trade flows between China and Japan remain subdued as political tensions fester over disputed islands in the East China Sea. Photo: Bloomberg

Territorial row takes further toll on Sino-Japanese trade

The deterioration in political relations between China and Japan, which saw bilateral trade drop in 2012 after Tokyo nationalized three tiny islands also claimed by Beijing, caused further damage to mutual trade flows last year despite an uptick in Japanese auto sales towards the end of the year.

The official China Daily, citing figures from China’s General Administration of Customs, reported that bilateral trade fell 5.1 percent last year to US$312.55 billion. Chinese exports to Japan dropped by 0.9 percent to US$150.28 billion, while Japanese exports to China declined 8.7 percent to US$162.27 billion. These declines followed a 3.9 percent fall in bilateral trade in 2012 to US$329.45 billion.

The outlook in 2014 for China-Japan trade, the paper said, “remains grim”.

The auto market in China, the world’s largest, performed robustly in 2013, expanding 13.9 percent to almost 22 million cars, compared with relatively lackluster growth rates in 2011 and 2012 of 2.45 percent and 4.33 percent, respectively.

Nissan reported that its sales in China increased 17 percent last year, while Toyota reported 9.2 percent growth and Honda 26.4 percent. But those figures pale in comparison to the almost 50 percent growth posted by Ford Motor Co.

While another strong year is expected for the Chinese auto market this year, Japanese carmakers are unlikely to benefit like their American competitors. Without a doubt, Sino-Japanese political tensions are holding back development of economic relations.

The political tensions are now on full view around the world, as China has launched a diplomatic battle, with its ambassadors in global capitals writing articles in leading newspapers denouncing Japanese Prime Minister Shinzo Abe for having visited the Yasukuni Shrine, which honors 2.5 million Japanese who died in various wars from the mid-19th century on, including 14 Class A war criminals executed after the Second World War.

Japanese ambassadors are firing back in commentaries published in the same newspapers, with the war of words having spread to about 30 countries.

In many cases, the Chinese diplomats recall that China fought on the allied side against Japan in World War II but, of course, that was a different Chinese government, not the People’s Republic of China established by the communists in 1949. The previous Chinese government had retreated to Taiwan after defeat by the communists in the civil war.

Japan and China need to find a way out of their current impasse. It is unfortunate that the Japanese leader has chosen to visit the controversial Yasukuni Shrine – an action opposed not only by China but by South Korea, the United States and the European Union as well – since it suggests to many that Japan is unrepentant about its wartime actions.

It is important for Abe not to antagonize Japan’s closest neighbors as well as its friends in the West. Visiting Yasukuni may bolster Abe’s right-wing base but Japan cannot afford to be isolated.

If the Shinto shrine continues to be unwilling to remove the war criminals enshrined there, then Japan should defuse the issue by establishing a secular institution to honor its war dead

While Tokyo doesn’t have to back down on its territorial claims, it should find some way to undo the damage done in September 2012, when the previous Japanese government of Prime Minister Yoshihiko Noda bought three of the disputed Senkaku islands — known as Diaoyu in China — from their private Japanese owner in an attempt to prevent them from falling into the hands of Shintaro Ishihara, then governor of Tokyo, and prevent him from provoking China by developing the islands.

However, the move backfired and sparked off widespread protests in China as well as a serious heightening of tensions in the East China Sea.

One possible move, proposed by Kishore Mahbubani, a former Singaporean diplomat who is now dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, is for Abe to “return to the status quo ante” by arranging to “sell” the islands to “a private Japanese foundation or environmental group, ostensibly to preserve their undeveloped natural beauty”.

This is an idea that is worth trying. After all, the purchase was the decision of a predecessor government, so Abe would not lose face by de-nationalizing the islands.

It was the late Chinese leader Deng Xiaoping who, in 1978, proposed to shelve the dispute. Japanese leaders for decades honored a tacit understanding with China and did not develop the islands or change their status.

If Japan now returns the islands to private hands and makes clear its intention not to change their status, it will show the whole world that it is doing everything possible to de-escalate the dispute. It will then be up to Beijing to show whether it is truly interested in peace or whether it was simply seizing on the nationalization as a pretext for a confrontation with Japan.

Only after the territorial issue is resolved can economic relations return to normal.


Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.

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