In her first press briefing as Japan’s new Defense Minister, Tomomi Inada sidestepped questions over Japan’s actions in the Nanjing massacre during WWII, confirming for some the worst fears of Japan’s neighbors that she will bring a hawkish, conservative view to her new post. This comes at a time when security relations between China and Japan are at a low point. However, even though tensions continue to grow, the economic ties between the two countries remain strong and more important than ever.
This has been a tense year in the China-Japan relationship. In the first three months alone, Japan scrambled its fighter jets a record 193 times to intercept Chinese aircraft in its airspace, more than double that of the same time period in the previous year. The uptick in sorties is a combination of increasing Chinese assertiveness and capabilities in addition to Japan’s growing concerns over the readiness of its own forces. The sorties have occurred over the East China Sea, where China has pushed for its claim over the Senkaku/Diaoyu islands since 2012.
More recently, Japan released its 2016 Defense White Paper on August 2nd and devoted much of the report on the “China Military Threat” and specifically its growing naval capabilities. The Chinese Ministry of Defense responded by characterizing the white paper as “irresponsible” while adding that Japan’s possession of the Senkaku/Diaoyu islands and its recent reinterpretation of Article 9, which allows Japan to provide defensive support to its allies, “threatens regional peace and stability.” Chinese state media has also denounced the paper as “detrimental to regional peace and safety” and highlighted how Japan has increased its defense budget consecutively for the past four years.
Despite Japan having no territorial claims in the South China Sea issue, that too has become a growing point of contention between Beijing and Tokyo. While Japan officially wishes to stay out of the dispute, it has called on Beijing to abide by the recent international court case that ruled in favor of the Philippines. Additionally, Tokyo has made efforts to strengthen ties and provide vessels to the Philippines and Vietnam, a move Beijing sees as encroaching on its sphere of influence. Looking forward on this issue, the key will be whether Japan decides to join the U.S. in its Freedom of Navigation Operations (FONOPS) in the South China Sea. Such a move would signal Japan stepping out in a more assertive regional role and would be sure to enflame tensions further between China and Japan.
Another element with important regional consequences, and on the China-Japan relationship in particular, is Japanese Prime Minister Shinzo Abe’s desire to reinterpret Article 9 of the constitution. Created as part of the post-WWII constitution, Article 9 prohibits Japan from declaring war and places limits on the military. While Abe’s party has a majority and could move forward with such an amendment, it is unlikely in the near future. Former U.S. Presidential Advisor Dennis Wilder told The Cipher Brief that “Abe will continue pressing his case, but having other immediate concerns such as the economy, he is unlikely to call for a referendum in the near term.” Despite a security relationship fraught with flash points, the China and Japan relationship has stabilized around the vital economic ties between the two countries.
In contrast to geopolitical tensions, those economic relations appear surprisingly warm. The second and third largest economies respectively, China and Japan also boast the world’s third largest bilateral trade relationship, worth roughly $340 billion in 2014. Japan is a significant source of foreign direct investment for China (FDI), while robust tourism between the two countries is both an economic boon and a valuable source of cultural interaction. According to the Japan National Tourism Organization, nearly 515 thousand Chinese tourists visited Japan in April 2016 alone, a larger share than any other country. At the same time, over half the international students studying in Japan are Chinese, which provides a valuable source of personal interaction.
Perhaps more important is the way these two economies interact. Both countries possess very different levels of industrial capacity, technological proficiency, and labor ability that complement each other in mutually beneficial ways. For instance, Chinese demand for automobiles provides a vital market for Japan’s behemoth car companies, one that would be very difficult to replace in the event of a breakdown in relations. Similarly, Japan is China’s third largest export market and provides a key outlet for goods ranging from electronics to agriculture.
However, according to Associate Director of the RAND Center for Asia Pacific Policy and Cipher Brief expert, Scott W. Harold, “economic ties are less of a constraint on conflict than in the past.” He points out that bilateral trade has dropped by 12 percent in 2015 to just $300 billion, while Japanese FDI to China has fallen by a whopping 33 percent since the height of territorial tensions over Senkaku/Diaoyu in 2012. According to an index developed by Professor Yan Xuetong at Tsinghua University, which measures diplomatic, military, and economic variables, the relationship between China and Japan in 2014 reached a low which hasn’t been seen since Japan normalized relations with China in 1972.
Although not a guarantee against war, economic relations between China and Japan remain a strong disincentive to conflict. During the Senkaku crisis of 2012, Japanese exports to China decreased by nearly $37 billion, and Chinese exports to Japan fell by roughly $31 billion. This represents only a fraction of the loss that would result from open conflict. Despite growing tensions in the East and South China Seas, with $5 trillion worth of trade moving through these waters, both countries understand that, for now, they have more to gain from conflict-free seas.
Will Edwards and Fritz Lodge are international producers at The Cipher Brief.
