Growing Chinese power is changing Japan’s strategy in Asia

One article I read this week profoundly challenged my thinking about the relationship between China and Japan.

It claimed that: “The idea that Beijing suddenly warmed up to closer relations with Japan as a result of China’s weakening economy and a trade dispute with the U.S. is arrant nonsense.”

The piece was written by Dr Michael Ivanovich and published on CNBC to tie in with Prime Minister Shinzo Abe’s trip to China last week. It suggests most of the media has misunderstood the background to the visit.

The mainstream view, expressed on outlets such as the BBC, is that “trade tensions with Washington have driven Japan and China into an unlikely friendship.”

But Dr Ivanovich says that China’s economy is not weak and that “China does not need Japan for the steady growth of its huge and rapidly expanding domestic market.”

“China does not need Japan” Dr Michael Ivanovich

Who needs who?

He also claims that it is “ridiculous to think that China needs Japan as an ally in its trade dispute with the U.S.” He says it is far more likely that Japan needs China to keep its economy on track.

In his clever and provocative piece, Dr Armstrong says Shinzo Abe’s friendly policy towards China has turned him into “a supplicant for contact and attention with an aloof, hostile and indifferent Chinese leadership.”

Mr Abe is also chided for being too friendly to China by the Japanese daily newspaper, the Mainichi. It says Japan could be forced to accept the position of being a “peripheral country next to the great nation of China.”

Belt and Road

Nevertheless, the Mainichi – along with many other media outlets – sees value for Japan in cooperating with China in the economic sphere.

It says that in June last year, Prime Minister Abe announced that Japan would support China on some parts of the One Belt One Road initiative, promoted by China as a means of developing global trade.

Another person who believes that BRI is a pragmatic way for Japan to engage China is Shiro Armstrong, who has presented a very good piece of analysis on East Asia Forum which has been picked up by many outlets.

He writes: “As Chinese policymakers search for ways to better deploy the country’s vast sums of capital abroad, Japan has experience of doing just that dating back to the 1970s – including of geopolitical pushback.

“Understanding that the Belt and Road is here to stay, Japanese engagement can shape the massive investments and get more business for its companies. It’s also a part of a broader hedge against an increasingly uncertain Japan–US relationship.”

Tensions with Trump

The tensions in the US relationship with Japan were analysed in This Week In Asia published by the South China Morning Post. It says pressure from the US has forced Japan to start talks aimed at narrowing its trade gap with America. It had a $69 billion surplus last year.

The thoughtful article by Crystal Tai quotes Yves Tiberghien, director emeritus of the Institute of Asian Research at the University of British Columbia. He suggests that Donald Trump has taken an old trade war to a bigger level.

“But there’s something more toxic about this round,” says Mr Tiberghien. “The current approach by the US is actually one that abuses, bullies and threatens, which affects trust and confidence. It could affect the global trading system, it may not even help the US in the end.”


Abe’s summit with Xi marks a new chapter in their relationship

Mr Abe can expect to be treated with the greatest of respect as he enters the Great Hall of the People in Beijing in the company of President Xi Jinping this week. The leaders are celebrating their first full-scale summit since 2011.

Remarkably, the stage is now set for President Xi to make his first official visit to Tokyo next year, including a meeting with Japan’s Emperor.

Five years ago, it would have been almost inconceivable that Mr Abe would be warmly welcomed in China. At that time, China’s state media portrayed Mr Abe as a revisionist, who had make light of Japan’s invasion and occupation of China and other Asian countries in the mid-20th Century. The Chinese were scathing of his version of history and his nationalist politics. They also derided him for presiding over a stagnant economy, while theirs was booming.

Money matters

Economics play a crucial role in the Sino-Japanese relationship. Mr Abe is accompanied on his trip to China by representatives of hundreds of Japanese companies, which would appreciate a share of the vast resources which China offers its partners, especially those countries which lie in the path of its ambitious Belt and Road initiative.

Those trade routes take a western path, from China to Europe, while Japan lies to China’s South East. Logistically, though, Japan could support Belt and Road if it wished to do so; although so far, its involvement is limited, especially at a governmental level. Mr Abe rightly questions whether the plan is genuinely designed to deliver international benefits, or if it is primarily aimed at serving China’s national interest.

The new normal

Mr Abe has spoken of the relationship between China and Japan returning to normal. That means that Japanese companies often try to overlook the political and ideological differences between Japan and China, which are profound. In the past three years, under President Xi, China has placed special emphasis on the need for businesses to consult with the Communist party at every stage of the decision-making process.

Official figures this week suggest that China’s economy is still growing at a striking pace – six and a half percent, although most economists warn the official data nearly always falls in line with government targets.

The Trump factor

Nevertheless, the trade war between China and the United States is causing disruption. It is also having a knock-on impact on Japan, which has been hit by tariffs on some of its exports to America. China is therefore encouraging Japan to consider where its allegiances lie.

Although China has overtaken Japan as the world’s second largest economy, it remains clumsy in its diplomacy, with few friends or allies. It has recently risked further censure through an intolerance of democracy and international law. That should make Mr Abe wary of publicly supporting Sino-centric schemes – especially if the Chinese seek to present him as a subordinate.

Different visions

Mr Abe has said that the key goals of his premiership are to revive Japan’s economy, to nurture its national pride and to restore its global reputation. China has a different dream, in which it plays a globally centrally role, with its ruling Communist party controlling its destiny. Given these two contrasting visions, ideological clashes are inevitable.

Yet the Beijing summit has serves as a reminder that China and Japan can also respect each other as equals with common interests. They have much to offer the rest of the world when they collaborate, not compete.

Softbank is tainted by Saudi Arabia’s notorious image

The disappearance of Saudi Arabian journalist in Turkey, amid strong indications that he may have been murdered, has created a crisis for one of Japan’s richest and most successful businessmen.

Masayoshi Son, the founder of Softbank, is trusted with looking after the vast fortune of the Saudi Arabian government.

CNN reports that Saudi Arabia has pumped $45 billion into the SoftBank Vision Fund, which in turn has invested billions of dollars into tech startups around the world.

For example, last year Softbank invested $4.4 billion in WeWork, which has provided many co-working spaces in cities around the world, including China and Japan.

Murder investigation

However, the image of Saudi Arabia has been severely tarnished by the disappearance of the journalist Jamal Khashoggi, who writes a column for the Washington Post, which is often critical of the Saudi authorities.

“What we’re talking about here is a reporter who was allegedly murdered and dismembered in an embassy so this cannot be allowed to stand – it’s so egregious,” the independent technology analyst Stephanie Hare told the BBC.

She said that Saudi Arabia put a further 45 billion into Softbank’s Vision Fund last week. “The Saudis know that oil is not going to be a cash cow for ever so they are investing in tech and buying companies through Softbank,” explained Ms Hare. “But everyone know about the poor record Saudi Arabia has on human rights.”

There is no official statement on the situation on Softbank’s website but the big question is whether the partnership with Saudi Arabia has become too toxic to continue.

Davos in the desert

One way to judge how foreign companies view the situation is to watch if they attend a big investment conference in Saudi Arabia next week, dubbed by the media as Davos In the Desert.

CNN reports that the Japanese company Nikkei has withdrawn as a media partner for the event.

JP Morgan CEO Jamie Dimon and the heads of America’s top investment firms Blackrock and Blackstone are among the leading figures who have decided to stay away. But there has been no announcement from Softbank yet.

Political element

One of the goals of Softbank and other Japanese companies which do business internationally is to steer clear of politics as far as possible.

That is also why the Japanese government rarely initiates sanctions, with the notable exception of its tough stand on North Korea.

However, in this instance it will be difficult for Japan and Softbank to ignore the international outcry over Mr Khashoggi’s disappearance and the major implications for all those organisations which do business with the Saudi government.

Mr Trump has pushed Japan down an unwelcome road

Donald Trump has forced Japan into making a huge concession in terms of its trade relationship with the United States, according to the Financial Times.

The newspaper says that Japan has agreed to hold bilateral talks with America on trade. That’s significant – because up to now Japan has had a policy of negotiating as part of an international multilateral group.

In many ways, a bilateral – country-to-country – negotiation makes Japan’s position weaker.

So why has the Japanese Prime Minister Shinzo Abe, a supporter of multilateral negotiations, capitulated on this point?

Too big to battle

America is Japan’s largest trade partner. It is a crucial market for Japanese companies like Sony (owner of Colombia), Toyota and Softbank.

Japanese people have strong affection for American brands like Starbucks, McDonalds and Disneyland. So for Japan, talking to America directly makes sense, rather than as part of a group which includes other countries with different relationships with the United States.

Trump’s preference

Donald Trump much prefers bilateral deals and negotiations. It’s been his preference since he worked in business before he became president. It is clear that it makes it easier for him to press his American First agenda if the talks are bilateral rather than multilateral.

The Financial Times says the goal for Mr Trump’s is to “remake the world’s trading system”. The paper implies that countries which have “buckled under pressure” to the United States – like Japan – are likely to escape sanctions on their imports into the US.

Alan Beattie, the FT’s reporter, wrote: “Tokyo therefore finds itself pushed down the bilateral route.”

What is bilateral?

Japan has a much valued free trade deal with the European Union.

It’s often referred to as a bilateral arrangement although that is a slightly strange term to use about a deal with the European Union, which is a trading block made up of 28 members.

Negotiating with it, or them, is not easy – as Britain has learned from its extremely complex Brexit process to leave the EU.

China factor

Japan’s trade deal with the US comes in the context of a huge and escalating trade war between the US and China. Japan has already been caught in the crossfire, suffering heavy tariffs on its iron and steel exports to the US, with negative implications for its automotive industry.

Alan Beattie says Japan wants to “usher Washington down a more collaborative road” which I think neatly sums its up Japan’s diplomatic approach.

Why would it wish to fight with its ally over trade if there’s a chance of a better arrangement which suits both countries?

Unlike Japan, which is a fundamentally very pragmatic country, China appears to be in no such mood for collaboration or compromise.

The ideology which drives the Chinese government is inherently hostile to that of Donald Trump’s America First agenda. And Mr Trump’s advisors are taking a tough approach to China which is causing trouble to both sides.

Japan’s goal is to keep as friendly as possible in terms of business and diplomacy with both America and China. That’s an enormous challenge given Mr Trump’s disruptive approach, the rapid economic growth of China and the ideological divide between the nations. It leaves no simple choices for Japan’s hard-pressed diplomats.