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China-Japan Relations
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Contents
Executive Summary
This is an analysis of the China-Japan relations which has proved to be a major geopolitical issue that threatens the economic and political stability of the world. The paper provides a wholesome summary of the historic tensions and factors that caused this rift. The Chinese and Japanese economies are analyzed separately followed by an integrated analysis is made on their combined economies and the impact of this relationship. The challenges and obstacles hindering improved China-Japan relation are observed a well as it impact on financial markets and the global economy. China and Japan are the top economies in Asia and among the top in the world; this makes it necessary to understand the dynamics of their relationship from an investor’s perspective and for a global understanding of political and economic order.
China-Japan Relations
China-Japan rivalry dates back to the nineteenth century during the first Sino-Japanese War. The two countries are located in East Asia, separated narrowly by a streak of the Pacific Ocean. This first war between August 1894 and April 1895, was fought between these two countries over the control of Korea, a small country located between them. Korea had abundant amounts of coal and iron which attracted both Japan and China. A group of Japanese nationalists attempted to overthrow the Korean government but Chinese forces intervened. Both countries signed an agreement to withdraw their forces from Korea and this way a war was averted. However, the war was still looming and was slowly building up. Kim Ok-kyun, a Korean reformist activist, was killed and his body displayed in public, stirring tension and anger amongst the Japanese. Later the Tonghak rebellion broke out in Korea and the Chinese were quick to send forces, a move that was seen by the Japanese as a violation of the agreement that had previously been signed. These events led to a war breaking out in August 1894 (Paine, 2005).
The Japanese were heavily armed and well equipped with modern technology machinery which enabled them to conquer a large part of China very quickly. The war ended with the signing of the Treaty of Shimonoseki. China was obligated to provide trading privileges to Japan in their regions. China’s defeat revealed a weakness to the world and many western powers took advantage of their weakness for trading privileges and speak against the Chinese rulers.
This war was followed by years of tension and strained relationships between China and Japan. The second Sino-Japan war broke out between 1937 and 1945 and was the largest Asian war of that time. China was backed by Germany, the United States and the Soviet Union. The war was triggered by years of the Japanese aggressively trying to expand their territory and conquer neighboring regions. The Japanese went ahead to attack Pearl Harbor, a US naval base in the Pacific and destroyed many of their ships which they had heavily invested in to conquer the Pacific trade. The following day, the United States declared war on Japan. The United States actively supported the China by providing equipment and aiding their logistics. China slowly took back all its regions that had been conquered and Japan slowly began succumbing to the pressure before finally accepting defeat and surrendering in September 1945 (Beevor, 2012). This war primarily offset the Second World War and triggered countries to align themselves either with the Japanese or the Chinese. The war then progressed into a battle of supremacy and world domination to emerge as super powers.
The Nanjing massacre was the lowest point in the second Sino-Japanese war. The massacre lasted for six weeks after the Japanese captured Nanjing. It claimed over 300, 000 lives with more than 20,000 being raped. The massacre is a painful memory for the Chinese, the women and children who were raped and the looting that took place. The perpetrators were tried and executed though many more went unpunished.
These events have led to the deep rivalry and hatred between the Japanese and Chinese. The Chinese preserve the history of the suffering and lives lost to the Japanese, recounting all the wars and massacres perpetrated by the Japanese. For the Japanese, they view these historical events as separate events carried out by older generations of Japanese. For this reason, the Japanese appear un-remorseful to the Chinese. Furthermore, the historic events have been extensively described in the Chinese curriculum with little or no mention of it in the Japanese curriculum. This has ensured that the Chinese remain aware and bitter about it while the Japanese generations remain ignorant.
These deep-seated past experiences and attitudes the two nations have towards each other has proceeded into their current relations and have translated into silent economic and supremacy wars. The two Asian countries have the strong global economies with each trying and implementing policies to outdo each other and gain a permanent position in the Asian and international markets. Japan has focused on technology creation while China has focused on production and distribution. While Japan has made great progress in establishing their space in technology, automotive production and electronics, China has majored on mass production and global distribution of utility products.
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China is essentially a domestic demand –driven economy and has made great economic progress in a short period of time by using this strategy. Recently, China has made adjustments to shift to a domestic demand-driven economy following the economic meltdown and currency state in the country. Presently, it is seeking to strengthen its domestic consumption and take advantage of its large local population and dominant position in the neighboring markets (Bush, 2013). Currently the second largest economy in the world, China’s new strategy is to concentrate on quality production over quantity production. With the already world-wide recognition of Chinese production, boosting their quality which has for the longest time been their limiting factor will ensure permanent capture of all markets. The impact of China has now become a vital factor in international financial markets and global trade. Luckily, the Chinese economy and local [population has embraced this new shift and are buying into the idea of domestic consumption.
For Japan, the economy has for long been domestic demand driven. However, Japan’s economy has slowed down following a sharp decline in their domestic demand. A good example is fish supply that is now in surplus in Japan. Due to local and external supply, Japan has a surplus of fish, both processed and unprocessed (Flath, 2005). The same applies for other goods produced in Japan that largely rely on domestic demand. The recession and global economic state has had dire effects especially on emerging economies that are progressing well but have not fully established themselves such as Asian countries. The Japanese economy shrank massively in the last part of 2015 following the decline in demand. The gross domestic product has been recorded to have valuably declined as well. Wage declines have fueled this situation and reduced the buying power by local people. As the third largest economy, the decline will negatively influence the economy and make it even harder to restore the nation’s performance.
China and Japan undoubtedly play a big role in the stability of the global economy. Their combined economic power is sufficient enough to sway the performance of international currencies and destabilize them. Many developed countries are now implementing policies in consideration of these economies. International policies are also being altered to accommodate the current state of Chinese and Japanese economies.
China underwent a historic and well-calculated economic reform that has covered about four decades. The reforms involved shifting from a conservative economy to an open economy that allowed foreign adjustments and protectionist policies. Privatization contributed the most to the economy which was recording growths of about 10% annually. These reforms and growth has revolutionized the Chinese economy leading to development and reduced poverty levels. The dual track system became successful providing a specific currency and rate for private investors and a different price for state investors (Lin, 2011). China is now concentrating on monetary and currency reforms to make its currency flexible and independent while still strengthening its buying power against other international currencies. This will also include fiscal reforms and tax cuts to provide a more conducive economic environment.
On the other hand, Japan’s economy, though facing major blows in the past months, has been struggling for the past decade to revive its once-thriving economy. Their economy has for many years been undergoing a sharp decline and a simultaneously stagnant growth rate, with deflation being the biggest problem. Among the various efforts made to correct the situation is Abenomics, a policy which combines fiscal expansion, monetary flexibility, and structural reform (Norman, 2015). The policies work towards human capital and creation of competition. Abenomics is still at its infancy and has not yet recorded any substantial advantages or disadvantages. In the meantime, the country’s economy still continues to struggle to attain stability.
China’s and Japan’s economic policies continue exhibit strong aspects of codependence. The slowdown in the Chinese economy seems to have affected the Japanese economy just when it seemed as if Japan’s structural reforms were bearing results (Pettis, 2013). The two countries are closely linked by foreign investment and trade activities. Japanese is the largest foreign investor in China with the two countries being large trading partners. The wage and salary reforms are likely to benefit from China’s wage system which is now seeking external skills. Japan has a wide range of skills especially in the technology sector that can readily be be paid for in China.
Today, the China-Japan relations are characterized by sovereignty competition in Asian and across the global space. China still remains a communist state with a one party rule while Japan has adopted a more democratic and open system (Croll, 2006). The Diaoyou islands have been the subject of border conflicts that have intensified the tension between the two countries. Japan’s recent nationalization and naval fortification of the Diaoyou islands only continues to provoke China and destabilize their relations. The battle over territories is not a mere boundary dispute but a reflection of impact of the agreement made during the Cairo Declaration after the Second World War. This conflict is a test on the power relations that came with the end of the Second World War. This means that a breach of these treaties could lead to international unrest and global political alignments that could cause another major war. This uncertainty and delicate state of the Chinese-Japanese relations threaten the economic development of these two nations.
Nevertheless, with the recent slow-down, the future of China in terms of long-term economic performance remains uncertain. China has moved from being one of the poorest countries to having one of the strongest economies in about forty years in what was popularly known as the China Miracle. China’s growth was driven by investment and production with little emphasis on employment growth. For example, the one-child policy was aimed at preventing population growth, while other policies such as the Hukou system were designed to restrict labor movement or migration into another city other than the city of birth for work-related reasons. This has made China’s productivity highly dependent on foreign investment. Japan, which has been among the top investors in China has experienced its share of economic stagnation thus reducing the country’s investing ability (Flath, 2005). Demand for Chinese products has also drastically fallen mainly due to rapid but temporary economic booms.
Most of the reforms being pursued by the Chinese government are targeted at the country’s fiscal regime, construction, and infrastructure, with the main target being developing countries. China’s attempt to revitalize the economy through this means seemed to be working only for it to reveal itself as a short-term fix that led to a short-lived boom between 2008 and 2010. Things went back to normal in 2011 and slowed down even more when the government lowered its growth projection to7 percent. The present projection is that China is falling into the middle-income trap, a common phenomenon with countries that experience rapid growth only to suddenly low down and to fail to take off again.
On the other hand, Japan’s economy depends heavily on efforts to put in place labor reforms. Like many other western countries, it is experiencing an aging workforce and an inefficient workforce (Flath, 2005). In addition, most women in Japan do not work or seek employment after childbirth further infringing on the labor situation. Japan’s labor issue is a time-bomb waiting to explode, but whose effects have been disguised by the cheap health system as well as the benefits the elderly continue to receive. Living standards are already recording significant drops and poverty levels are on the rise. Government debt has also caused a ripple effect on the weakening economy. The decline of China and Japan and their struggling relations continues to cripple these economies.
The territorial dispute between Japan and China remains a major variable for the two countries’ economic prospects even though a war between them is very unlikely. A war would not be to the benefit of either of the countries whose priorities now I to stabilize their economies (Mitter, 2013). With bilateral trading power totaling in the hundreds of billions of dollars, the effects of such a war would cripple the Asian economy and ultimately the global markets. The Chinese stock market has directly influenced Japan since they are immediate bilateral trade partners. The market crash started with the onset of the stock market bubble in June 2015. Shares on the Shanghai Stock Exchange devalued rapidly within the first few months. The market had stabilized by December, but still remained below expectations. Unfortunately, it started declining again in January 2016. Fortunately, this drop may be considered temporary; it appears to follows the shift from production and external demand to service and domestic consumption.
Besides, tension between Japan and China has discouraged foreign investment especially from the West. This is not because of fear of losing their investment but rather because many countries do not want to be create the impression that they are aligning themselves with one of the countries. National alignment during the Second Sino-Japanese war fueled and caused the Second World War and subsequent global divisions whose effects are still being felt today. Furthermore, this would begin another global supremacy battle at a time when another World War would pose a significant threat to the survival of humankind.
Additionally, financial markets continue to experience negative shifts and declines in Chinese and Japanese stocks that have become high-risk security instruments. This has indirectly influenced global financial markets particularly in major western countries since these countries rely heavily on productivity and manufacturing from Asia. At the same time, developing countries are benefitting from Japanese and Chinese manufacturing industries as both countries continue to compete for a share of business opportunities available in the developing world (Croll53). It is unfortunate that these developing countries have traditionally experienced unstable growth due to their dependence on such unstable foreign markets that have their own share of volatility problems.
In general, whether the tensions between China and Japan will ever end soon seems very unlikely. Centuries ago, the two countries had smooth relations, and Japan appears to have adopted much of its culture, music, art and literature from China. The struggle between the two nations followed territorial disagreements that date back centuries ago. Separated by a strip of the Pacific Ocean, the two neighbors have fought over many of the islands on the coasts. They have even gone ahead to disagree and fight over international waters. It is these conflicts and the ongoing global expansion that led China and Japan into a battle on supremacy and sovereignty in economic and political matters. Their diverse population and high level of skills present in both countries propelled the competition. However, global peace participants and leaders continue to intervene in hopes of warding off a major war involving China and Japan. These two Asian countries are poised to continue experiencing harsh economic conditions in the next five years, and therefore should concentrate on stabilizing their economies and forging closer bilateral ties to achieve maximum productivity and economic progress.
References
Beevor, A. (2012). The Second World War. London: W&N.
Bush, R. C. (2013). The perils of proximity: China-Japan. Washington, DC: Brookings Institution.
Calder, K. E. (2006). China and Japan’s simmering rivalry. Foreign Affairs, 6. Web.
Croll, E. (2006). China’s new consumers: Social development and domestic demand. Abingdon: Routledge.
Flath, D. (2005). The Japanese economy. Oxford: Oxford University Press.
Lin, J. Y. (2011). Demystifying the Chinese economy. Cambridge: Cambridge University Press.
Mitter, R. (2013). China’s war with Japan, 1937-1945. London: Allen Lane.
Norman, L. (2015). Japan’s Abe wants to improve relations with China. The Wall Street Journal, 5. Web.
Paine, S. M. (2005). The Sino-Japanese War of 1894-1895. Cambridge: Cambridge University.
Pettis, M. (2013). Avoiding the fall: China’s Economic Restructuring. Washington, DC: Carnegie Endowment for International Peace.
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