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Home >> Opinion
UPDATED: 09:58, December 24, 2004
Article alerts China-Japan relations to changes
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The China-Japan relations have walked all the way through 2004 amidst the "chilly politics and hot economics" clamor of the media.

In politics. Although Chinese President Hu Jintao and Premier Wen Jiabao respectively held talks with Japanese Prime Minister Junichiro Koizumi during an international meeting held in a third country at the yearend, political relations between the two countries have not seen the expected breakthrough due to lingering obstacles created by the visits to the Yasukuni Shrine.

In economics. As China deepens its opening up and expands scope of trade; as China carries out macro-controls and realizes a soft landing of the economic growth; as the yen keeps growing stronger relative to the renminbi; as Japan is to end ODA (Official Development Assistance) to China, growth of trade intercourse between China and Japan is beginning to show trend of slowing down and presenting the reality of being surpassed, although the absolute value is still expanding.

In 2004 the China-Japan political relations keeps cooling down. As a matter of fact the relations have had impact on the further heating up of the China-Japan economic relations. Experts point out that if the Chinese and Japanese leaderships still fail to come up with resolute political decisions the possibility cannot be excluded that the China-Japan relations may transform from "chilly politics and hot economics" into "chilly politics and cool economics.

Japanese enterprises and the original sin
C. H. Kwan, senior fellow at Nomura Institute of Capital Markets Research, said the heating up of the China-Japan economic relations would be conducive to improving the political relations between the two countries in the long run. In the short term, however, the reality is that continued chilliness of the China-Japan political relations has had serious impact on the economic and trade exchange between the two countries.

Confronted with growing calls from the Chinese people to face the history the Japanese enterprises are bearing the question of original sin both in terms of history and national sentiment. The market environment and social pressure they are facing in China disadvantage them in competition, a situation completely different from that of European and US companies.

Many Japanese companies have realized that this question of original sin cannot be dodged. Therefore they engage actively in making social contributions. They follow one another in investing in education, setting up scholarships, getting involved in greening and forestation in China, hoping to foster a good relationship with the Chinese society. But the efforts of individual companies cannot solve the problem, and the final solution regarding the national sentiment and political relations between China and Japan requires political decisions.

As anti-Japanese sentiment keeps soaring in China through 2004 the position of Japanese companies in Chinese people's mind slides down considerably. Top talents are unwilling to work for Japanese companies. According to a survey in 2004 on foreign companies most sought for by Chinese the highest ranking of Japanese companies is No.17, which belongs to Sony whose ranking in 2003 was No.11. Panasonic dropped from No.23 in 2003 to No.32 in 2004 while Toyota was excluded from the top 50.

The fall in position of renowned Japanese companies in the mind of Chinese is of course related to their personnel appointment policy and Nenkoujoretsu - the Seniority System etc. But the general anti-Japan social environment in China is not irrelevant. Kitashiro Kakutaro, chairman of Japan Association of Corporate Executives, said in public that PM Koizumi's visits to the Yasukuni Shrine have had bad impact on Japanese companies' business activities in China.

The coldness of the China-Japan political relations throws to the wind many major economic exchange projects. The Chinese government remains undecided on whether the Beijing-Shanghai high speed railway should adopt the Japanese Shinkansen due to growing opposition among the people as a result of dissatisfaction with Japan's attitude toward the history. The Toshiba laptop incident that occurred years ago, the Mitsubishi Pajero incident, the Toyota Land Cruiser and Prado ads incident and the JAL Kansai Airport incident, all these smeared the image of Japanese companies and attested to the fact that "chilly politics" is a drag on "hot economics".

The trade/investment based China-Japan economic exchange slows down
According to statistics Japan had always been China's largest trade partner until 2003. However, statistics from the first three quarters of 2004 show that bilateral trade volume between China and the EU tops the Sino-US trade, which ranks the second, while the China-Japan trade dropped to the third place. Although the absolute volume of the China-Japan trade is expected to charge toward a new high of $160 billion, compared with the growths of the Sino-EU and Sino-US trade the slowdown of the China-Japan trade is quite obvious.

The China-Japan trade has grown by 26 percent this year but the growths of trade between China and other countries (regions) have all exceeded 30 percent, said Chinese Minister to Japan Cheng Yonghua at a gathering held at the yearend. We do not wish to see "chilly politics" affecting "hot economics".

Judging by the bilateral trade Japan's reliance on China is growing. The proportion of Japanese export to China in its total export has increased from 5.6 percent in 1999 to 13 percent in the first three quarters of 2004. The proportion of Japanese import from China in its total import has also increased from 13.8 percent in 1999 to 20.5 percent in the first three quarters this year. The percentage of the Japan-China trade volume in its total external trade has grown from 9.1 percent to 16.3 percent.

On the other hand, China's trade reliance on Japan is deminishing several years in a row because the volume of China's trade with regions other than Japan is growing at a faster speed. Although Japan is still China's largest import source country the share Japan takes in China's import market has dropped from 20.4 percent in 1999 to 16.9 percent in the first three quarters in 2004. Japan's share in China's export market has also dropped from 16.6 percent to 12.5 percent. The total volume of the China-Japan trade decreased its share in China's total foreign trade from 18.4 percent to 14.7 percent. The presence of Japan in China's foreign trade is fading.

In terms of investment growth of Japanese investment in China has slowed down considerably in 2004. According to statistics released by the Chinese Ministry of Commerce S. Korea's investment in China reached $5.2 billion during the first nine months of 2004 increasing by 70 percent year on year. By comparison Japan invested $4.2 billion during the same period, an on-year increase of only 11.1 percent. S. Korea for the first time surpassed Japan to become China's third largest overseas investment source country.

In history S. Korea's actual investment in China was only $2.7 billion in 2002 and Japan invested $4.2 billion. In 2003 S. Korea invested $4.5 billion and Japan $5.1 billion. In 2004 S. Korea surpassed Japan. It can be seen that compared with the hot economics between Japan and China the ROK-China economics is hotter and displaying a trend of leapfrog growth. Japanese investment in China, on the other hand, is stagnant by comparison and short of action and excitement.

Appreciation of the yen reinforces China's manufacturing role
The appreciation of the yen encourages Japanese companies to move more production into China. Japanese products are indirectly exported to the western market after making a round in China. The appreciation of the yen has led to the expansion of Japanese export to China rather than shrinking. Japanese exports to China are not final products. They are huge amount of intermediate materials and parts. Therefore Japan's export to China would strengthen in the next six months - the appreciation of the yen has, on the contrary, reinforced China's role as the manufacturing base.

Chinese government has implemented macro-controls in 2004 and the annual growth rate is expected to stay at around 9.3 percent. The Chinese economy has basically realized a soft landing without making much impact on the Japanese economy.

What catches our attention is the exception of automobile - the auto industry in China has had a "hard landing". Sales in October declined by 40 percent compared with the sales peak in March. Coupled with the sharp decline in prices profits of the auto industry has dropped considerably. Due to the anticipation of continued diminishing in returns rate in China's auto market the German Volkswagen has modified its investment plan in China in November and reduced the investment by 22 percent.

C. H. Kwan has always kept a sober observation of the investment mode of Japanese auto companies swarming into China. Unfortunately the reality now confirms his prediction. According to statistics the three auto giants in Japan - Toyota, Honda and Nissan produced a total of 705,000 automobiles in China in 2003. The three auto giants had originally planned to increase production to more than 1.5 million in the next 3 or 4 years. However, the "hard landing" of China's auto market resulted in consumption fallback and increased stock. The situation is growing grim.

C. H. Kwan points out that if the three Japanese giants are unable to ensure anticipated returns they are bound to modify or reduce their investment plan in China. Without the support of major projects the "hot" China-Japan economic relations may turn "cool" and experience a setback.

Japanese hold good mid & long-term view of China
The continued situation of "chilly politics and hot economics" may lead to "chilly politics and cool economics" in the short term. From a mid and long-term standpoint, however, Japanese companies still view China as the first choice for overseas investment.

The financial research department of Japan Bank for International Cooperation (JBIC) conducts sample surveys on Japanese companies every year. The results from the 2004 surveys indicate that 91 percent companies selected China as their first choice as the most hopeful country or region in which to unfold investment plan and business. China led the runner-up - Thailand by 61 percentage points. China has taken the lead every year in recent years and is progressing steadily, which shows the growing confidence of Japanese companies in China.

By People's Daily Online

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