Business Spectator (Australia)
December 12, 2012
by John Lee
Last month, we witnessed the American people voting to retain Barack Obama for a second term, and a once-in-a-decade leadership transition in China. On Sunday, the third largest economy will cast their ballot in the Japanese general election. The polls consistently indicate that former prime minister Shinzo Abe from the centre-right Liberal Democratic Party will scrape through, although he will need to cobble together a coalition to take power. If so, this will restore the status quo in Japanese politics, in which the LDP ruled for all but eleven months from 1955 to 2009.
Breaking the mould of the consensus-based bureaucratic style of many Japanese leaders, Abe's style is unusually forthright and confident. Many foreign leaders will appreciate a straight-talking leader in Tokyo, even if they may not always agree with Abe's policy settings. Not so China. There is a groundswell of opinion within Japan that Tokyo should no longer be cowed by Chinese regional assertiveness. And for many Japanese, Abe is the one willing to stand up to Japan's larger neighbour.
Just like Australia, China is now the largest trading partner of Japan's. But unlike Australia, the Japan-China economic relationship is far more complex and profound than the Australian one with China. For a start, two-way trade in 2011 was around $US350 billion. Importantly, there are thousands of Japanese companies doing business inside China. Most are in mandatory joint-venture partnerships with Chinese firms, meaning that Japanese businesspeople and politicians know what it 'capitalism with Chinese characteristics' really means, unlike many Australian counterparts who rarely have to butt heads with the Chinese system and officials. At the end of 2011, there was an estimated $US83 billion of accumulated Japanese foreign direct investment in China. In other words, the economies of China and Japan are far more integrated with each other than between Australia and China.
Moreover, Japan and China have a deep history of rivalry and conflict that continues to this day. This is currently being played out in the dispute over the Japanese-administered Senkaku Islands (the Chinese call these the Diaoyu Islands) in the East China Sea. Readers can trace a historical basis for the dispute, and decide the merits of the arguments put forward by respective claimants for themselves. But since the ongoing dispute flared up again from September onwards, Beijing has demonstrated that it is prepared to link political and strategic issues with economic reward and punishment.
In September China's vice minister for Commerce, Jiang Zengwei, officially sanctioned and encouraged the boycott of Japanese goods and firms – particularly cars and electronic products. Chinese based travel agencies were leaned upon by officials to cancel or postpone tours to Japan, leading to a 33 per cent fall in Chinese tourist numbers to Japan in October. Japanese firms such as Toyota, Honda, Nissan and Panasonic reported damage to their operations and property as thousands of Chinese embarked on anti-Japanese marches. It would be unthinkable that these protests occurred without authorities having previous knowledge that they would occur.
Beijing's willingness to use trade as a strategic or political lever was deployed against Japan in 2010 over the same dispute when China halted the exports of rare earths to its neighbour. More recently, China temporarily halted the import of bananas from the Philippines due to the dispute over the Scarborough Shoal, threatening some 200,000 Filipino jobs. Indeed, two German academics from the University of Gottingen published a paper in 2010 demonstrating that where a country angers Beijing by meeting with the Dalai Lama, trade with China will fall between 8.1 per cent-16.9 per cent, and will remain depressed for a couple of years after the Dalai Lama visit.
Such behaviour will simply amplify the perception of unpredictability and 'political risk' in the Chinese market, causing many world-class companies to further hesitate basing major operations in the Chinese market. This will set back ongoing Chinese efforts to hasten technology and know-how transfer into its economy – something that corporate China still desperately needs despite the size of its enormous 'national champions'.
But let's get back to the probability of an incoming Abe Japanese government. Even those from the centre-right of politics have generally taken a softly-softly approach to China, figuring that one was more likely to solicit Chinese cooperation in the absence of diplomatic confrontation and strategic forthrightness.
When Abe was prime minister from September 2006 to September 2007, he broke the mould. He was the personal driving force behind the now defunct Quadrilateral Initiative, a strategic partnership framework agreement between Japan, the US, India and Australia. The initiative established the foundation for enhanced strategic cooperation and naval exercises between the four democratic powers. Formed at a time when regional states were still uncritically accepting the self-proclaimed rhetoric of China's rise, the initiative was premature and a little too provocative. Abe also argued for an enhanced and meaningful strategic partnership with India. Importantly, the then prime minister was not backward about declaring that these proposals were all about retraining Chinese ambition and behaviour – probably the first modern Asian leader to openly say so.
Even in the lead-up to the upcoming December 16 election, Abe has been upfront that he will pursue an assertive alliance strategy, and in particular the deepening of the US-Japan alliance. Presumably, concluding a meaningful security alliance with Australia would also be high on his to-do list. Abe has also indicated that he would re-examine the self-imposed restriction that Japan spend no more than 1 per cent of GDP on defence. There are even credible rumours that he would consider supplementing Japan's highly impressive defensive military capabilities with formidable offensive military assets such as ballistic missiles, strategic bombers and amphibious units. If so, this could necessitate a 'reinterpretation' of Article 9 of the post-World War Two Japanese Constitution which states that "the Japanese people forever renounce war as a sovereign right of the nation and the threat of use of force as means of settling disputes…" and further that "To accomplish the aim… land, sea and air forces, as well as other war potential will never be maintained."
If Abe assumes the leadership, many will fear a deterioration of China-Japan relations, with uncertain economic repercussions for trade between the two countries and the region. Such a deterioration in the bilateral political and economic relationship may well occur. But if it does, a more assertive Abe government may not be to blame.
After all, when the centre-left Democratic Party candidate, Yukio Hatoyama, rose to power in June 2009, Tokyo pursued a much more lenient line towards Beijing. Never a supporter of the American naval base Okinawa, Hatoyama openly declared that Japan should put less emphasis on the American alliance and more effort into an exclusive East Asian economic and strategic zone – underpinned by closer strategic relations between Japan and China.
Former Australian prime ministers Paul Keating and Malcolm Fraser, wanting a shift away from America and a more intimate relationship with China, should take note.
Beijing's diplomats might have applauded the softer Japanese line but 2010 was the year China pushed its weight around, picking fights with Japan, South Korea, Vietnam, the Philippines and Australia – causing the entire region began to question the credibility of China's self-proclaimed peaceful rise. (An initially conciliatory President Obama was also continually rebuffed and humiliated, by admission of officials in his own administration.)
Beijing's muscular and aggressive behaviour over disputes in the East China Sea and South China Sea may well be unrelated to Hatoyama's softer approach. But Tokyo's conciliatory line certainly didn't temper Beijing's behaviour then, and even current centre-left Prime Minister Yoshihiko Noda has toughened his stance against China.
Abe is nothing but consistent. His calculation then and now is that China will offer few economic favours or strategic concessions to a meek Japan and a stronger, firmer posture will certainly do no harm. It may even cause Beijing to think twice about the cost of pushing its military and economic weight around East and Southeast Asia. Diplomats in the region will be fretting. But recent history appears to vindicate his assessment.
John Lee is a Hudson Institute Visiting Fellow and an Adjunct Associate Professor and Michael Hintze Fellow for Energy Security at the Centre for International Security Studies, Sydney University. He is the author of Will China Fail? (CIS, 2008).
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