Developments in Japan-China Economic Relations over the Past 50 Years since the Normalization of Diplomatic Relations

1. Assistance for China aiming at realizing Reform and Opening-up Policy

In September 1972, Japan’s Prime Minister Kakuei Tanaka and Foreign Minister Masayoshi Ohira visited China, resulting in the normalization of diplomatic relations between the two countries.

Around that time, the Japanese economy was exiting its period of rapid growth. Fiscal 1969 was the last year it posted double-digit growth in real GDP (gross domestic product) – 12.0% to be exact.

From 1971 to 1990, the Japanese economy was in a period of stable growth, logging a real growth rate of 4.5% per year on average.

In short, 1972 came on the heels of the Japanese economy having entered a new era. During the 20-year period of stable growth, Japan joined the club of rich countries and developed social security infrastructure.

The 1960s was marked by a substantial change in the awareness of the Japanese public, especially their awareness of the need for environmental protection. Back then, environmental pollution was of great public interest.

The Chinese economy is now exiting a rapid growth period of its own. The 19th National Congress of the Communist Party in 2017 called for a shift in focus from quantitative economic growth – a traditional national goal. Since then, the Chinese government has been aiming for quality improvement of the Chinese economy and society.

Now the international community considers China as a whole more like a developed country, although regional economic disparities remain.

Progress is being made in the social security system and public infrastructure. The Chinese public is now more aware of the need to protect the environment. There are many parallels between China today and Japan in the 1970s and 1980s.

Yet another similarity with Japan back then is that China is having a hard time addressing economic friction with the United States.

All these developments constitute the historical background to the normalization of diplomatic relations between Japan and China, which set the stage for active economic exchanges between the two countries.

Back then, the Japanese business community felt a sense of deep gratitude to Beijing for having renounced demands for war reparations. Japan’s leading businesses spared no effort to transfer technology to Chinese firms and otherwise extend cooperation for the reconstruction of the Chinese economy.

In December 1978, Chinese leader Deng Xiaoping called for reform and opening-up as a national goal. This marked a major policy shift toward a free market economy.

A little earlier, in October that year, the charismatic Chinese leader visited Japan. Impressed with the real strength of the Japanese economy, i.e., ample public infrastructure as well as Japanese firms’ prowess in terms of technology and business and labor management, Mr. Deng reportedly felt the sheer economic gap between developed countries and China.

Under the subsequent reform and opening-up policy, many Japanese businesses made inroads into China. They transferred technology, created jobs, and helped increase tax revenues.

The Tiananmen Square incident occurred in 1989, and Western countries denounced the Chinese government. Diplomatic ties between China and Japan were frayed to the point of being severed at one point.

Things changed when Japan took the lead among Western countries in resuming economic assistance to China in November 1990. In the summer of 1991, Japan’s Prime Minister Toshiki Kaifu became the first leader of a developed country to pay an official visit to China after the Tiananmen Square incident.

In 1992, Their Majesties the Emperor and Empress of Japan visited China. A China fad ensued in Japan.

Japanese government officials and business managers were enthusiastically welcomed in China. They were poured drink after drink at banquets.

Back then, I was a secretary at the Japanese Embassy in Beijing. Many times a week, I went to Beijing Capital Airport to pick up visitors from missions from Japan. I busied myself with arranging and supporting interviews and social events for them. As I recall, I was more like a travel agent.

2. Japan’s Economy Slowdown and Long Period of Stagnation

The honeymoon was brief.

In Japan, the economic bubble burst in 1990. Beset by nonperforming loans, the Japanese economy entered prolonged stagnation. It grew 0.9% on average in real terms from 1991 to 2010.

In terms of per capita GDP, Japan ranked second or third among the OECD countries during the 1990s. During the 2010s, it fell to around 20th.

By around 1990, Japan had been a model for economic development for China. As Japan’s bubble burst, the hitherto brilliant economic development lost luster in no time. Japan was no longer a model from which China should learn.

Rather, Japan became a good model of what not to do as Japan was dogged by unstable economic fluctuations. Under pressure from the United States, Japan signed the Plaza Accord, which invited a rapid appreciation of the yen. This was followed by the formation and burst of the asset bubble. The stagnation was prolonged.

The Japanese economy, which had achieved such remarkable development from the ashes of World War II until the 1980s, slipped rapidly into the protracted doldrums. It thus provided a model that China must not follow.

This was why senior officials and economists of the Chinese government intently studied the process of how Japan’s economic bubble formed and burst. They worked on economic policy management with extra care so that they would not commit a similar mistake in policy decision making.

As China’s respect for the Japanese economy waned rapidly during the 1990s, Japan condemned China’s nuclear testing and often went into dispute over historical and other issues. As a result, bilateral relations chilled rapidly.

By contrast, Beijing valued strengthening relations with the United States. Washington, for its part, focused on the policy of engagement and took a conciliatory stance toward China. The idea was to co-opt China into the ranks of capitalist democracies.

Japan-China relations soured while US-China relations improved. This was highlighted by the fact that when US President Bill Clinton visited China in 1998, he passed up a visit to Japan.

Progress was also made in people-to-people exchanges between the United States and China. Many Chinese people, ranging from students to high-ranking government officials, went to the US to study.

Supported by the United States, China successfully acceded to the World Trade Organization (WTO) in 2001. This accession paved the way for China to benefit from free trade and expedited the export-oriented development of the Chinese economy.

3. From “Cold Politics and Hot Economics” to the Senkaku Islands Dispute

The year 2001 saw the launch of the cabinet of Prime Minister Junichiro Koizumi. Mr. Koizumi visited Yasukuni Shrine almost every year, which invited rebuke from Beijing. Diplomatic relations between the two countries thus worsened.

And yet Japanese businesses, especially those in labor-intensive industries, made more inroads into China in search of cheap and abundant labor to reduce costs.

This period was dubbed the age of “cold politics and hot economics,” a term denoting bilateral relations that have chilled politically but warmed up economically.

After joining the WTO in 2001, China expanded its exports at an alarming rate and attained amazing economic growth without being bothered by trade frictions with the West, unlike Japan used to be.

China spent huge amounts of money to stimulate domestic demand in the wake of the collapse of Lehman Brothers in September 2008, which triggered the 2008 financial crisis. Demand thus created saved the global economy from a great depression, attracting global attention to the sheer strength of the Chinese economy.

This came with heightened nationalism among the Chinese public.

This marks an end to the age of tao guang yang hui (hide your strength, bide your time), a doctrine advocated by Deng Xiaoping. China came to think that it was now entitled to assert itself in international relations.

This prompted China’s diplomacy to take a hard-line stance.

On the back of such changes, Japan-China relations deteriorated after a Chinese fishing boat collided with a Japan Coast Guard vessel in 2010.

In September 2012, a territorial dispute arose over the Senkaku Islands, sinking bilateral relations to a post-war nadir.

4. Deeping US-China Rivalry and Complex Economic Relations

Japan-China relations remained in dire straits until Premier Li Keqiang visited Japan in May 2018.

Under the second term of the Barack Obama administration (2013–16), the United States raised its guard against China but stopped short of taking specific hardline measures in terms of security and trade policies.

With the launch of the administration of Donald Trump in January 2017, the United States turned extremely tough on China and imposed sanctions one after another in the trade and technology war.

China reacted with retaliatory sanctions. The US-China trade war plunged to rock bottom in 2019.

Around that time, however, many US companies began to call on the US government to ease sanctions against China that adversely affected their business.

Beijing continued to focus on luring foreign investment. Accepting requests from Washington, the Chinese government explicitly stated by law that it would reduce the gap in treatment between foreign and Chinese companies and liberalize overseas remittance by foreign firms.

In 2020, however, Western countries stepped up criticism against China for its pandemic management, “mask diplomacy,” and human rights record. This heightened confrontation on the diplomatic front.

Meanwhile, since the second half of 2020 onward, China businesses have taken over the production of products for Western countries as the pandemic forced manufacturing plants in Southeast Asia and elsewhere to suspend operations.

Increased exports from China supported the supply of essential goods (PCs, smartphones, masks, etc.) amid the pandemic, deepening interdependence between China on the one hand and Japan and Western countries on the other.

As Beijing successfully reigned in the pandemic, the Chinese economy rebounded most prominently in the world. Accordingly, leading companies in the West continued to increase their investment in the Chinese market.

As all these developments suggest, economic ties and diplomatic and security relations are going in opposite directions. In this way, the international situation surrounding China has become complex recently.

Media outlets in many countries often fail to accurately report such a state of affairs, leaving the public in the dark.

5. Learning Lessons from the Past 50 Years for the Next 50 Years

It is clear from the above that for the past 50 years, China has learned a lot and received assistance from the Japanese government and businesses. It has made appropriate use of such learning and support in policy management. These actions have helped China attain marvelous economic development.

In stark contrast to such close economic interdependence, Japan-China relations have been in the doldrums since the second half of the 1990s. Mutual understanding, mutual respect, and mutual cooperation have been weak between the two countries.

In retrospect, Japan and China have not been on good terms for more than half of the past five decades. Strained bilateral relations have adversely affected economic and cultural exchanges between the two countries.

Media reports from both countries should take much of the blame. They have highlighted the negative aspects of the other country, effectively pitted the two countries against each other.

Many Japanese businesses have become wary of doing business in China owing to their misperception of the country or out of consideration to the sentiment of the Japanese public. They have thus lost profit opportunities.

This is partly to blame for the relative decline of the Japanese economy among the OECD countries.

Many Japanese parents took media reports at face value and came to harbor strong Anti-Chinese sentiment as a result. They did not allow their children to participate in exchange programs between the two countries, depriving many Japanese youth of the opportunity for mutual understanding.

For the past 10 years, the tendency of the media to overemphasize the negative information about China has spread from Japan to Western countries as a whole. Public sentiment in the United States and Europe toward China has deteriorated as in Japan.

Such sentiment cannot be helped if it is the result of fact-based reporting. It is often the case, however, that reporters with poor understanding of China write stories based on one-sided assumptions or inaccurate hearsay. And the public in these countries is often swayed by such reporting. This is extremely regrettable.

Non-Chinese who are in direct contact with the Chinese through business or cultural exchanges are all aware of such faulty media reporting.

Owing to advances in information technology and artificial intelligence, a system has now been put in place whereby Internet search engine users gain access to information that is automatically customized to their liking.

Those who harbor anti-Chinese sentiment are exposed to negative information about China; neutral information is often blocked.

This further exacerbates the division in communication resulting from misperceptions. This kind of technological advance seems to do more harm than good for international mutual understanding.

We need to look back at Japan-China relations over the past 50 years, engage with the challenges mentioned above, and ponder what bilateral relations should look like in the next 50 years. In this way, we can come up with new ideas for improving Japan-China ties.

This year marks the 50th anniversary of the normalization of diplomatic relations between the two countries. I hope that this occasion will help restore such a cool-headed and positive stance.