China’s trade interests temper its regional rivalries
A dispute between China and Japan over the arrest of a Chinese fishing boat captain shows Beijing’s desire to assert itself on the world stage without severely damaging its primary goal of continuing its rapid growth.
In the two weeks since the fishing trawler collided with Japanese patrol boats near a group of disputed islands, Beijing has canceled ministerial level contact with Tokyo and Chinese travel agencies have been told to stop offering trips to Japan, a destination for 1.8 million Chinese tourists last year.
But Chinese officials this week denied a report that Beijing was banning exports to Japan of minerals needed for the manufacture of high-tech products such as hybrid cars and wind turbines. Such a restriction would represent the strongest move yet in the diplomatic row and signal China sees its commercial influence as a key way to protect its interests.
Tensions remained high Thursday as four Japanese were reported to be under investigation on suspicion of illegally making videos of military targets in China, the official New China News Agency reported.
Buoyed by high economic growth, ample liquidity and one of the few growing consumer markets for multinational firms to battle over, China has in the last year rejected calls to appreciate its currency, walked away from a global emissions treaty and appeared unenthusiastic about international appeals to exert greater pressure on North Korea and Iran to abandon their nuclear programs.
International firms have complained that they are denied access to Chinese markets unless they are willing to give up intellectual property to Chinese joint venture companies. Others complain of being blocked out of government procurement contracts.
“If this fight continues, it’s possible that China would take such hard actions” as banning mineral exports to Japan, said Li Guanghui, a researcher for the Ministry of Commerce. “This dispute hurts China’s core interests.”
In January, China threatened to impose sanctions on American firms involved in a $6.4-billion arms deal with Taiwan, but those threats never materialized. Boeing, one of the largest companies that would have been affected, has since sold hundreds of millions of dollars’ worth of planes to China’s flagship airline.
“What that suggests is China is flirting with using its economic leverage but it may not be confident pulling the trigger because of the implications,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “It all reflects the uncertainty of China’s rising influence. There is growing confidence and interest in being more assertive. But China is also economically interdependent with the region and the world. Its military and political heft is untested.”
Some experts are skeptical that China would be willing to risk rattling its economy, let alone a $230-billion trade relationship with Japan, to coerce diplomatic results. Any export ban probably would increase efforts by trading partners to tap alternative markets or develop sources at home.
But experts also say Beijing wants to appear tough against Japan, a neighbor still loathed and distrusted by many in China for its brutal oppressions during World War II. Public opinion influences the government’s policies involving Japan, they said.
“When it comes to Japan, the Chinese people tend to point their fingers at the government and say the government is acting too weak,” said Zhou Yongsheng, a professor at the Chinese Foreign Affairs University in Beijing. “Anger among Chinese people toward Japan has grown a lot.”
Diplomatic flare-ups between China and Japan are not uncommon, but have rarely been allowed to rise to such a level of tension.
In 2005, the publication of a Japanese history book that critics said whitewashed its World War II atrocities led to mass protests in China. During the rallies, which many believe were sponsored by the government, activists burned Japanese flags, threw rocks at the Japanese Embassy in Beijing and called for a boycott of Japanese products. Many also opposed Japan’s bid for a permanent seat on the U.N. Security Council.
Analysts point to more deeply seated issues that have divided the two Asian neighbors. In previous years, Chinese officials bristled when then-Japanese Prime Minister Junichiro Koizumi made his annual pilgrimage to Tokyo’s Yasukuni Shrine to Japan’s war dead, which includes the remains of convicted war criminals. Despite the diplomatic chill, the period was a boon for Sino-Japanese trade.
Along with the most recent dispute over the islands in the East China Sea — known in Japan as the Senkaku Islands and in China as the Diaoyu Islands — Japan also plans a $1-billion project to drill for oil and gas in a disputed stretch of water west of Okinawa that both countries claim as their exclusive economic zone.
China recently passed Japan to become the world’s second-largest economy, a milestone rich in symbolism for two nations whose profiles appear to be heading on unequal footing with Beijing’s continued ascendance all but guaranteed.
Though Chinese President Hu Jintao’s leadership has tried to define the country’s foreign policy as a “peaceful rise,” there is no denying the mounting unease neighbors feel about Beijing’s expanding presence.
“Japan fears China will use its growing economic leverage and military prowess to throw its weight around and dominate the region,” a 2008 report by the Council on Foreign Relations said.
China has increasingly pressed its territorial claims to waters and islands off its coast — areas rich in underwater oil and natural gas deposits.
Seven other countries have claims in the sea. Beijing has been trying to negotiate bilaterally with the smaller neighbors thinking its size and clout will give it advantage.
The Assn. of Southeast Asian Nations, however, has appealed to the United States to strengthen its position in the South China Sea to counter Beijing.
President Obama met separately with Chinese and Japanese leaders at the United Nations on Thursday, discussing the issue of Chinese currency as well as their maritime sovereignty disputes. He described the relationship between the U.S. and Japan as a cornerstone of world peace and security.
On the financial front, China has indirectly forced neighboring countries to devalue their currencies to keep up with China’s robust export sector.
Andy Xie, an independent economist based in Shanghai, said China’s new muscle reflects growing political will to act more boldly in the international arena.
“The policy of keeping your head down is running into some resistance,” Xie said. “The generation now grew up without the fear of hunger. They have a different perspective. The government has to reflect this mood. It’s why we’re seeing a stronger response.”
Economists say a full-blown trade war between China and Japan would be highly damaging, but is also unlikely.
“My perception is this is largely theater,” said Arthur Kroeber, managing director of GaveKal-Dragonomics, a Beijing-based economics consultancy. “Historically, [the tension] lasts six months to a year and then it’s back to business as usual. ... There isn’t a lot of ability or interest in using large-scale economic leverage against another country because you always punish the domestic economy as well. It’s always a two-way transaction.”
Seoul bureau chief John M. Glionna and special correspondent Kenji Hall in Tokyo contributed to this report.
