Japanese Business demands Koizumi moderate China policy

Sean Curtin (Fellow, GLOCOM and Asia Times)

Despite unprecedented levels of bilateral trade and Japanese investment in China, Japanese business leaders and media have been riveted to the anemic - some say abysmal - state of political ties between Beijing and Tokyo, and its negative implications for business. Business leaders are deeply unhappy with this situation and worry that vital economic ties with the Middle Kingdom may be jeopardized by a sharp deterioration in political dialogue because of Japan's wartime history in China.

Some senior business figures have begun to put pressure on Japanese Prime Minister Junichiro Koizumi to moderate what they (and the Chinese leaders and Chinese public) consider to be his insensitive China policy, which China calls the major reason for current political tension. The economic implications are clear. One very prominent business figure summed up anxiety about Koizumi's approach, "There is concern it will hurt business ties between China and Japan."

In recent meetings with Chinese President Hu Jintao and Premier Wen Jiabao at international forums, Koizumi has been warned very clearly that the major impediment to improved political relations is his regular visiting of the Yasukuni Shrine, honoring Japan's war dead, including 14 Class-A war criminals. Given Japan's invasion of China and its history of atrocities there, including the Nanjing Massacre, China considers the continuing visits deeply offensive.

Since his first encounter with Hu, who urged him to end his shrine visits, Koizumi has been forced to soften his position on the shrine pilgrimages slightly. Instead of declaring he definitely will visit it each year, he has moderated this to: "I will make an appropriate judgment in the future." Beijing has interpreted this as progress, but it is far from clear whether Koizumi will yield to Beijing's demand to end the visits.

However, some commentators believe that even if the political situation does not radically improve, economic ties will continue to flourish. Masatoshi Kuratomi, the Development Bank of Japan's chief representative in London, told Asia Times Online, "The framework for sustained Sino-Japanese economic exchanges is now so firmly in place that it seems almost indestructible."

China's seemingly unquenchable thirst for imports has largely fueled Japan's nascent economic recovery. In the first six months of 2004, China imported an extraordinary 3.8 trillion yen (US$36.7 billion) in goods from Japan. The Japanese business community is determined that Koizumi should not be allowed to threaten this staggering outflow of exports.

Since Koizumi came to power in April 2001, Sino-Japanese relations have been severely strained, top-level official visits put on hold, and summit meetings reduced to brief yearly encounters on the sidelines of international conferences. Koizumi's highly controversial annual pilgrimages to the war-tainted Yasukuni Shrine are almost universally blamed for this situation. The Shinto shrine honors Japan's war dead and was the spiritual home of Japan's wartime regime. China, as well as Japan's neighbors, consider it a powerful and repugnant symbol of the country's brutal militaristic past - and continued visits send a negative message to China, Korea and other Asian countries.

Since Koizumi's frosty summit meetings with Chinese President Hu and Premier Wen last month, prominent business figures for the first time have begun to publicly voice criticism of Koizumi's China policy. Kakutaro Kitashiro, head of the Japan Association of Corporate Executives (Keizai Doyukai) told a recent press conference, "I hope that the prime minister refrains from visiting the Yasukuni Shrine. I think this is a majority opinion in the business world." He added, "There is concern it will hurt business ties between China and Japan."

Kitashiro explained that the Yasukuni pilgrimages generate unnecessary anti-Japanese sentiment in China, which Beijing finds difficult to control, since much of the anger is expressed anonymously in Internet forums. "The Chinese government cannot regulate ordinary people's sentiments because often they are using the Internet. I am afraid that eventually a Yasukuni visit will generate anti-Japan sentiments, which will adversely affect Japanese companies' operations [in China]."

Dr Linda Yueh, a highly regarded China expert at the London School of Economics, however, does not think that the tense political climate will adversely affect economic ties; in fact, she believes the astronomical volume of bilateral commerce will eventually have a positive impact on the political equation.

"China and Japan are important trading partners and leaders in the region, despite being ambivalent on the political front," she told Asia Times Online. "With increasing economic ties, there will be growing impetus to maintain stability in political relations. A 'thaw' may not happen quickly, though, as China has a number of strong economic relationships that can be characterized as being 'chilly' politically. However, with growing trade and investment between the two countries, there will be incentives to move toward better relations overall between these two major players in the region and the global economy."

Washington also shares this long-term positive view of Sino-Japanese relations. United States Treasury Secretary John Snow said economics will eventually overcome any political difficulties between Beijing and Tokyo. He told Asia Times Online, "There are always political issues, but fundamentally people look to their economic interests, which normally drive relationships. That is why people want to keep the current economic framework in place. Trade, capital flows, currencies will produce growth and growth will lead to more trade. More trade will lead to more growth, which in turn creates more prosperity, and so on."

However, many in the upper echelons of Japanese industry are not convinced by arguments from Dr Yueh, Secretary Snow and others. A prominent figure in the Japanese financial sector, who spoke on condition of anonymity, captured the prevailing mood. He told Asia Times Online, "To say that most people in the business world are extremely unhappy with the way Koizumi has been handling relations with China is an understatement. I would characterize his approach as irresponsible, counterproductive and just plain stupid.

"Over the next decade, our economic relationship with China will become one of paramount importance, and in many respects this is already the case. There is no logic in upsetting one of our closest business partners and millions of potential customers." He added, "I think Koizumi is a prime example of why politicians are never successful in the business world."

Makoto Sakai, executive director-general of the Japan-China Friendship Association, reinforced this view in a recent interview with the 21st Century Economic Report. He observed, "The Japan-China political relations today are very undesirable, and are incompatible with the economic development of the two countries."

Recently, Japanese business has been watching with alarm as French President Jacques Chirac, Russian President Vladimir Putin, and most recently, German Chancellor Gerhard Schroeder visited Beijing accompanied by large economic delegations. There is a real sense that abysmal political ties could lead to Japan falling behind in an increasingly competitive market.

The Japanese public is also waking up to the growing economic power of China. Attention was most recently captured by the announcement that the Lenovo Group, China's personal computer giant, had signed an agreement with IBM to acquire its Big Blue personal computer business for US$1.25 billion, and another $500 million for liabilities and overheads. The acquisition will have a huge impact on IBM Japan Ltd, which has more than 20,650 employees and sales worth $89.131 billion.

The increasingly close business links mean that many Chinese are now working for Japanese companies and a growing number of Japanese for Chinese companies. This is raising awareness about the need to resolve the current political stalemate.

A Chinese national, who works for a Japanese company, told Asia Times Online, "I do not understand Mr Koizumi's undiplomatic actions; previous Japanese prime ministers showed consideration and respect for Chinese feelings. While I do not think the current political difficulties will impact on bilateral commerce - Chinese people are too business-focused to let that happen - Mr Koizumi's behavior is certainly not helpful," he said, asking that he not be identified by name.

On anti-Japanese sentiment in China, he observed, "There has been a lot made in the Japanese press about Chinese Internet sites that are very critical of Japan, but these are not the views of mainstream people. You can tell from reading these messages that most of the people who write them are not the thinking type. If Koizumi moderated his behavior, interest in such forums would rapidly diminish. Fundamentally there is no reason why China and Japan should be enemies."

Dr Ruth Taplin, director of the London-based Center for Japanese and East Asian Studies, said that poor Sino-Japanese political ties are not particularly relevant in the economic realm. She commented, "China seems to have a cool relationship with quite a few countries, but it does not seem to inhibit their business activities. I think the current situation between China and Japan illustrates the point. You don't necessarily need warm political friendships in order to enjoy good economic ties."

Even so, good political ties would certainly not harm the situation and would almost certainly lay the groundwork for better and more stable bilateral bonds, as well as create new Chinese customers for Japanese goods.

A Chinese law student, who studied in Tokyo for over a year, told Asia Times Online, "There are many things I like about Japan, and I think many Chinese people find Japanese products and lifestyles very appealing. However, it is difficult for us to express these feelings openly because of all the recent political problems. Prime Minister Koizumi has upset a lot of people in China, and it makes it hard for people who want to feel friendly about Japan. I am sure if the next prime minister conducts himself in a proper manner and shows understanding and respect towards China, the situation will improve."

Japanese business leaders seem determined to ensure this student's wish comes true by making their views known. In the coming months and years, the success or failure of their efforts may well help determine the nature of ties between the region's two most important economies.

(This article first appeared in Asia Times Online on 11 December 2004, http://www.atimes.com, and is republished with permission.)