Protests threaten China-Japan economic ties

J. Sean Curtin (Fellow, GLOCOM)

The angry wave of anti-Japanese protests sweeping China for the past three weeks has generated a deep sense of unease in the business community as it threatens bilateral economic ties. Many fear that the current tensions, sparked initially by the approval of eight revisionist Japanese history textbooks, could significantly disrupt booming trade and investment flows.

Since the demonstrations begun, Japanese nationals working in China have begun to feel increasingly uneasy, and some are already planning to leave. Business confidence has taken a severe knock, especially after this weekend's violent anti-Japanese disturbances in Shanghai, a city where more than 40,000 Japanese expatriates live. Chinese threats to boycott Japanese goods as well as an escalating dispute about exploration rights in the East China Sea are edging a tense situation toward breaking point.

Until now, healthy bilateral trade volumes have been largely unaffected by poor Sino-Japanese political dialogue. However, there are very real indications that unless political leaders moderate their tough nationalist rhetoric, mutually beneficial economic bonds could start to deteriorate. Sunday's awkward meeting of Japanese Foreign Minister Nobutaka Machimura and his Chinese counterpart Li Zhaoxing in Beijing produced little discernable progress. Tokyo demanded an apology for the demonstrations and Beijing refused to give one. Tokyo stocks plummeted across the board on Monday, with the key Nikkei index recording its biggest one-day loss in 11 months and ending at a four-month low.

Linda Yueh, an expert on the Chinese economy at the London School of Economics (LSE), warned, "There is potential for serious economic consequences, particularly with the suggestion of a boycott of Japanese goods in China." Despite the present strains, she is hopeful that sound economic logic will prevail. "The strong and growing economic ties between the two countries, particularly in terms of trade and investment, have the potential to withstand the current tense political situation."

China is Japan's biggest trading partner, accounting for 20.1% of its trade in 2004. In concrete terms, it was worth a staggering 22.2005 trillion yen ($206.56 billion) in 2004 with exports to China hitting 11.8278 trillion yen and imports totting up to 10.3727 trillion yen. Major Japanese firms such as Toyota Motor Corp are expanding rapidly in China while big Chinese players such as the Shanghai Electric Group are entering the Japanese market.

Any disruption to investment flows would seriously damage both economies, increasing the chances of harming bilateral commerce. Professor Christopher Pokarier, an economist at Waseda University who recently returned from Shanghai, says, "While it is always difficult to put a firm figure on the economic cost of worsening Sino-Japanese relations, politics can and does impact on business. The effects are difficult to separate out from other developments in the business environment but nonetheless might be felt through regulatory impacts on Japanese firms operating in China, demand for Japanese products, and poorer progress on bilateral resolution of barriers to closer economic engagement."

Anti-Japanese sentiment spreading
The Chinese authorities have attempted to ease tensions by restricting demonstrations, ordering the media not to report the disturbances and temporarily closing some universities, which have acted as hotbeds for anti-Japan protests. However, it is unclear how anti-Japanese sentiment can be effectively contained now that it has been so passionately ignited. The most recent demonstration in Shanghai, Shenzhen and other cities clearly indicate that anti-Japanese feelings are spreading and protesters are prepared to defy bans on demonstrations.

In recent years, a variety of incidents have sparked anti-Japanese protests and riots, but none succeeded in damaging trading links or developed into a meaningful boycott. The latest outbursts arose in conjunction with a movement to boycott Japanese products,* but this campaign has so far failed to have any significant impact.

For the present, most Chinese consumers are not shunning Japanese goods, allowing Japanese businesses to operate almost normally. Japanese supermarket chain Ito-Yokado successfully opened a huge new store in Beijing last Thursday without incident. Once its doors were open, it was swarmed with thousands of keen Chinese shoppers. For the moment, Japanese companies are breathing an uneasy sigh of relief, but there is palpable sense of uncertainty about the future.

Japanese business angry with politicians
A senior Japanese executive living in Beijing said, "The current problems stem from poor political management and have absolutely nothing to do with the way we conduct our business in China. The failure of politicians is threatening successful ventures. This cannot be and must not be allowed to happen. What the Japanese and Chinese leaders must do is resolve their differences before they harm our economic prospects."

Despite the current gloom, many business people still believe economics will prevail. A Shanghai-based Japanese businessman who did not wish to be identified explained, "If we can rise above the current passions, we see it is not in China's or Japan's economic interest to have bad relations. We have invested billions of yen in China and it would be economic suicide for both to attempt to disengage from this process."

Many Japanese in Shanghai were heartened last week when the municipal government announced that it would not allow any anti-Japanese protests. However, the fact that on Saturday tens of thousands of people defied these warnings and staged violent demonstrations illustrates how easily nationalist passions can defeat economic logic.

Unease hits Japanese in China
A major consequence of the latest anti-Japanese tensions is to make Japanese nationals feel uncomfortable living in the Middle Kingdom. To a lesser degree, Chinese in Japan are also feeling a similar sense of unease.

Phil Deans, director of the Contemporary China Institute at the School of Oriental and African Studies (SOAS) in London, said: "The situation for Chinese nationals residing in Japan and individual Japanese living in China is becoming more precarious, and the two governments must be worried about the possible consequences of specific acts of violence and possible reprisals further damaging the relationship."

The wife of a Japanese business executive said: "Since these demonstrations, I have felt uncomfortable. I worried about the safety of my children. They go to a Japanese school and I am scared it might be the target of a demonstration. When I am out shopping, I never speak Japanese. We keep a low profile. It is not a happy situation."

Professor Pokarier said: "The new caution of Japanese business communities and their families in China might have an impact on the deployment of Japanese executives to China. This might have indirect, but nonetheless important, implications for business relations between the two nations."

Koizumi blamed for tensions
While a host of decades-old historical, territorial and political issues have plagued Tokyo's relations with its neighbors, many lay the blame for the current tense climate squarely on the shoulders of Prime Minister Junichiro Koizumi.

A Beijing-based Japanese sales executive who has watched with alarm as political relations have steadily worsened in recent years said: "I blame this situation solely on Koizumi. We should apologize more to China. It just doesn't make sense to unnecessarily upset China. Koizumi should stop his [Yasukuni] shrine visits. It is hurting our investments and threatening the lives of the Japanese people working in China."

Said Ryoji Yamauchi, a political commentator and president of Asahikawa University: "Koizumi is the most nationalist prime minister since the end of the war. His insensitive behavior has offended millions of Asians and is largely responsible for our current difficulties with China."

The Chinese leadership has repeatedly singled out Koizumi's pilgrimages to the war-tainted Yasukuni Shrine as the main factor inhibiting bilateral political dialogue. Yasukuni serves as a memorial to Japan's war dead, but since 1978 has also controversially honored 14 Class A war criminals, including the wartime leader General Hideki Tojo. Beijing regards the shrine as the spiritual symbol of Japan's brutal wartime regime and therefore considers prime-ministerial patronage as unacceptable in the same way Israel would not tolerate German leaders visiting a Nazi memorial.

Since taking office in April 2001, Koizumi has made a high-profile excursion to the shrine every year, sparking widespread regional protests on each occasion. These pilgrimages are seen as the reason he has not been allowed to visit China since October 2001. Only one previous Japanese prime minister, Yasuhiro Nakasone, visited the shrine while in office back in 1985. His single outing sparked such intense protests that until Koizumi, Japanese leaders avoided the establishment in deference to Chinese sensitivities.

Shrine visits hurt China ties
Yiyi Lu, a researcher at the Royal Institute for International Affairs in London, said: "In the past, when China protested against the Japanese prime minister's visit to the Yasukuni Shrine, the PM would take notice and make amends. The current one just tells China to take a hike. Japan has become much more assertive recently, not worrying about offending China as it did before. This new assertiveness is something the Chinese government and the public are not used to, therefore it sparks a lot of anger."

Koizumi denies that his contentious shrine forays are directly connected to rising anti-Japan sentiment and the recent protests. "Those are separate issues," he told a disbelieving press conference recently, adding, "The situation has developed over a long period." He has grudgingly conceded that there is "some" connection, but declines to say whether he will pay homage at the shrine this year.

Both Chinese President Hu Jintao and Premier Wen Jiabao have personally warned Koizumi not to go this year as 2005 marks the 60th anniversary of the end of World War II. If Koizumi defies Beijing, much more violent and widespread protests will probably erupt in China, increasing the risk of damaging economic ties.

Note
* A Shanghai-based supermarket operator, Nongunshan Jituan, initiated the boycott at the beginning of April. The organization has 1,200 outlets, and has so far persuaded several other smaller supermarket chains to join it. Their main target has been Asahi beer and Ajinomoto products which the movement incorrectly claims supported a controversial Japanese textbook that the Chinese media says "distorts history."

The false claim originated from a weekly magazine, Guoji Shengqu Daobao, which is published by the state-run Xinhua News Agency. It printed an article accusing Asahi Breweries of sponsoring the contentious textbook. The campaign has also been vigorously supported by anti-Japanese websites.

Copyright 2005 Asia Times Online Ltd. A different version of this article first appeared in Asia Times Online on 18 April 2005, http://www.atimes.com, and is republished with permission.