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World
Print Edition> World
UPDATED: September 9, 2014 NO. 37 SEPTEMBER 11, 2014
A Costly China-Japan Stalemate
The fallout of tensions between the world's second and third largest economies damages both sides
By Mei Xinyu
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To ask which side suffers more in the China-Japan stalemate is a fruitless question—as the world's second and third largest economies, the potential losses of each party are clear. And besides disrupting the economic development of East Asia, the jarring dispute between China and Japan has had an impact on the global economy.

Undoubtedly, however, Japan's foreign trade dependency on China—which is several times that of China's on Japan—makes the situation especially difficult for the Japanese Government. Despite attempts to modify its China policy, therefore, the Abe administration cannot ignore the fact that the two countries share a crucial economic relationship.

Trade talk

China and Japan enjoy a solid trade foundation, but bilateral trade has been trending downward in recent years. In 2013, bilateral trade volume totaled $312.55 billion, down 5.1 percent year on year. Of these, China's exports to Japan went down 0.9 percent year on year, while Japan's exports to China dived 8.7 percent. Seen from a longer time frame, then, Japan is likely to suffer the worst of the decline in foreign trade.

Since 1990, most significant trade disruptions between China and Japan have in fact been connected with the missteps of the Japanese Government. Furthermore, bilateral political relations will continue to heavily affect China-Japan economic relations in the future. Given the asymmetrical nature of trade between the two sides, it can be concluded that Japan could pay an even steeper price in any ensuing trade war.

Meanwhile, China's share of the global economy continues to grow rapidly: China's GDP in 2013 was nearly double that of Japan's, and it had long before established itself as the world's second largest and fastest-growing importer in the world. From 2005 to 2009, the average growth rates for U.S. and Japanese imports stood at 7 percent and 6 percent respectively, while that of China's was as high as 22.4 percent. From developed economies such as Canada, Australia and Germany to developing countries including Brazil, Sudan and ASEAN nations, more and more trade partners have benefited from China's burgeoning demand. The $10-trillion import plan China proposed last year provides additional fresh opportunities for its trade partners. The China-Japan political stalemate will take a toll on the current economic development of both sides and will certainly pose a greater threat to Japan's position in the global economy.

The Japanese industry is currently undergoing a period of challenging transformation and upgrading, and the prospects of its success could be severely damaged if Japanese businesses fail to secure long-term and profitable investment in China.

The Japanese home appliance industries—once a demonstration of Japan's manufacturing prowess—have suffered enormous losses due to rising production and labor costs and the new wave of technological innovation. They are in dire need of seeking overseas manufacturing bases to overcome the problems at home. China is undoubtedly the ideal destination, as it possesses unparalleled advantages in market size, labor resources, infrastructure, public services as well as supporting industries.

Furthermore, as the fastest growing economy among major powers, any enterprise or industry that hopes to lead the world market must first succeed in the Chinese mainland market. To this point, Taiwanese enterprises Master Kong and Want Want China Holdings Ltd. are good examples. Germany's time-honored engineering brand Schaeff, which failed to nail a joint-venture agreement with Chinese companies in the 1990s, is now itself a target for Chinese bidders.

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