The Trade Relationship between China and Japan - Research Paper Example

Japan-China Trade al Affiliation) Introduction China and Japan are Asian countries on the Pacific Ocean. Japan is an island country (Shimaguni) consisting of several island with four main islands. These are Honshu, Shikoku, Kyushu and Hakkiado. The main Japanese islands lie one hundred and twenty miles off the mainland. The Sea of Japan separates the Asian continent from the Japanese Archipelago (group of islands). The East China Sea connects with the Sea of Japan which is bounded by the Kyushu and Ryuku islands of Japan and the South China Sea. China is the third largest country in the world located in Eastern Asia. The islands between China and Japan named Senkaku(as per Japan) and Diaoyu(as per China) have been a main cause of disputes between the two countries, as shown below1. Statement of Issue The trade relationship between China and Japan has grown significantly over the period of forty years. The Japan-China relationship is one of the most important trade relationships in the world. This bilateral relationship promotes economic welfare and growth, security and peace in Eastern Asia and as a result, the entire world. The Japan-China economic relationship is however plagued by historical and political tensions and disagreements2. Research Site One of the main factors that have greatly influenced the international trade between China and Japan is the convenience of the geography between these countries. The geographical proximity enables both nations to acquire what they need at a lowered price. China is a landlocked country on the West and is bordered by the sea to the East. China’s coast faces Japan. The ability to escape unnecessary warfare, reduced transport fees, the general ease of transportation is the main benefit the nation gains from its geographical position. China uses both the Pacific Ocean and its landlocked side for exportation through ships and freight trains. China participates in the mining industry. The presence of rare earth minerals mainly in the West makes it a lucrative trade partner for Japan, which uses these minerals in its widespread electronic industry3. The large electronic industry in Japan is one of the greatest contributors to the country’s economy. The terrain and climate in China facilitates its agricultural sector which is one of China’s main exports. Japan is not a resource rich environment, that is, the presence of natural energy resources and metallic ores is minimal. The country’s terrain and climate limit the agricultural sector. These geographical factors boost the country’s need to trade and import these resources and the relative proximity with China facilitates this exchange. The performance of the Japan- China bilateral relationship compares well with the performance of each countrys trade with all their other trading partners generally. The proximity of Japan and China, their complementary economic structures and the multilateral settings in which both are deeply integrated have been more powerful drivers of trade than the ups and downs of politics. Some of the main goods involved in the Japan China trade relationship include silk, clothing, clothing accessories, fish, textile/ metal processing machinery, rare earth materials, rare metals, ferrous materials, non-ferrous metal products (refined copper and automobiles), chemical products, construction/mining machinery, communication equipment and other electronic equipment. The trade conducted between these two countries also involves other nation, as shown in the diagram below4. Major Japanese export products to China include electric and mechanical products, base metals and the products, medical products, chemicals, transportation facilities, optical and horological products. The major Chinese exports to Japan include electrical and mechanical products, textiles and clothing, raw materials, toys, furniture, base metals, chemical products and miscellaneous products. Literature Review The trade between these two countries began after the countries normalized relations following the Second World War. Japan is one of the most important developed non-super power countries to China. This is because of its geographical proximity, historical and cultural ties which are some of the factors that facilitate trade between these two nations. The antagonism between Japan and the South East Asian nations, especially China arose from the unresolved history relating to the Second World War5. The most significant incident that led to the root cause of China’s attitude towards Japan is termed the ‘Nanking Massacre. History estimates that Japanese troops killed about three hundred thousand people in the city of Nanking during the six week period following the capture of the city in 1937. This occurred during the Sino-Japanese War. This became a very thorny issue in the relations between China and Japan. Historical records show that the Japanese soldiers engaged in beheading contests using their Samuria swords, mass rape of the female citizens and much more reprehensible behavior. The historians also document the issue of ‘comfort women’ which refers to what the Japanese called the women they sexually exploited in the countries they occupied in an organized manner showing that the Japanese viewed the people as less than human. The Chinese state made sure they keep the memories of these occurrences fresh in the minds of their citizens through the education system through a system termed the ‘Patriotic Education’6. Following 1950, Chinese relations with Japan changed several times, form the hostility to cooperation and cordiality. The main concern of the Chinese nation was the remilitarization of Japan and how it would affect their nation. This continued after Japan was defeated and the People’s Republic of China was formed due to the presence of United States troops in Japan. At this time China tried to create a trade agreement with Japan in an attempt to influence their decision to remain as allies with the United States Government. Economic relations between China and Japan were the only relations between the countries by the 1970s. These relations were affected when China decided to reevaluate the trading plans agreed upon. China wanted to reduce the quantity of Japanese technology it imported7. Further tension between the nations was sparked in 2001 following the Visit by the prime minister, Kozumi to the Yasukuni Shrine to pay respects to the convicted Japanese war veterans. This gesture that was seen as very offensive to China, South Korea and other countries that had suffered as a result of the Japanese occupation. Japan is China’s fourth largest trade partner, whereas China has been Japan’s largest trade partner from 2007. The Ministry of Commerce developed a report on the statistics showing Japan was the largest trade partner for China until 2003. Following 2003, Japan was surpassed by the European Union and the United States. The trade between Japan and the People’s Republic of China has declined following the dispute over the East China Sea archipleago. The islands of Senkaku as referred to by Japan and Diaoyu as referred to by China. Although most of these islands are uninhabited and have been under the administration of Japan, both these nations consider these islands as their sovereign land. The disputes stem from the presence of vast lucrative untapped oil, mineral and fishing rights accorded to the islands. On September 2011, records show that Japan purchased three of these islands from private owners, a move China viewed as underhanded. This sparked a series of chain reactions among the citizens. There were protests mainly at the Japanese embassy in Beijing. These events triggered an economic backlash that affected trade between the nations and intensified their territorial disputes. The location of the islands is shown in the map below8. In 2012, the exports from Japan to China amounted to 73.54 billion United States (US$) Dollars, which was a 6.2 percent reduction from 2011. The import from China in the same year totaled about 91.92billion US$ which was a 7% increase from the previous year. At the middle of the year 2012, Japan ranked as the highest cumulative investor in China amounting to 83.97 billion US dollars. Japan imported 3,007 tonnes of rare earth metals which has decreased by 50% from the previous year, accounting for 49.3% of China’s rare earth metal import reports. China is one of the Japan’s largest automobile markets, however in the 2012 annual report showed that Japan’s automobile sales to China decreased by 15 percent year on year to about 75,300 units from 442,500 units9. China is the biggest debt holder for the Japanese nation. At the beginning of the year 2012, China held a total of 18 trillion yen, which is about two hundred and thirty billion US dollars. In the year 2014, China granted Japan the approval of the government bonds amounting to 65million Yuan which is about 10.5 billion US$. The countries also started direct currency trading in 201410. The Japan-China trade has increased between 2010 and 2011 as shown in the figure above. The increase is fueled by an increase in the expanding domestic demand in Japan for imports of manufactured goods and assembly parts from China. The total rate of trade growth in 2011 fell as a result of the decrease in Japan’s exports to China11. Policy Options Political distance is the measure of how close two countries are politically and geopolitically. A measure of how well they get along. The politics will determine the foreign policies between countries. The growing trade between the two countries has been affected by the different political sensitivities that stem from regional rivalry and unresolved historical issues as described above. Politics have severely affected the economic relations between these countries and has led to the reduction or the complete cessation of economic transactions. The bilateral trade agreements between China and Japan have been present over several years and neither has underpinned the economic relationships between the two nations. The Long Term Trade Agreement of 1978 and the Bilateral Investment Treaty of 1988, which were developed before china became fully committed to marketisation and has not influenced the recent growth in the economic trade between the countries. Both these agreements are outdated and mostly irrelevant to the current nature of trade between these countries. The political differences could be the main reason the trade agreements have not been updated over the years. Both countries have agreed on the international institution system embodied by the World Trade Organization (WTO). This agreement has masked the political tensions between the countries and increased their trading capacity. China agreed to this treaty in 2001 following fifteen years of negotiation. This is one of the most important policies established in international trade. The effect of Japan’s economic interest and investment put the nation on the map as a lucrative global market12. Historically, the two nations have shown they can work together. In 1978, the then Chinese and Japanese leaders agreed to leave their disputes over the islands for settlements in the future. This decision allowed North East Asia to remain stable for more than forty years. The recent move by Japan to purchase the islands has breached this contract leading to the hostility and the disputes discussed above. As a solution to these issues, china developed the Declaration on the Conduct of Parties in the South East Asia in 2002 which set the right pace for relation in South East Asia. While economic relationships are not independent from politics, as is also shown, the Japan-China trade relationship does not appear to have been diminished or disturbed by political tension to any significant extent. While political relations can derail other economic relationships, or act as barriers to trade, for Japan and China they would seem to matter only at the margins13. Recommendations Research institutes have studied the possibility of a Free trade Agreement between China, Japan and Korea since 2003 referred to as CJKFTA. The study showed several macroeconomic benefits that would be achieved from the study. Some of the benefits include service trade liberalization and broad coverage, as well as bring these nations closer together. The joint agreement should be reaffirmed as a midterm goal, the policy is recommended to include joint liberalization of the service industry, the governments of each of the countries should endeavor to minimize any incompatibilities between the rules of origin and the number of excluded items should be minimized. The countries are also recommended to carry out various research programs. In order to improve Japan-China relations and the global trading system in general, the Democratic Party of Japan’s (DPJ) secretary general, Ozawa Ichiro recently took Chinese leaders to Japan. This unprecedented move is said to have a positive effect on the both the nations relations in 2010. The leaders recommended discussion and progress on the difficult historical issues and steps to be taken to move beyond them14. Chinese accessions to the WTO agreement are recommended to be highly beneficial to the bilateral trade relationship between Japan and China. These include tariff liberalization, market access concessions and reduction of border measures so as to integrate China into the global market15. Conclusion The trade between China and Japan has been steadily declining over the past few years and this is likely to continue. This decline is attributed to the strained ties between the nations. Research experts postulate that the pace of contraction may decline significantly. This is due to evidences of recovery of demand within the two nations. However, some of the demand will never regain its bearing as some Chinese nationals completely refuse to buy Japanese brands16. The Sino-Japanese relationship has shown tremendous progress following the 2006 tensions. There is resumption of leadership visits showing improved relations. This is a far cry from the low point reached in 2005 with the presence of anti-Japan protests and isolated boycotts throughout China17. The commitment of china to the WTO agreement and other trading agreements is one of the major factors why this bilateral trading relationship has not been completely shattered. These agreements have acted as insulation against the recurrent political tensions and the economic relationship has remained intact. This commitment to a rule based global trading system allows the relationship to continue to grow despite irreconcilable political differences between these nations. These are the reasons why most researches expect the decline in trade to normalize soon enough18. References Armstrong, Shiro P. "The politics of Japan-China Trade." The Role of the World Trade System, 2012: 10-81. Board, Chinese Economic. "The problems facing Japan-China Trade." Japan-China Trade, 1999: 7-20. Dolan, Roland E. Japan:A Country Study . London: Federal Research Division of The Library of Congress, 1998. Grigg, Richard, and George Foster. Report on the trade of China and Japan. Washington: Government Printing Office, 1999. Hitchcock, Frank. Our trade with Japan, China, Hongkong. Washington: Government Printing Office, 2000. HongChong, Ton. "Trade with China and Japan." Trade Relations in Asia, 2001: 44-60. Jansen, Marius. The making of modern Japan. Belknap: Belknap Press of Harvard University, 2001. Latourette, Kenneth Scott. China. London: Prentice Hall, 1999. Marukawa, Tomoo. "Trade Frictions between China and Japan." Bilateral Trade, 2012: 53-70. Ogawa, Kazuo, and Tamao Watanabe. "Introduction to Japan-China Trade." The Chinese Economy, 1999: 70-99. Rathus, Joel. Japan and China: A Networked regionalism in East Asia. New York: Palgrave Macmillan Press, 2011. Sampson, Gary. The role of the World Trade Organization in global governance. Geneva: United Nations University Press, 2001. Sulighara, Kaoru. The growth of Asian International Trade. London: Oxford University Press, 2005. Webster, Timothy. "China-Japan Free Trade." East Asia Institutionalities, 2008: 77-89. Zeng, Zhu. "The Comparison of innovative activities and trade effect in China and Japan ." Chinese Economics and Foreign Trade Studies, 2009: 2-17. Read More