By Wang Luo
Since China and Japan established diplomatic relations 35 years
ago, especially during the past 20-plus years since China initiated
its reform and opening-up policy, trade and economic relations
between China and Japan have developed quite quickly.
In 2006, Sino-Japanese trade volume reached US$207.36 billion,
increasing 12.5 percent from a year earlier. China exported
US$91.64 billion to Japan, up 9.1 percent from the previous year,
while China imported US$115.72 billion from Japan, for a yearly
growth rate of 15.2 percent. China is Japan's second biggest
importer and Japan is China's third biggest importer.
Japan is now China's second biggest investor, but its total
investment in China in 2006, US$4.598 billion, was 29.6 percent
lower than that in 2005. Japan has been China's main technology
exporter in recent years: one fifth of China's imported
technologies and one sixth of China's imported high technologies
are from Japan. Trade and economic relations between the two
countries are formed on the basis of a strong complementarity.
This is an outstanding characteristic of their trade and
economic ties. But, as economic globalization expands and China's
economy develops steadily, the content of that complementary
relationship is being gradually altered.
First, the trade structure between the two is changing. In the
1980s, China exported crude oil, coal and agricultural byproducts
in return for Japan's mechanical equipment, automobiles, home
electrical appliances and steel. In the 1990s, industrial products
took up a greater proportion of China's export structure and
primary products were no longer the main export products to
Japan.
Last year, China's exports to Japan centered on mechanical and
electrical equipment and spare parts, textile raw materials and
products, non-precious metals and related products, foods and
beverages, and cigarettes and alcohol. Meanwhile, China imported
mechanical, electrical, audio and video equipment and spare parts,
non-precious metals and related products, chemical industrial
products, and optical and medical equipment from Japan. What China
imports from Japan are capital- and technology-intensive products,
including IT products and mechanical equipment, while Japan imports
relatively labor-intensive products from China.
Second, direct investment complements the bilateral trade ties.
In recent years, as China's economy has developed, its industrial
structure has been upgraded, with an enlargement of the market
scale. Japan's domestic industrial structure has made adjustments
as well, as Japanese enterprises focus on setting up a global labor
division system. Thus, the complementary nature of Sino-Japanese
ties in the investment field has become more obvious, and the
investment standard is higher. Evidence shows that Japanese
enterprises' direct investment in China favors the development of
Sino-Japanese trade. The growth of China's exports to Japan on some
level is a benefit of Japanese direct investment, which is also the
inevitable result of a complementary advantage and cooperation
mutually beneficial to China and Japan.
Although bilateral trade ties have developed to a certain scale,
these ties have degraded in recent years.
Trade was the first field to be influenced. In 2006,
Sino-Japanese trade volume grew 12.5 percent on a year-on-year
basis, which was lower than the average growth rate of such trade
during the previous 12 years. Meanwhile, the Sino-Japanese trade
volume was only 11.8 percent of China's total trade volume last
year, while in 1994 the proportion was 24 percent.
Recently, Sino-Japanese political relations have encountered
some problems, which have influenced the development of bilateral
trade and economic relations. However, the degraded trade and
economic ties cannot be regarded as the direct result of changed
political relations.
Japan's importance as one of China's main trade partners has
slipped. On the Japanese side, China is its biggest trade partner,
which means the bilateral trade ties need to be upgraded. The
reasons for the differing situations are: First, Japan is a much
smaller market than the United States and the European Union (EU)
and has less room for growth; Second, China's exports to Japan are
no longer the biggest part of China's total exports, and the
Japanese market is of less importance to China. At the same time,
the Chinese market is becoming more important to Japan.
The second field affected is investment. In 2006, Japanese
investment in China saw growth, but the growth rate of direct
investment slowed. First, the Japanese Government thought there was
a risk in China's economic development-such problems as the
economic structure, the widening gap between urban and rural areas,
the increase in the number of laid-off workers in cities, a
shortage of power and water resources and environmental pollution.
Attitude from the Japanese Government exerted some influence on the
decision-making in investment by some Japanese enterprises. Second,
Japanese enterprises began to invest in other countries with new
markets and abundant resources, such as Brazil, Russia, India and
South Africa. This trend diversified Japan's investment
destinations. Third, as Japan's domestic economic situation
improved, some enterprises moved their foreign investment projects
with high added-value back to their own country. These three
factors jointly affected the growth rate of Japan's investment in
China in 2006.
The third affected field is capital cooperation between the
governments, which obviously declined in recent years. The Japanese
Government set stricter examination standards for projects in China
while the amount provided declined sharply. On the other hand, the
Japanese Government is providing more and more economic aid to Viet
Nam and India.
Former Japanese Prime Minister Junichiro Koizumi once said that
China's economic development in recent years was so outstanding
that it should be removed from Japan's governmental capital
cooperation list. This remark directly caused the decline in
Sino-Japanese governmental capital cooperation in 2005. Now, the
Japanese Government has basically decided that it will stop
providing government loans and free technical cooperation to China
in 2008. Therefore, governmental capital cooperation will
inevitably cool down.
The fourth field is energy cooperation. China's rapid economic
development in recent years has led to a real and potential need
for energy; thus, energy conservation and environmental protection
have become the hot topics for China, Asia and the world.
Meanwhile, Japan owns fairly advanced technologies in these areas.
If these technologies are introduced to China, they can contribute
greatly to the sustainable development of the Chinese economy, as
well as the balance of world energy demand and supply. So far,
bilateral cooperation in this area is quite limited.
Compared with other trade partners such as the EU, China's
economic ties with Japan have indeed slowed down. However, past
evidence has shown that Sino-Japanese economic cooperation benefits
both sides. If the two countries can jointly overcome their
political problems and develop their complementary economies, the
prospects for trade and economic cooperation will be very
bright.
This year marks the 35th anniversary of the normalization of
Sino-Japanese diplomatic relations. The two neighbors' relations
are crucial to peace, security and economic development in the
Asia-Pacific region. In 2006, Japanese Prime Minister Shinzo Abe's
visit to China was considered an "ice-breaking tour" that marked
the first step toward the "re-normalization" of the two countries'
diplomatic relationship. Later, Chinese President Hu Jintao and
Prime Minister Abe reached a common understanding at the APEC
Summit in Hanoi on setting up a strategic and mutually beneficial
relationship and promoting communication and cooperation in
different fields. This month, Chinese Premier Wen Jiabao pays an
official visit to Japan, which is regarded as an "ice-melting tour"
that will create a wider space and beneficial environment for the
development of bilateral trade and economic relations.
China puts a high priority on Sino-Japanese relations and
actively promotes the rapid development of bilateral trade and
economic relations. The two countries should expand and strengthen
their cooperation in direct investment, mutually beneficial
cooperation on energy conservation and environmental protection and
the service industry, so as to promote the healthy and stable
development of their trade and economic ties.
The author is with the Chinese Academy of International Trade
and Economic Cooperation, the Ministry of Commerce
(Beijing Review April 10,
2007)
