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china business weekly

Cold political relations, cooling economic ties?

Despite the mild recovery in the Japanese economy and steady economic growth in China, trade between the two countries fell 5.1 per cent for the second straight year last year. China's exports to Japan slipped by 0.9 per cent and Japan's exports to China by 8.7 per cent. Japanese investment in China also dropped by 4.3 per cent, despite the overall rise of foreign direct investment into China of 5.3 per cent.

Do the growing political strains between the two Asian giants now extend to economic relations? And does the slogan that used to describe the Sino-Japanese relationship as "cold political relations, warm economic relations" still hold?

If there is anti-Japanese sentiment among Chinese businessmen, it is not having a dampening effect on tourism. Last year Japan shot up to become a favourite holiday destination, with Chinese visitors to Japan almost doubling.

There has also been a number of efforts to try to recover from the frosty relations that developed between the two countries after a territorial dispute in 2012, which led to a Chinese consumer boycott of Japanese goods.

In October, executives from 10 leading Chinese companies visited Japan to encourage Japanese investment in China and in November, a top-level Japanese business delegation went on an economic mission to Beijing.

Even a provocative December visit by Japanese Prime Minister Shinzo Abe to Yasukuni Shrine was played down and the pro-government Global Times ran an editorial arguing against mass boycotts or mass demonstrations.

The reality is these two Asian giants need one another. Japan needs China, as it is a major market and production base, while China depends on Japan for jobs, investment and technology transfers.

Despite the poor trade and investment figures for 2013, there is a number of indications that economic relations between Japan and China are improving, not getting worse. The worst plunge in trade between the two countries occurred in the first half of last year at a time when Chinese consumers were boycotting Japanese products.

However, trade rebounded in the second half and Japan's exports to China are now growing faster than its exports to the rest of the world.

The positive trends are also reflected in the profit results and actions of individual businesses. Honda and Toyota both hit new sales records in China in 2013 and Huawei Technologies is planning to increase the share of Japanese parts in its smartphones from 50 per cent to 70 per cent as a means to add value to its products.

One possible impact of the territorial problems between China and Japan is that both countries are intensifying their investment in Southeast Asia. China's presence in Southeast Asia is growing rapidly, while many Japanese companies are adopting a "China plus one" strategy to ensure they have production facilities in at least one other country besides China.

Let's hope that economic relations between these close neighbours continue to be warm, as China and Japan both need to be strong for Southeast Asia to prosper in the decades ahead.


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