China - Japan relations and the East Asia region

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China in 2010 displaced Japan to become the second biggest economy in the world. Both countries are the first and second largest economies in the Asia region and both also are part of the world factory, centred in China, that it is Asia, especially East Asia.

Both nations have a long historical relationship but complicated by issues that have to do with Japan invasion of China in the first half of the XX century and now the growing assertiveness of China in the region. Both are the engines of growth in the East Asa region. Japan used to be the largest but now China is becoming it. China is already the biggest trade partner of most countries in the region and its investment is increasing, even if still is behind Japan in this field.

So, a stable relationship between China and Japan is a condition for the continuous growth of the East Asia region. In this article a review of China Japan relation will be done. First trade relationship between China and Japan will be seen, then investment, then exchange of people, then economic aid, and last the political relations mong them will be assessed. A conclusion will follow.

I.                    Introduction

In the last 3 decades the Japan have experienced a low economic growth rate. Since 1990 after the burst of the “bubble economy” the country has experienced low GDP annual growth rates, in what Japanese call “lost decades”. Meanwhile China has experienced high growth rates of its GDP, since the reform and open policy implemented at the end of the 1970s, but from the second half of the last decade its pace of growth has diminished. See Graphic 1.

Graphic 1: China and Japan Real GDP growth, annual percentage change

Source: IMF DATAMAPPER https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/CHN/JAP/JPN

But Japan is already a matured, industrialized economy, with a GDP per capita of over 40 thousand dollars, and China is still considered a developing economy with a GDP per capita of just 10 thousand dollars.

According to statistics from the latest Global Economic Prospects published by the World Bank on January 11, 2022, the COVID-10 pandemics hit very hard Japan in 2020 and its recovery has been slow, while China managed to grow and last year 2021 specially achieved a very strong growth rate. See Table 1.  

Table 1:

 

Source: World Bank: Global Economic Prospects January 2022

 

II.                 Trade in goods

As it is seen in Table 2, China is the biggest market for Japanese goods, accounting for 22.0% of total in the year 2020, and the second biggest was United States with 18.5% of total.

Table 2:  List of major markets for Japanese exports

 

 

Unit : US Dollar thousand

 

 

Importers	Exported value in 2016	Exported value in 2017	Exported value in 2018	Exported value in 2019	Exported value in 2020
World	645,589,410	698,021,623	738,164,252	705,842,013	640,953,137
China	113,946,189	132,760,341	144,046,136	134,719,884	141,322,302
United States of America	130,718,068	135,071,360	140,656,292	140,468,605	118,723,609
Korea, Republic of	46,282,336	53,276,519	52,479,456	46,282,733	44,658,431
Taipei, Chinese	39,337,034	40,638,392	42,391,676	43,013,040	44,403,796
Hong Kong, China	33,658,590	35,433,758	34,721,568	33,632,061	31,993,214
Thailand	27,425,959	29,427,452	32,272,971	30,195,432	25,514,386
Singapore	19,862,199	22,652,218	23,409,813	20,173,990	17,694,529
Germany	17,670,716	18,943,142	20,890,775	20,233,415	17,592,633
Viet Nam	13,003,579	15,051,393	16,434,251	16,488,929	17,109,773
Malaysia	12,151,739	12,761,396	13,940,724	13,295,572	12,588,499

Source: International Trade Centre: Trade Map

As it is seen in Table 3, China is the biggest source of imports for Japan, accounting for 25.8% of total in the year 2020, and the second was United States with only 11.3% of total.

Table 3: List of mains sources of Japanese imports

Unit : US Dollar thousand

 

 

Exporters	Imported value in 2016	Imported value in 2017	Imported value in 2018	Imported value in 2019	Imported value in 2020
World	608,071,912	672,100,069	749,092,205	720,964,445	634,678,167
China	156,848,668	164,587,366	173,814,744	169,236,468	163,760,523
United States of America	69,352,123	73,972,186	83,668,363	81,259,414	71,703,352
Australia	30,490,161	38,919,119	45,733,812	45,461,975	35,654,301
Taipei, Chinese	23,001,238	25,391,415	27,134,971	26,860,116	26,762,797
Korea, Republic of	25,066,850	28,110,663	32,149,067	29,629,342	26,591,377
Thailand	20,177,296	22,738,475	25,086,988	25,362,817	23,764,572
Viet Nam	16,268,510	18,538,148	21,144,681	22,476,790	22,042,028
Germany	22,064,107	23,424,849	25,989,329	24,936,102	21,221,139
Saudi Arabia	19,607,267	27,773,705	33,814,637	27,665,618	18,452,565
United Arab Emirates	17,331,269	20,764,354	27,609,974	26,196,772	16,391,766

Source: International Trade Centre: Trade Map

Regarding export markets for China, the United Sates is the biggest destination for its goods with 17.5% of total and in second place is Hong Kong with 10.5%. Japan is in third place with 5.5% of the total. See Table 4.

Table 4: List of major markets for Chinese exports

 

 

Unit : US Dollar thousand

 

 

Importers	Exported value in 2016	Exported value in 2017	Exported value in 2018	Exported value in 2019	Exported value in 2020
World	2,118,980,582	2,271,796,142	2,494,230,195	2,498,569,866	2,590,607,686
United States of America	388,145,454	431,664,273	479,701,581	418,584,250	452,576,771
Hong Kong, China	292,214,997	280,975,081	302,960,301	279,616,724	272,658,016
Japan	129,450,377	137,368,622	147,235,099	143,223,969	142,641,690
Viet Nam	61,585,175	72,117,144	84,015,799	98,004,333	113,813,694
Korea, Republic of	94,659,513	102,834,413	109,028,749	110,984,862	112,504,010
Germany	65,768,897	71,224,289	77,908,711	79,706,091	86,823,917
Netherlands	57,746,634	67,325,060	73,124,185	73,945,370	79,010,191
United Kingdom	56,261,404	57,039,880	56,987,896	62,275,959	72,605,125
India	58,920,648	67,925,121	76,880,637	74,924,285	66,726,981
Taipei, Chinese	40,400,323	43,934,720	48,656,780	55,079,733	60,141,641

Source: International Trade Centre: Trade Map

For China, the biggest source of its imports is Taiwan (Taipei, Chinese), with 9.7% of the total, and the second is Japan with 8.5% in 2020. See Table 5.

Table 5: List of mains source of Chinese imports

Unit : US Dollar thousand

 

 

Exporters	Imported value in 2016	Imported value in 2017	Imported value in 2018	Imported value in 2019	Imported value in 2020
World	1,588,695,867	1,840,957,060	2,134,987,265	2,068,950,255	2,055,590,612
Taipei, Chinese	139,715,214	154,796,770	177,345,362	172,800,947	200,664,323
Japan	145,771,152	165,494,647	180,401,786	171,523,312	174,867,747
Korea, Republic of	159,168,781	177,523,904	204,566,451	173,553,267	172,756,030
United States of America	135,047,253	154,839,684	156,004,357	123,235,656	135,996,513
China	128,794,412	132,604,645	146,381,812	129,525,387	125,277,787
Australia	70,233,044	94,632,692	105,083,923	119,608,314	114,836,642
Germany	86,118,708	96,932,837	106,257,241	105,037,212	105,261,229
Brazil	45,603,468	58,476,878	77,141,726	79,203,569	84,083,784
Viet Nam	37,216,721	50,374,166	64,087,360	64,078,465	78,474,632
Malaysia	49,118,293	53,961,162	63,321,954	71,629,893	74,733,134

Source: International Trade Centre: Trade Map

As it is seen China and Japan are both important trade partners of each other. In fact, for China, Japan is an important source of capital and intermediate goods necessary to assemble goods, many of which are exported to the world. For Japan, China is even more important, as it is its largest export destination and its biggest source of imports. Both countries are part of the global supply chains that has made possible to the East Asia region to become the factory of the world.

Both are members also of the Regional Comprehensive Economic Partnership, RCEP, the biggest economic integration group in the world that came into force in January 1, 2022. Thanks to this, trade and investment relations between both countries will increase. But there are some problems in the horizon.

Due to the ongoing economic competition between China and the United States, there is a trend toward “decoupling” among them. US want to be less reliant on China and want its allies to do that also. Japan itself sees depending too much in China as something not good. That is why some measures are being implemented to avoid that, and of one of them is for example an “economic security bill” that is being promoted by the government and that could make buying parts and components from China more difficult[1].   

 

III.              Investment

Regarding Foreign Direct Investment, FDI, Japan is one of the biggest, if not the biggest, foreign investor in China. In 2020 it invested there 10.7 billion dollars in China, from a total of around 152.3 billion dollars Japan invested abroad that year. China was the largest destination for Japan investment in Asia, and the sixth largest in the world, after United Sates in first place, followed by Luxemburg, Switzerland, Netherlands, and Australia. See Table 6.

Table 6: FDI flow (Based on Balance of Payments, net), by Country and Region, Historical Data (Japan outward FDI)

Source: JETRO: Japanese Trade and Investment Statistics, Japan's Outward and Inward Foreign Direct Investment   https://www.jetro.go.jp/en/reports/statistics

By FDI stock, from 1996 to 2020 Japan has invested a total of 143.4 billion dollars in China, and it was the fourth largest destination for Japan, after United States in first place, United Kingdom, and Netherlands. In that period Japan invested abroad a total of 1.9 trillion dollars[2]. 

According to statistics from IMF, based on figures reported by China, at the end of 2020 Japan has invested there a total of 193.3 billion dollars, this amount being the third largest investment from abroad for China, after Hong Kong in first place and Virgin Islands in second, from a total received by China of 3.2 trillion dollars[3]. See also table 7.

Table 7: FDI received by China, as of end of 2020

 Source: See IMF Coordinated Direct Investment Survey: Direct Investment Position (Inward and Outward)

Japan traditionally has received, compared to other industrialized economies, little FDI, but in the last years this have been increasing. In 2020 China was the second largest investor from Asia, with 1.3 billion dollars, from a world total of 62.7 billion dollars received by Japan that year. See Table 8.

Table 8: FDI flow (Based on Balance of Payments, net), by Country and Region, Historical Data (Japan inward FDI)

Continuation ………

Source: JETRO: Japanese Trade and Investment Statistics, Japan's Outward and Inward Foreign Direct Investment   https://www.jetro.go.jp/en/reports/statistics

 

IV.              Economic aid from Japan to China

Japan has given a significant amount of economic aid to China but in October 2018 Prime Minister Shinzo Abe in a visit to China announced the end of this[4].

Japan economic aid to China began in 1979 and until the first decade of the XXI century China received large amounts of Japanese official development assistance, ODA. In several years it was the main beneficiary of Japan´s ODA and even in the year 2005 China was the second largest recipient, with around 1 billion dollars that year[5]. Also, Japan was the main donor to China even until some years ago. Up to the year 2009 Japan gave to China a total of 20.9 billion dollars in ODA[6]. This includes government loans, grant aid, and technical assistance.   

V.                 Exchange of people

China become the biggest source of foreign tourists to Japan in the last years. In 2019, before the Covid-19 pandemics halted tourism, around 9.6 million Chinese visited Japan, a big increase from the 1.4 million Chinese that visited Japan in 2010[7]. See Graphic 2. 

Graphic 2:

Source: JTB Tourism Research & Consulting Co.

The total of foreigners that visited Japan in 2019 was 31.9 million, so Chinese represented around 30% of the total[8].

Japan is one of the most popular destinations for China tourists, but in the case of Japanese going abroad, China is not the most popular destination, and in fact every year less Japanese are going to China nowadays. In 2018 only 2.69 million went there and it is a downward trend, with the maximum number achieved in 2010 when 3.73 million went there[9]. See Graphic 3 also.

Graphic 3:

Source: Statista

In another subject, Chinese students are the largest number of foreign students in Japan. As of May 2019, of the total number of 312,214 foreign students in Japan, 39.9% or 124,436 were from China[10]. See Table 9.

Table 9: Number of internationals students in Japan, by nationality, as of May 1, 2019

Source: JASSO, Japan Student Service Organizaton

Japan was the third most popular place for Chinese students to go. According to the South China Morning Post “Of the 703,500 Chinese nationals studying abroad in 2019, 20 per cent or 140,786 were in Australia, 24.5 per cent were in the US, and 17.6 per cent were in Japan, according to figures from China’s education ministry, the Japan Student Services Organisation, and Australia’s federal government”[11].

But there are moves to limit the access of Chinese students to Japanese Universities, to prevent them accessing “sensitive” science and technology subjects[12]. This is in line with the growing scrutiny that Chinese students and scholars are having in US universities and research centres.

On the other hand, not many Japanese students go to China. In fact, nowadays not many Japanese go abroad for studies. According to a survey, in 2019 around 77,953 Japanese went abroad for study, most of them to the United States, 19,405 students, but only 818 went to China. China was the 10^th largest destination for Japanese students abroad that year[13].

At the end of June 2020 there were 2,885,904 foreigners in Japan, and the largest number is from China, 786,830 persons, that included 119,302 students and 278,950 long-term residents. Chinese represented around 27.3% of the total of foreigners living in Japan[14].

Finally, Chinese and Japanese do not have a favourable opinion of each other. According to a recent publication “In 2021 some 71% of Japanese said China posed a “threat”, up from 63% in 2020. Likewise, 66% of Chinese had negative views of Japan, up from 53%”[15].

VI.              Political relations

China and Japan have a long historic relationship and Japan at the beginning learned many things from China, from the writing system and the form of government to the planning of cities. But Japan become the first country in Asia to industrialize and invaded China in the 1930s. This created a spirit of animosity in China toward Japan that continues up to now.

But when China began its reform and open policy at the end of the 1970s Japan was in a sense a model to follow by China and contributed with economic aid and its companies have invested a lot of money in China and transferred technology[16].

After the Second World War China and Japan relations began in 1972 and this year marks the 50th anniversary of that.

Relations have had it ups and downs since 1972. One recent problem is the issue of the Senkaku islands, a territory occupied by Japan, but that China claims as its own territory, and call it Diaoyu islands. Another is the growing assertiveness of China in the South China Sea, a place that China sees it mostly as its own, but this is disputed by not only Japan but other countries in the region.    

The current Japanese Prime Minister, Fumio Kishida, is said to know more about China than other Japanese leaders because he was Foreign Ministry before, from 2012 to 2017[17]. He had to deal with the aftermath of the nationalization by the Japanese government of the Senkaku islands, that arose a strong China response.

High level political meetings have not been common in the last years. Japan latest state visit to China was by Prime Minister Abe in October 2018, and President Xi Jinping was supposed to visit Japan in the first month of 2020, but this was not made possible with the outbreak of Covid-19 pandemics.

Japan is a member of the Quad and a leading advocate of the Indo Pacific vision. China sees it as an instrument to contain it. Japan is an ally of the United States. Another element that irritates China is the position that Japan has adopted respected to Taiwan, when in several summit last year with its partners in United States, European Union, and Australia, for example, have mentioned in the joint communiques the “importance of peace and stability across the Taiwan Strait and “encouraged the peaceful resolution of cross-Straits issues”[18].

US and Japan relationship have become stronger in the last years. Just less than two weeks ago, there was the two plus two meeting of foreign and defence ministers (an online meeting). In the meeting both countries reaffirmed their compromise of a strong alliance and devised means to counter what they described as “growing challenge to challenge unilaterally and coercively the status quo”, and for strengthen Japan Self-Defense Forces´ posture on its southwestern islands. They even mentioned again their common posture in Taiwan[19]. 

VII.           Conclusions

Relations between China and Japan are very strong in terms of trade and investment, and both are the main economies in the East Asia region. The recent entrance into effect of RCEP will foster that relationship.

Japan is a strong ally of the US and if relations between US and China deteriorate, this could affect China Japan relations. The growing assertiveness of China in the region, commensurate with its growing economic presence, has made Japan and other countries wary of China. Many will prefer the continuous presence of US in the region to balance China presence. It is because China is by far the biggest economy in the region. China GDP size is more than three times of Japan, the second largest, and China population is more than the population combined of the rest of the region´s population.  

There are several challenges in the East Asia region that would require China and Japan to work together. These are, for example, a North Korea regime bent on increasing its military capabilities and posing a danger the whole region, also the climate change that will affect seriously the region with environment contamination and rising sea levels.  

The East Asia region after the Second World War saw a strong presence of United States, that guaranteed a Pax Americana, and a growing market for goods produced in the region. But Japan and the region must deal with a growing China presence. The way this will be managed will decide the future of the region, its peace and stability, and its continuous presence as the factory of the world.      

                                                      

                                                                                                                         January 19, 2022

 

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[1] See Asia Nikkei: “Corporate Japan fears economic security bill´s impact on China trade”, January 16, 2022  https://asia.nikkei.com/Spotlight/Comment/Corporate-Japan-fears-economic-security-bill-s-impact-on-China-trade

[2] See JETRO: Japanese Trade and Investment Statistics, Japan's Outward and Inward Foreign Direct Investment: FDI stock (Based on International Investment Position, net) 1996-2020, Outward

[3] See IMF Coordinated Direct Investment Survey: Direct Investment Position (Inward and Outward), Table 1: Inward Direct Investment position, as of end of 2020, Reporting Economy: China PR: Mainland  https://data.imf.org/regular.aspx?key=61227424

[4] Japan´s MOFA: White Paper on Development Cooperation 2019 https://www.mofa.go.jp/policy/oda/page_000017.html

[5] See Carlos Aquino: “Relaciones Económicas China-Japón: Los dos gigantes de Asia cada vez mas integrados” in Pensamiento Critico No. 14, Magazine of the Instituto de Investigaciones Económicas, San Marcos National University, december 2010, pages 9-25 https://revistasinvestigacion.unmsm.edu.pe/index.php/econo/article/view/9090/7921

[6] See document in Japanese language of the Ministry of Foreign Affairs, Table 5, page 5   https://www.mofa.go.jp/mofaj/gaiko/oda/shiryo/kuni/10_databook/pdfs/01-04.pdf

[7] See JTB Tourism Research & Consulting Co.: Japan-bound statistics  https://www.tourism.jp/en/tourism-database/stats/inbound/

[8] See Nippon.com: “New record for international visitors for Japan” January 27,2020 https://www.nippon.com/en/japan-data/h00631/new-record-for-international-visitors-to-japan.html#:~:text=The%20Japan%20Tourism%20Agency%20announced,increase%20of%202.2%25%20from%202018.

[9] See Statista: “Number of Japanese travelers to China from 2009 to 2018”  https://www.statista.com/statistics/786613/number-japanese-travelers-to-china/#:~:text=In%202018%2C%20the%20number%20of,2010%2C%20with%20about%203.7%20million.

 

[10]  JASSO, Japan Student Service Organizaton: “Result of an annual survey of international students in Japan 2019”, April 2020, page 4  https://www.studyinjapan.go.jp/en/_mt/2020/08/date2019z_e.pdf

[11] See South China Morning Post: “As Japan and Australia guard tech research, could China fears affect competitiveness?” 15 January, 2022  https://www.scmp.com/week-asia/politics/article/3163304/australia-and-japan-universities-guard-tech-research-could-china

[12] See South China Morning Post: “As Japan and Australia guard tech research, could China fears affect competitiveness?” 15 January, 2022  https://www.scmp.com/week-asia/politics/article/3163304/australia-and-japan-universities-guard-tech-research-could-china

[13] See felca.org: Japan Association of Overseas Studies, JAOS 2021 Survey on the number of Japanese studying abroad, 12 June 2021: https://www.felca.org/jaos-2021-survey-on-the-number-of-japanese-studying-abroad/

[14] See Immigration Services Agency of Japan: “Statistics on foreign residents in Japan” end of June 2020https://www.isa.go.jp/en/policies/statistics/toukei_ichiran_touroku.html

[15] See The Economist: “How Japan see China”, January 1st, 2022, edition  https://www.economist.com/asia/2022/01/01/how-japan-sees-china

[16] See Ezra Vogel: “China and Japan -Facing History”, The Belknap Press of Harvard University Press, 2019

[17] See Japan Times: “How Kishida´s political journey has shaped his view on China”, January 3, 2022  https://www.japantimes.co.jp/news/2022/01/03/national/politics-diplomacy/kishida-background-china-views/

[18] See East Asian Forum: “The Taiwan factor in US–Japan alliance relations”

6 September 2021   https://www.eastasiaforum.org/2021/09/06/the-taiwan-factor-in-us-japan-alliance-relations/

[19] See Asia Nikkei: “US, Japan to develop counter-hypersonic capabilities: 2-plus-2” , January 7, 2022  https://asia.nikkei.com/Politics/International-relations/Indo-Pacific/U.S.-Japan-to-develop-counter-hypersonic-capabilities-2-plus-2