An Uncertain Future

An Uncertain Future

The Diaoyu Islands dispute continues to bring political and economic repercussions By Yu Lintao

The incumbent Japanese Prime Minister Yoshihiko Noda retained leadership of the ruling Democratic Party of Japan (DPJ) in the latest DPJ presidential election in late September. Days later, after defeating four opponents, former Japanese Prime Minister Shinzo Abe was elected as the head of the main opposition Liberal Democratic Party (LDP).

Since the farcical “purchase” of China’s Diaoyu Islands by the current Japanese administration, the risk of political instability in Japan has heightened. Soon after the election, Noda reshuffled his cabinet in an attempt to defend the DPJ administration. Meanwhile, Abe, a hawkish politician, is actively scheming to take advantage of the DPJ’s current trouble for a second stint as prime minister in the next general election due within the year.

Observers said the instability of Japan’s political situation in the near future could bring more uncertainty to the deadlocked Diaoyu Islands dispute. As Japanese politicians of both parties remain tough on the dispute, prospects for a smooth resolution are not optimistic.

“Whether the DPJ or the LDP takes power, Japan’s policy over the islands won’t change much,” said Shi Yongming, a researcher with the China Institute of International Studies (CIIS).

Political uncertainty

Noda’s “island-buying” move has made clear the DPJ’s position on the Diaoyu Islands. Abe took a tougher stance over the dispute, threatening to establish a government agency over the islands after the so-called “purchase” and strengthen the power of the Japanese military if he becomes Japan’s next head of government.

XINHUA/AFP

Opinion polls suggested that the LDP will come frst in a lower house election expected within months. That would put its leader in place to become the next prime minister. A poll carried out by Japan’s leading news agency Kyodo News put support for the LDP at 30.4 percent after Abe was chosen as its new leader, up 11.1 percentage points from September.

“Seen from the past, Abe focuses more on the alliance with Washington and Seoul. Easing relations with China is unlikely to be his priority if he takes office. The two countries could face new challenges,” Shi said.

“It seems that the LDP is more radical over the issue, but it depends on its judgment over the situation and prediction of China’s response. As I see it, if the situation worsens, the dispute would probably lead to confict,”Shi toldBeijing Review.

Huo Jiangang, a researcher on Japanese studies with the China Institutes of Contemporary International Relations, claims that Abe’s hardline stance on China is partly aimed at winning support in the election campaign.

To earn the support of conservatives, leaders of both parties resorted to heightening nationalism during the elections. Before taking offce in 2006, Abe took a tough stance on China, but he became much more pragmatic when he took power, Huo said. China should attach less importance to what Abe said but more on what he will be able to do in the future, he added.

After the elections of party leaders, a series of personnel arrangements were made within both parties. Makiko Tanaka, former Japanese Foreign Minister, was tapped as education minister by Noda. The decision to bring Tanaka into the cabinet was reportedly aimed at repairing soured ties with China following the territorial row over the Diaoyu Islands.

Tanaka has personal connections with Chinese leaders through her late father, former Prime Minister Kakuei Tanaka, who spearheaded the normalization of diplomatic relations with China in 1972. When Makiko Tanaka was in Beijing as part of a crossparty Japanese parliamentary delegation on September 28, she pointed out that shelving the dispute over the Diaoyu Islands is the consensus among old generation leaders of both countries. This was also the public stance of the Japanese Government that was in power when the two countries normalized offcial ties.

Meanwhile, Masahiko Komura, Chairman of the Japanese parliament’s Japan-China Friendship League, was appointed as vice head of the LDP by Abe. Komura is a former Japanese foreign minister as well as a sinophile. Abe said the appointment was intended to send a positive signal to China.

Shi, however, is skeptical about the new moves in Japan’s personnel arrangements.“The two appointments are merely gestures, which do not equal substantial policy changes. As the infuence of Tanaka and Komura is limited to their own parties, it is of little help for easing the tensions,” Shi said.

Liu Jiangyong, a professor of international studies with Tsinghua University, echoed Shi’s views. Liu said despite the recent personnel arrangements and diplomatic moves of the two parties, there will be no policy changes over the Diaoyu Islands issue from the Japanese side. However, both parties have noticed the severe impact of the issue on bilateral relations. It cannot be ruled out that Tokyo would reconstruct the Sino-Japanese relationship following the upcoming general election, he said.

Aside from attempts to ease tensions with China, the two Japanese parties seem to be attaching more importance to warming relations with South Korea.

Ex-Foreign Minister Seiji Maehara, an iconic figure among anti-China Japanese politicians, was named as national policy minister of the Noda cabinet. Critics say Maehara will undoubtedly be a key fgure in the new cabinet and play an important role in foreign affairs. Maehara has long advocated an alliance of Tokyo and Seoul to pin down Beijing.

Economic fallout

A red hot economy with frigid political relations has long been a cliché to describe the Sino-Japanese relationship. Since the“island-buying” farce, the phenomenon seemingly came to a stop. Since Chinese people’s spontaneous boycotts of Japanese products, once popular Japanese brands have suffered in China. Japanese automobile manufacturers are bearing the brunt of the island dispute.

Reports showed that Japanese automakers saw sharp declines in Chinese sales in September. The September sales of Mitsubishi in China plummeted to 2,340 vehicles, down 62.9 percent from September 2011, and 33 percent lower than 3,495 vehicles in August. Mazda sold 13,258 vehicles, off 35 percent from a year earlier and 20 percent below the 16,539 sold in August. Toyota’s sales in September were half of August levels. During an already gloomy market, it also temporarily ceased export of its high-end car Lexus to the Chinese market.

The number of Chinese tourists visiting Japan also declined sharply. Japan Airlines recently said it had passenger cancellations for 19,500 seats on Japan-China routes in the September-November period.

Shi of the CIIS said the deteriorated bilateral relationship would inevitably affect bilateral trade and economic relations. If the situation continues to worsen, bilateral political relations would go from cold to confrontational; and red hot economic relations would freeze up.

Since 2002, Japan has been China’s largest trading partner for nine straight years. China has also exceeded the United States to become Japan’s largest trading partner. The trade volume between the two countries has accounted for one ffth of Japan’s total trade volume. Japan’s trade dependence on China is about 20 percent while China’s trade dependence on Japan is about 11 percent.

The impact of Japan’s “island purchase”on bilateral trade is on a continual rise. Shi said if the trend continues, Japan could lose the Chinese market.

Jin Baisong, a researcher with the

“The current status of the global economy needs both Japan and China fully engaged.”Chinese Academy of International Trade and Economic Cooperation (CAITEC), said Japan’s economic circles have a role to play in improving the crucial China-Japan relationship. Jin called on Japan’s economic elites to shoulder the mission of healing Sino-Japanese relations.

—IMF Managing Director Christine Lagarde

“If Japanese businesses hope to save the declining state of Sino-Japanese political and economic relations, and truly care about the damaged auto deals, they need to take action,” Jin said.

Critics say the ripping fallout from the Diaoyu Islands dispute between the world’s second and third largest economies would have global economic consequences.

The combined economies of China and Japan account for one ffth of the world economy while the two countries hold 40 percent of the world’s foreign exchange reserves. Deterioration of bilateral relations would affect the policy coordination and normal operation of the global economy, said Mei Xinyu, an associate research fellow with the CAITEC.

Zhang Monan, a research fellow with China’s State Information Center, said chain reactions of the territorial disputes stirred up by Japan not only made Sino-Japanese economic relations suffer but also struck a blow to China’s supply chain in Asia and the world economy.

Since the outbreak of the international financial crisis, regional cooperation within Asia became aimed at offsetting the adverse effects of sluggish Western market. However, the process was hindered by Japan’s island“purchase.”

Zhang said the Asian supply chain is one of the most important links of the global economic cycle. China and Japan are the two largest intermediate product suppliers. Japan is also an important intermediate product supplier for China. The dispute would severely affect Japan’s intermediate product exports to China and eventually cause a global chain reaction.

DONG JUN

Amid tensions between China and Japan, Chinese central bank governor Zhou Xiaochuan and Finance Minister Xie Xuren were absent from the IMF-World Bank annual meeting held in Tokyo this month. Meanwhile, the four leading Chinese stateowned banks, including the Industrial and Commercial Bank of China, the world’s largest lender by market value, were also missing from the world’s top financial conference, arousing much concern.

The IMF worried the absence of major Chinese banks that have a significant influence on international finance would reduce the signifcance of the annual meeting.

“The dispute has taken a toll on the world economy. The absence of big Chinese banks from the IMF-World Bank annual meeting is a major sign,” Mei said.

The forecast for global economic growth in 2012 was downgraded to 3.3 percent in the World Economic Outlook that was unveiled at the event. The IMF also lowered the growth forecast at the beginning of October for both China and Japan by 0.2 percentage points from its projections in July. The forecast for China stands at 7.8 percent, and that for Japan stands at 2.2 percent.

Zhang said the negative effect of Japan’s misdeeds would manifest gradually and would worsen an already weakened world economy.

IMF Managing Director Christine Lagarde also warned that the world could not afford to have the two countries distracted by the islands. “The current status of the global economy needs both Japan and China fully engaged,” she said.

yulintao@bjreview.com