Japan Faces Dilemma Over Increasing Economic Dependence on China

Source: Reuters

Japan’s growing dependence on China for growth grates with concerns over its expanding military reach, deepening a dilemma over how to engage with its giant neighbour even as the two trade places in economic rankings.

But while the interdependence raises the risks for the world’s second- and third-biggest economies if relations sour, it also boosts incentives to keep ties on track.

“It raises the stakes,” said Jeffrey Kingston, director of Asian studies at Temple University’s Tokyo campus. “But…Japan has a clear interest in developing better political and diplomatic relations precisely because of the greater economic interde- pendence.”

Japan is increasingly dependent on China’s dynamism for growth in a mature economy plagued with an aging, shrinking population and a shortage of policy solutions.

Japan’s exports to China topped those to the United States last year, accounting for nearly 20 per cent of all its exports. That figure will probably rise to 35 per cent by 2026, when China will likely oust America from the top global spot, said Chi Hung Kwan at Nomura Institute of Capital Markets Research.

Japan’s direct investment in China has also soared, exceeding 70 per cent of its investment in North America last year, with an increasing volume of goods being made for local sale, not export.

Last weekend, a delegation of Japanese cabinet ministers met their Chinese counterparts in Beijing for high-level economic talks ‒ the third such annual dialogue ‒ and agreed on the need to work together for global growth.

But even as economic ties deepen, Japan is increasingly wary of China’s intentions as it spends more of its wealth on defence and shows growing willingness to project military power.

“Japan’s military budget has been stable for 20 years and China’s military budget has grown 20 times in the past 20 years,” said Shinichi Kitaoka, a University of Tokyo professor who advised the conservative Liberal Democratic Party (LDP) government that was ousted last year by the Democratic Party of Japan (DPJ).

Experts say Japan, distracted by its own economic woes and internecine strife in the ruling party, will likely respond with a mix of reliance on the US military deterrence and the beefing up of its own forces within the elastic constraints of a pacifist constitution, while pursuing better diplomatic ties with Beijing.