China Walks A Fine Line With Its Frenemy Japan

Despite the slow but inexorable intertwining of two of the world’s three largest economies, China and Japan still instinctively exercise their geo-political chops. Tokyo lodged a protest with Beijing earlier this week about what it says is unauthorized drilling of gas fields by China in disputed waters of the South China Sea. This was the latest expression of what Tokyo sees as Beijing’s backsliding over an agreement to discuss joint exploration. Last month, Beijing made a similar diplomatic protest after Tokyo announced plans to name 39 uninhabited islands near the disputed Senkaku Islands — China calls them the Diaoyu — to establish the basis for defining its exclusive economic zone in the equally undersea resources rich East China Sea.

In parallel with this diplomatic tit-for-tat, Beijing has been on something of a charm offensive, though rapprochement mission might be more accurate. It has sought to repair relations with Tokyo that hit a low point in the mid-2000s and then again in 2010 over seized trawlers and rare-earth exports. Beijing does not want to drive Tokyo even more deeply into Washington’s arms. It is wary of what it sees as a renewed attempt by the U.S. to contain it with its new Asia-Pacific pivoted foreign policy, and Tokyo’s upgrading of its self-defense forces. Nor does it want to risk awaking during its leadership transition anti-Japanese nationalist sentiments in China that are never far from the surface, but that, once aroused, can take on an unpredictable life of their own.

The tightening economic connection between the two countries also argues for Beijing keeping relations on an even keel. China is now Japan’s largest trading partner and Japan is China’s third largest source of foreign investment. The two countries are pushing ahead with discussions on creating a free trade zone that would include South Korea  Beijing sees establishing such a zone, which would account for 16% of world GDP, as a counterweight to the much larger proposed Trans-Pacific Partnership (TPP) that the U.S. is now championing but from which China, but neither Japan nor South Korea, is being excluded.

Such a free trade zone would also provide an economic grouping of a size in which the yuan could play a more prominent role. During Japanese Prime Minister Yoshihiko Noda’s visit to Beijing in late December, the two sides agreed to promote the yen and the yuan in international trade and finance, and that Japan would purchase renminbi-denominated Chinese government bonds. Both are further small steps towards gradual liberalisation of China’s exchange rate regime and the eventual full convertibility of its currency.

For all that, the two countries’ pledge to maintain a ‘mutually beneficial strategic partnership’ will only paper over the bilateral political and security cracks. These all have the potential to heighten tensions and thus quickly fray relations again as both sides oscillate between cooperation and confrontation.

Tokyo’s cooperation with other governments that are worried by Chinese regional assertiveness provides the potential for several flash points. Japan’s navy is discussion greater cooperation with its counterparts in the Philippines and India. Tokyo is also pushing for the Association of Southeast Asian Nations (ASEAN) to set maritime rules for the South China Sea, waters that Beijing believes are either its own or in which it should have free reign. To Beijing, that all looks like a Japanese proxy for Washington ‘encirclement’.

To help reverse the Washington-wards drift, floods of Japanese visitors are being invited to China later this year for the 40th anniversary of the two governments’ establishment of diplomatic relations. These range from Crown Prince Naruhito to politicians, journalists and representatives of Japanese religious and non-governmental organizations. Whether that hospitality and a measured placatory stance towards Tokyo will always mean the avoidance of confrontational responses to Japan’s actions is another matter.

When Tokyo announced its plan to consolidate control over the Senkaku/Diaoyu Islands, the People’s Daily thundered that this was a “flagrant act damaging China’s core interests”.  That was the first time ‘core interests’ had been applied to the islands in state media, we believe, though the foreign ministry refrained from using the term and patriotic Chinese were prevented from setting sail to the islands in protest. On maintaining such a fine balance of discipline, Sino-Japanese relations now turn. Beijing is walking a fine line, indeed.