Asia’s three largest economies apparently thought that pragmatism and booming trade would heal the festering war wounds, humiliations and unacceptable readings of common history. Japan, however, warned last week that kicking the can down the road would no longer work. Economically, Japan and South Korea need China more than China needs them, but extracting a political quid pro quo is mission impossible for Beijing. Dr. Michael Ivanovitch specially for the CNBC.
Riven by legacies of unimaginable war atrocities, decades of Japanese occupation and colonial rule, Asia’s top three economies — China, Japan and South Korea — held a meeting last week. The heads of government for the three countries met in the thriving Chinese city of Chengdu and pledged, among other things, to accelerate their long-standing free-trade negotiations.
That’s an admirable vision of peace and prosperity for nations representing a quarter of the world economy and more than $700 billion in trade transactions during 2018.
But despite the bonhomie in Chengdu, the leaders know that the way forward is strewn with obstacles left by misleading ideas that time, pragmatism and wealth creation would overcome the pain of festering wounds, humiliations and unacceptable readings of common history.
Japan remains at the center of all those difficulties. China continues to commemorate the martyrs of entire cities at the hands of Japanese World War II occupiers, while South Korea seethes at the enslavement of its people by the Japanese colonial rule and Tokyo’s alleged refusal to pay war reparations.
Apart from that, China and South Korea have running disputes with Japan about unresolved territorial claims in the East China Sea and in the Sea of Japan. The three countries take those issues as questions of principle defining their sovereignty and territorial integrity.
And yet, despite periodic dust-ups, pragmatism allowed Japan’s formidable export machine to keep its economy afloat.
It was, therefore, an unexpectedly sobering warning from Japan last week that stability in East China Sea was necessary for better ties with China — by far Tokyo’s largest trade partner.
In other words, for stable and confident Sino-Japanese relations, Tokyo was asking Beijing to renounce its territorial claims on the Senkaku (called Diaoyu by China) Islands in the East China Sea currently administered by Japan — an infuriating condition for China that considers Diaoyu as part of its inalienable ancient territory.
On top of that, Japan is raising human rights issues in China, the ongoing Hong Kong unrest and problems with Uighur population in China’s province of Xinjiang.
Predictably, Beijing is bristling at all that and reminding Tokyo that those are China’s domestic issues.
One can hardly think of more ominous developments at a time when Beijing and Tokyo need a document on new relations in anticipation of China’s President Xi Jinping’s visit to Japan next April.
At stake are also $144 billion of Japanese exports to China. That was nearly one-fifth of Japan’s total merchandise sales abroad in 2018 — and a critical issue for an export-driven economy facing declining external demand and the need to substantially reduce its surpluses on U.S. trades.
Japan’s issues with South Korea don’t have a sensitive security dimension they have with China, but they are marred by 35 years of Japanese colonial rule. The most recent incident has been caused by the Korean court decision ordering compensation for forced labor to be paid by a Japanese company. Tokyo refused the ruling, arguing that such issues have been settled by a 1965 bilateral treaty.
The worsening Japanese-Korean relations have led to the boycott of Japanese products, causing a sharp 11.6% decline of Japanese exports to South Korea in the first ten months of this year. A further trade deterioration is inevitable because none of the problems will be resolved anytime soon.
The question now is: Why is China pushing for a free-trade deal and better relations with its two Northeast Asian neighbors?
In matters of trade and finance, Japan and South Korea need China more than China needs them. Last year, China’s sales to Japan and South Korea were about half of what China sold to the U.S., and less than two-thirds of China’s goods sales to the European Union.
The answer, therefore, resides in Beijing’s attempt to establish close political ties with Tokyo and Seoul.
Mission impossible? It looks that way.
Japan, bound up in an existential U.S. alliance, cannot have those kinds of ties with China. South Korea’s case is even more difficult. Seoul’s security crucially depends on U.S. military presence to keep China at bay and offer protection from North Korean nukes.
Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.