The Interdependence of China and Japan

by Dave Schuler on February 17, 2014

All is proceeding as I have suggested. Gordon Chang notices the weakening of economic relations between China and Japan:

In 2013, trade volume between China and Japan dropped 5.1% from the year before. That followed a 3.9% fall in 2012. To put these figures into context, China’s total trade was up 6.2% in 2012 and 7.6% last year while Japan’s volume increased 1.0% in 2012 but was down 7.8% in 2013.

Japanese sources attributed the drop in China-Japan trade to “the lingering effects of the Senkaku Islands territorial row”—Japan administers those barren outcroppings as its own while Beijing claims them as well—and a Chinese consumer boycott of Japanese goods. Chinese state media agrees that trade has been adversely affected by geopolitical disagreements and blames Shinzo Abe. Anti-Japan riots in Chinese cities, discriminatory official treatment of Japanese multinationals, and detention of Japanese businessmen in China have not helped.

Not surprisingly, investment between China and Japan has also taken a hit. Japanese direct investment in China dropped 4.3% last year even though overall foreign direct investment in China increased 5.3%. At the same time, China’s direct investment in Japan fell 23.5% at a time when its overall outbound investment jumped 16.8%.

He also reminds us of something worth remembering: it’s not economic interdependence that fortifies peace between two countries but the expectation of continuing economic interdependence. The time is foreseeable when the Japanese won’t need the Chinese any more and cultivating good relations with, for example, Vietnam will become more important to them.

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