12 June 2015

The Latest Sign of a China-Japan Thaw

June 11, 2015

For the first time in three years, China and Japan held a bilateral finance dialogue. 

On Saturday, China’s minister of finance, Lou Jiwei, hosted his Japanese counterpart, Taro Aso (who is also Japan’s deputy prime minister) in Beijing for thefifth round of the China-Japan Finance Dialogue. It was the first time the previously annual dialogue had been held since April 2012 – rising tensions between the two countries delayed resumption of the dialogue for two years.

The meeting between Lou and Aso was thus another welcome sign of a growing thaw in China-Japan relations. The two countries were barely on speaking terms for around two years, thanks to tensions arising from a territorial dispute in the East China Sea and from lingering historical issues. China was outraged in September 2012 when then-Prime Minister Yoshihiko Noda nationalized three of the islands by buying them from a private owner (though the central government claimed it did so only prevent Tokyo’s right-wing mayor from buying them). Things soured further after new Prime Minister Shinzo Abe visited the controversial Yasukuni Shrine in December 2013, causing China to cut off all high-level talks.

The ice was not broken until November 2014, when China and Japan reached a four-point consensus wherein both sides agreed to “gradually resume political, diplomatic and security dialogue through various multilateral and bilateral channels.” That was followed by a closely watched handshake between Chinese President Xi Jinping and Abe at the APEC summit in Beijing. In 2015, China and Japan have restarted a number of dialogues, including security talks. The finance dialogue took place against that backdrop.

The financial and trade aspects of China-Japan relations suffered along with general political tensions. In January of this year, China’s Commerce Ministry reported that Japanese direct investment in China in 2014 hadplummeted to $4.33 billion, nearly 40 percent below 2013 levels. Chinese Trade Minister Gao Hucheng told a Japanese business delegation in September 2014 that he was concerned about the drop.

In their meeting, Lou and Aso expressed joint concern about a fragile global economy. According to a joint statement issued after the meeting, “Both sides agreed that the global economy in general is still in profound structural adjustment, and expressed concerns about the risks posed by volatile commodity prices and economic policy spillover of major developed economies which may affect the global economic recovery.” They also “recognized the necessity of economic restricting proactively” – both China and Japan are attempting to restructure their economies to ensure more stable long-term growth. Lou and Aso pledged to deepen communication and coordination of their two countries’ economic policies. They also agreed to “support collaboration in the economic, trade and investment fields.”

Interesting, Lou and Aso also promised that “both sides will promote infrastructure development in Asia, including through coordination with development financial institutions, on the basis of common interests.” Though no financial institutions were mentioned by name, China’s Asian Infrastructure Investment Bank is a newcomer to the field, with the Japanese-led Asian Development Bank being the existing heavyweight. The two are often seen as competing institutions, despite the fact that AIIB and ADB leaders have pledged to cooperate. Abe recently promised that Japan, “in collaboration with the Asian Development Bank,” will provide $110 billion to fund “high-quality” infrastructure development in Asia.

The next China-Japan Finance Dialogue will be held in 2016 in Tokyo – assuming we don’t see another rift in the relationship.

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