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Will Political Chill Dampen Economic Ties?
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Sino-Japanese economic circle has long been concerning the issue whether the chilly political relations will bring about the cooling down of economic ties between China and Japan.

The Chinese language newspaper People's Daily publishes an article by Liu Junhong, an expert in Japanese issue from China Institutes of Contemporary International Relations.

The article says that the concerns are aggravated by Tokyo's statement on March 23 on delaying until a right time in April, the beginning of the fiscal year 2006, to make any decisions by the cabinet on the yen loans to China for the 2005 fiscal year ending on March 31.

The claim that there is cool down of the economic ties is based on the fact that the growth of bilateral trade has slowed down and the trade with Japan has declined to a smaller slice of China's foreign trade.

However, the truth is not that simple if you look into the real scenario of the China-Japan economic relations.

By the end of 2005, trade between the two counties had kept creating new records for seven consecutive years and exceeded the Japan-US trade for two years in a row. From 2001 to 2005, Japan's trade with China grew much faster than it did to any other markets in Europe, America or Asia.

Last year Japan's exports to China rose by 10.6 percent, which, although nearly half of the 20.5 percent soar in 2004, was higher than the 7.8 percent increase in its exports to the US, 7.3 percent increase to Asia as a whole, and 0.3 percent increase to the EU.

The same happened in its imports from China which surged 17.3 percent last year. That is well above the 13.6 percent growth of its imports from Asian market, 4.5 percent growth from the US and 3.4 percent growth from the EU.

The year 2005 also saw the peak of Japan's investment in China since 2001. Statistics from Japan External Trade Organization (JETRO) show that Japan has invested US$6.572 billion in China last year, jumping 12 percent over the previous year and 2.5 times as much as that in 2002. That contrasted with the decline of other major sources of capital influx into China.

In 2004, the assets stock of Japanese investment in China stood at US$20.2 billion which was 2.7 times as much as that in the bottom of the last wave of Japanese capital flow toward China in 1999. All of that points to an upward movement of the flow and build-up of Japanese investment in China.
The article notes that the outcry in Japan for a shift of investment to India, Brazil, Russia and Vietnam to diversify the so-called China risk has not distracted Japanese companies' attention to China. Shrinking investment in China will bring much bigger risks to Japanese businesses than the risks incurred from the cooling political relations. Businesses around the world are aggressively making presence and vying for competitive advantage in the post WTO China market. If Corporate Japan sounds a retreat, it will lose ground to its competitors.

The most notable factor is the change of China's trade status. China has been better prepared than ever for conducting trade and investment globally and expanded its foreign trade to an unprecedented level.

The article points out that the Sino-Japanese trade soared 18 times over the years from 1980 to 2004 while its share in China's total foreign trade plunged to 9 percent. The reason is that China's foreign trade swelled 30 times during that period. That shows less proportion and a slowdown of trade, but that does not justify the conclusion of a cool down in economic ties with Japan.

When there is no consensus on whether there is a cool in bilateral economic relations, by taking the unilateral resolution of delay on its loans to China, Japan seems to use the economic aid as a tool for its political manoevre in a bid to extend the chill to the economic ties from the political front.

The yen loans have contributed to China's economic boom on the one hand and to the development of Japan's economy and the growth of the Sino-Japan trade on the other. Thus the article concludes that it is in the fundamental interest of the two peoples to consolidate and further the close economic relations between China and Japan.

(People's Daily March 29, 2006)


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